There are some big advantages to being the silent partner in investment
property deals, but you have to be careful not to give up your rights in the
process.
A silent partner in investment property transactions is sometimes called
the “passive partner” and that person’s part of the investment property money
is sometimes termed “lazy money.” The fact is that silent partners aren’t
necessarily silent and that lazy money can sometimes net big returns on the
investment property.
The most important step you can take before you agree to be a silent
partner in an investment property deal is to know the active partner. There
are some companies out there that promise to find the investment property
deals, manage the property and handle all aspects of the investment property
transactions if you just put up the money. Sounds great and some of those
deals are. But there are also some companies that are barely disguised fronts
for elaborate scams.
As the silent partner, you see photos of a house being considered as
investment property. You put up the bucks and the company buys that house.
You’ll start seeing the returns on the investment property by returns in rent
checks next month, right? Well, that would be the case, except that there are
a few repairs that have to be done before the right tenants can be located.
Guess who’ll pay for those repairs? The silent partner who has the most
financial interest in this property, of course!
But now the repairs are financed and the money will certainly start to come
in by next month, right? Except that there seems to be an overabundance of
rental homes just like this one on the market and no one’s interested in
renting this particular house. To make matters worse, you (the silent partner
in this investment property adventure) don’t have any recourse. You’ve put the
money up but the company holds the deed and your options are further limited
by a contract you signed giving that company full authority to manage the
investment property.
Sound like a nightmare? It’s one that has sucked in some seemingly real
estate-savvy investors.
But this doesn’t mean that all investment property deals that involve
silent partners is a scam. In fact, being the silent partner in an investment
property deal can earn a good return on your financial investment without the
investment of much time. There are some things you should do before you become
a silent partner in investment property.
Know the active partners. You’ve already seen that having an unscrupulous
partner actively handling the investment property transactions can mean a
serious financial loss. If the active partners are a company, take time to do
a bit of research. Anyone with the computer knowledge can build a website and
there’s no “Internet Police Department” who’ll be sure they’re telling the
truth. Anyone with a few dollars can place an advertisement. Check with the
better business bureau, real estate agents in that area and other investors to
verify the validity of their claims.
Get it in writing. Even if the active partners in this investment property
deal are friends or family, get a contract.
Read the contract. If you aren’t comfortable with the “legal-ese,” hire an
attorney to go over it – preferably one who is well versed in investment
property, real estate contracts and partnerships. Don’t expect the active
partner’s attorney to tell you everything you need to know.
Be sure you have some options. Even if you’d prefer to be a silent partner,
there may come a time to speak up.
