Real Estate Partnership Agreement

What a good one includes

• A detailed breakdown of each partner's initial financial contribution, cash reserves, and the exact process for handling future capital calls.
• A clear definition of equity ownership percentages and how rental income, tax benefits, and eventual refinancing or sale proceeds will be distributed.
• An explicit assignment of day-to-day property management duties, along with a list of major decisions—like selling the property or taking on new debt—that require unanimous consent.
• A structured exit plan detailing how a partner can sell their share, including right-of-first-refusal clauses and pre-determined valuation methods.
• A step-by-step mechanism for resolving deadlocks, utilizing mediation or arbitration before resorting to costly litigation.
• Provisions that dictate what happens to a partner's shares in the event of their passing, permanent disability, or personal divorce to prevent unwanted external partners.

Common mistakes to avoid

• Failing to define a clear process for capital calls when the property needs unexpected, expensive repairs.
• Assuming a simple 50/50 split means equal work, without documenting who actually manages tenants, handles maintenance, and keeps the books.
• Omitting a formal valuation formula for buyout scenarios, which leads to bitter negotiations when one partner wants to exit.
• Neglecting to address what happens if a partner defaults on their financial obligations or fails to perform their agreed-upon duties.

Frequently asked questions