Isaac Gutman On Giving Up Equity When Investing In Real Estate

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Isaac Gutman is the founder and CEO of Bronx based Ryer Realty Investment Group – a real estate investment firm focused on real estate investing and long-term equity partnerships.  Prior to founding Bronx based Ryer Realty, Isaac Gutman held senior positions with Orange Developers, L&M investment Partners, NM Corp, and other prestigious NYC investment firms.

Isaac Gutman is passionate about the rich cultural history and modern-day conveniences new York City neighborhoods have to offer. Throughout its history, the Bronx has been a cultural epicenter for many different communities. Its energy and mix of art, food, and nightlife scene make it one of the most vibrant areas to live in.

Recognized as one of New York City’s and Bronx emerging leaders, Isaac Gutman is focused on reimagining older industrial complexes, multi-family, Healthcare, and driving new tech startups to move out and expand locally.

Isaac Gutman is an entrepreneur with a creative approach to finance and business utilizing a creative approach to real estate sales, marketing, and development where he strives to deliver the best possible solutions to create a greater New York City.

Source: Medium

For those real estate entrepreneurs that are lacking in start-up capital, using an equity partnership might seem like an excellent way to start your business. An equity partnership occurs when you give up a piece of the business pie to an investor in exchange for start-up capital. Using equity partnerships in real estate is the most popular option for start-ups that aren’t proven.

For this model to have a chance at success, the investor needs to have a vision that aligns with what the founders have in mind for the company. When the investor and founders can’t agree, there can be issues. If you’re a founder, you might discover you gave up an equity position only to find yourself fighting the investors over the future of the company’s daily operations. So, if you are considering an equity partnership, you’ll need to think about how much control you’re willing to give up.

Before taking on any equity partnerships, it’s important for you to understand the pros and cons of such a move. There are many downfalls to equity partnerships, and you should only get involved with one after you’ve carefully researched and thought about all of the potential problems that could happen. Plus, you’ll need to ensure that those potential problems outweigh the positives of starting your business.

Source: Slimstock

The Pros of Equity Partnerships in Real Estate

To help you understand the advantages and drawbacks of using equity partnerships, we’ll first discuss the pros of equity partnerships in real estate, and then we’ll follow with the disadvantages. Below we’ve listed the positives of using equity partnerships in real estate.

#1 Obtain Investment Capital

Probably the largest benefit to using an equity partnership in real estate is that founders are given the capability to raise capital. That allows the founders the money they need to start their venture, while the investors take a cut of the action. While many founders with wonderful ideas tend to lack start-up capital, there are many people out there with money that enjoy investing in profitable ventures. Placing a founder with an investor creates a desirable match for both since each party gets what they want. The founder gets the money they need, and the investor gets a cut of the business profits for that initial investment.

Source: Medium

#2 Gain Experience

Real estate founders working with young investors can actually benefit those young investors by showing them how the real estate market works. On the other hand, if the investor has a lot of experience in real estate and the founder does not, then the founder can learn quite a bit from the investor. If you’re able to match yourself with somebody that has a decent experience, then you’re likely to learn a lot more about this process.

Source: Boston Consulting Group

#3 Ability to Combine Different Skills

Nobody can be proficient at everything. By matching a founder and an investor, you’re bringing together two smart individuals that can both offer different skills to the experience. For example, if one of the two partners can handle marketing and sales well and the other knows a lot about accounting, this could be a great partnership. Whether you are a founder or an investor, it’s a good approach to join your skillset with people that have strengths you lack so that you can balance each other out evenly.

#4 Financing Becomes Easier

For the founder, having a partner that has money, assets, and great credit can be very beneficial. That’s because lenders like to see these things when they approve loans. Therefore, having an equity partner will help you with financing will make things much easier for a start-up.

The Cons of Equity Partnerships in Real Estate

Now that we’ve discussed the pros, we’ll move onto the cons of equity partnerships in real estate. That way you can measure out whether this strategy would be beneficial for you and your company or not.

Source: Entrepreneur

#1 Splitting Equity

The largest negative to equity partnerships is that the founder won’t get 100% of the equity in any deal. Instead, you’ll only get the percentage that you agreed to when you made your deal with investors. If you don’t want to have to split equity, you can find other ways to raise money so that you get all of the equity. For example, you could consider a hard money loan. However, when it comes to private financing, it can be challenging to get a company to cover a property’s full cost.

Source: Polis Network

#1 Expect Costs

An equity partnership in real estate won’t come at a free price. Depending on the type of business you are opening, you’ll need to expect plenty of expenses. If you are opening a simple LLC with one partner, then that’s an inexpensive approach. However, if you are getting involved in a complex partnership with investors, then you could spend as much as ten thousand dollars.

Source: Smith Leonard

#2 Getting Along with Partners

One of the biggest problems with partnerships is that people don’t always get along. We’ve all experienced personality clashes in our lives before, and if this happens during an equity partnership, the results can be stressful and overwhelming. If you’re thinking about partnering with a family member, think twice. The partnership will only work if you get along very well and have a similar strategy. If your business relationship goes badly, then you may wind up harming your relationship with your family.

Before you partner with anybody, consider doing your research on your potential partner. There are plenty of demanding investors out there that can overwhelm you with their plans. Sometimes, it’s simply better to get a loan. You can get rid of a loan easier than a partnership.

Source: Transport Topics

#3 Varying GoalsLet’s say you’ve found a partner that compliments you, and you’re quite happy about that. Even if you get along with your partner, however, you’ll never get the business anywhere if you don’t share similar goals. If you and your partner don’t have your goals aligned, then you might wind up with a challenging partnership. If you want to purchase fifty properties and your partner only wants to buy five, then you’ve got an issue.

If you do decide to make an equity partnership with somebody else, you should get an attorney’s help and put together a solid agreement that includes the expectations of each partner. Make sure the agreement is as clear as possible and that both parties understand the terms.

 

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