More and more small real estate investors are working with partners these days—and often, multiple ones. As prices have rebounded from their lows during the housing crash, some investors find they need to pool funds with friends, relatives, or others to be able to afford their next flip or rental property. While they’re sharing the eventual rewards, they’re also sharing the risks—all the better if a project goes belly up, a flip doesn’t sell as anticipated, or a tenant doesn’t pay rent.
And, just maybe, with a partner or two onboard, they can avoid borrowing from a bank altogether.
Partnerships are especially common for real estate investors who want to keep and rent out their properties. That’s because financing is harder to come by for rentals than for house flips, says David Hicks, co-president of Dallas-based HomeVestors of America (the company known for its “We Buy Ugly Houses” franchises).
That’s especially true when investors go for larger, more expensive, two- to four-family properties, he says.
Prices are rising, so partners can make all the difference
As the economy continues to improve, home prices continue to rise. And that makes flipping a higher-risk prospect. But that hasn’t slowed down investors eager to cash in.
“People are more confident in the housing market,” says Daren Blomquist, senior vice president of communications at ATTOM Data Solutions, an Irvine, CA–based real estate data company. And with the financial crisis fading from recent memory, they’re less worried about another housing crash.
About two-thirds of the nation’s single-family rentals are held by mom-and-pop investors who own just a property or two, according to ATTOM Data.
In terms of sales, investors purchased about one in five single-family homes in 2016, according to the National Association of Realtors®. The investors’ share of the market has been steady since 2013, though it rose as high as 27% in 2011 after the housing market crashed and home prices fell sharply.
Now that the market has rebounded, those investors are paying more, and taking out bigger loans, for their properties. Hence the need for collaborators.