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Understanding Home Ownership- The Beginning

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  1. Module 1: Understanding Mindset
    9 Lessons
    |
    1 Quiz
  2. Module 2: Understanding What you want your money to do for you?
    6 Lessons
    |
    1 Quiz
  3. Module 3: Understanding The Types of Real Estate Investments
    7 Lessons
    |
    1 Quiz
  4. Module 4: Understanding The Resources
    11 Lessons
    |
    1 Quiz
  5. Module 5: Understanding The Finance
    15 Lessons
    |
    1 Quiz
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Partnerships

We touched briefly on the use of “partners” in chapter 4, but another  part of that discussion that we didn’t cover is their ability to help you  finance a deal. If you want to invest in a piece of property, but the price  range is outside of your pocketbook, an equity partner might be a  welcome addition to your team. An equity partner is someone that you  bring into a transaction in order to help finance the property. Partnerships can be structured in many different ways, from using a  partner’s cash to finance the entire property, to using a partner to  simply fund the down payment.

There are no set “rules” with equity  partnerships, but each situation and deal requires its own analysis of  how the deal will be put together, who makes the decisions, and how  profits will be split at the end.

Depending on the operating agreement signed by both parties, the equity partner may have an active or  passive role in the property. The ownership stake provided by the equity partner may allow that partner to  actively participate in nearly all aspects of property ownership. Additionally, as a partner, they typically  receive in accordance with their ownership percentage a return on their investment that includes cash flow,  appreciation, depreciation, and eventual profit when the property is sold.

Unlike a private lender, an equity partner does not receive an agreed upon interest rate on their money.  Instead, they receive only a percentage of what the property generates. If it makes a lot of money then, their  return will be higher, but if the investment loses money, they may have to contribute money to keep the  property afloat. Equity partners take a higher risk than a private lender might, but in return, they have the  potential of making significantly more when the investment is successful. Also, unlike in private lending, the  equity partner’s investment is not secured by a mortgage or promissory note, but by an operating agreement  between the partners.