What are real estate partnerships?

In our last article/newsletter we dug into consumer trends in the real estate industry and looked at how consumers are increasingly willing and wanting to work with one stop shopping real estate services. So, what does this mean to you as a real estate team leader, broker owner or even as one of these affiliate service providers?

It means that if you are not currently aligned with other companies that offer the customer what they want, you should at least begin to explore the option, begin having conversations with other leaders and business owners and think through what it would look like to move in the direction of creating or forming different real estate partnerships.

Real estate partnerships are collaborative ventures between two or more people, companies or entities in the real estate industry. These partnerships can take various forms, such as joint ventures, new company startups or a mutually beneficial relationships like an MSA, Marketing Service Agreement, sublease or Additional Income Opportunity.

If both parties agree to become “official partners,” through a joint venture or new business, it is typically done through a limited partnerships, or general partnerships. In the real estate industry, partnerships are critical to long term success, creating value and building an asset that can superseded any single sales person.

Types of Real Estate Partnerships

1. Mutually Beneficial Relationship - If opening a new business or jumping into a partnership is not appealing to you or you don’t have the ability to participate in one, there are still a number of beneficial relationships that you can still explore, such as:

• MSA – Marketing Service Agreements in the real estate industry is when a affiliated service provider, such as a mortgage company or loan officer enters into an agreement with a real estate team or company to provide marketing services. The mortgage company would pay the real estate company based on the amount of activity and exposure that they receive to the real estate agent’s clients.

• Sublease - is when the mortgage company agrees to rent space out from the real estate team or broker for an amount that is equivalent to market rate.

• Affiliate Relationship - refers to a connection or association between two entities where one entity has some level of control or ownership over the other, or where both entities are under common control or ownership.

2. Joint Ventures: Joint ventures involve two or more parties coming together to form a new legal entity to pursue a specific project. Each party contributes capital, expertise, and/or resources to the joint venture and shares in the profits and losses of the project. This has become a more popular model in recent years, as the real estate professionals want to participate in the profits of the company they are supporting, but they do not want to get pulled away from the sales activity in their real estate business.

The loan officer or mortgage company’s expertise, coupled with the real estate agent or broker’s capital and support, allows both parties to maximize their respective returns. This can create a win-win for all parties.

The downside to this model is that as the owner of the real estate company or team, you are only controlling a certain percentage of the business and profits. This makes it more challenging to make decisions quickly or include your agents in profit when it has already been diluted with other owners.

Examples always help me grasp concepts, so I wanted to share a few real estate partnerships that you might have heard about, as well as share some of the ones I am personally involved in:

→ Guaranteed Rate & Realogy formed: Guaranteed Rate Affinity

→ Movement JV was created by a National Retail Lender that will form joint ventures with real estate brokers

→ Title Company JV- on a local level, I have helped a real estate broker partner with a group of attorneys, each owning 50%

3. Starting a new business entity - this happens when a real estate broker or agent decides to open a mortgage company, title company, insurance agency or any other affiliated service business that their clients are already using when going through the homebuying process. Once again, there are a few ways to do this:

a. Startup or DIY opening a mortgage company, usually a mortgage brokerage will be the easiest mortgage company structure to start. The challenge that arises when doing it this way, is that the real estate agent or broker is going to be carrying the heavier load and responsibility of achieving success, unless they have a mortgage professional who is willing to work for them and handle the responsibilities for them.

b. Franchise model – a newer model that has started taking roots in the united states is the franchise model. In this model, the franchise company is helping the real estate agents and broker with opening and showing them how to run the business. It gives the real estate owner the ability to control all decisions and equity/profit.

Type of Business Partnership Entity Used:

When structuring your partnership, it can be done a number of ways, but the most common legal structures are:

Limited Partnerships: Limited partnerships consist of a general partner who manages the project and limited partners who provide capital. The limited partners have limited liability and are not involved in the day-to-day management of the business.

General Partnerships: General partnerships are similar to limited partnerships, but all partners have equal liability and involvement in the project's management.

S Corporations typically do not work for real estate partnerships for a few reasons outlined below:

Benefits of Real Estate Partnerships

If you are wondering, why would I form a partnership, that is completely normal and a good perspective to keep in mind. Not all partnerships work out and the only way for it to work is to set the tone from the beginning.

1. Sharing of resources and risks: Real estate partnerships allow parties to share resources, including capital, expertise, and contacts. This sharing reduces risk exposure and allows parties to leverage each other's strengths.

2. Access to capital: Real estate partnerships allow parties to pool resources and access more significant amounts of capital than they would be able to access on their own.

3. Complementary skills and expertise: Partnerships allow parties to bring complementary skills and expertise to a project, leading to a more comprehensive and successful outcome.

4. More satisfied customers, and really more customers in general if the trends are moving toward clients looking for this type of ecosystem.

How to Form a Successful Real Estate Partnership

Forming a successful real estate partnership requires careful planning, communication, and transparency. Below are some steps to consider when forming a partnership:

1. Define each parties objectives and expectations: Clearly define the goals and expectations of the partnership. This will help ensure that all parties are aligned and working towards the same outcome.

2. Establish roles and responsibilities: Each partner should have defined roles and responsibilities in the project. This will ensure that everyone knows what is expected of them and who is responsible for what.

3. Create a comprehensive agreement: A comprehensive partnership agreement should be created to outline the terms of the partnership, including ownership percentages, profit and loss sharing, decision-making processes, and dispute resolution mechanisms.

When we got to this step in the process, we have always hired the help of a good real estate attorney who can help protect and avoid disputes in the future, by recommending

4. Seek the advise of a RESPA compliant attorney to ensure that your agreements comply with real estate and mortgage or title regulations.

5. Involve the required parties – As the owner of a company, it might feel premature to include others at the beginning, but if you have sales people who are important to the success of the new business or venture, begin including them from the start. You want them to feel part of the success and therefore need them part of the plan.

6. Communication and transparency: Effective communication and transparency are essential for a successful partnership. Regular meetings and updates should be scheduled to ensure that all parties are informed and involved in the project.

Real estate partnerships offer numerous benefits for parties in the real estate industry, including access to capital, shared resources and risks, and complementary skills and expertise. By understanding the different types of partnerships and following best practices for forming a successful partnership, real estate professionals can maximize both client satisfaction and get better returns for their business and agents. If you would like to schedule a conversation with someone at Co/LAB Franchises about partnering or starting your own affiliated mortgage company, jump on the calendar and someone will meet with you to answer all of your questions.