Real Estate Business Partners: Finding The Right Fit
By Paul Esajian on June 30, 2014
There will be times in your investing career when you will consider taking on a partner. This could be a one time thing or something much more long term. Regardless of the length of the partnership, it is important that you work with the right partner for you. An ideal partnership has the each member filling a weakness that the other party has. If you lack funding, finding a financial partner is key. If you are looking for someone to coordinate the rehab, working with someone handy should be your goal. There is a lot more that goes into successful partnerships than meets the eye. It is up to you to make sure your partner is the right fit.
By definition, a partnership is an agreement to work together towards the completion of a shared goal. When dealing with real estate, the more that you can put on the table from the outset, the stronger the partnership will be. Most agreements meet their demise by not defining roles and not having a clear end goal. Talking to a friend, family member or co-worker about buying a property may seem like a good idea, but it can quickly turn ugly if there are disagreements about time, money and work allocations. Before a partnership gets to the point that you consider making an offer, you need to put everything out on the table.
Start with what the intention is with the partnership on a given deal. You will be surprised to know that there are many partnerships who don’t know what they want to do with the property, even as they are doing work on it. Take the time to find out what each member wants out of the property, when they want it and how much they are going to contribute financially. These could be uncomfortable conversations, but it is far better to have them before you sign a contract than when you are talking about which countertops to install. You also need to allocate who is going to do what with the property. If one party has a majority of the rehab work thrown on their lap, they may expect a higher percentage of the profits. You can get through this on one deal, but if you want the partnership to continue for the long term, you need to get this out there.
Most successful partnerships will take a few deals to get a feel for each other and how the process works. Partnerships will only work if each side has a true benefit of working with each other. Once one side is doing too much of the work or not bringing ample financing to the table, the partnership will quickly dissolve. This is why it is so important to stay on top of what you do well – to make sure you add value to the team. A good partnership can yield many new deals a year that you otherwise would not have access to. It can open doors to networking opportunities and can help grow your business quickly. While this is true, you need to remember that you are not working for yourself and there is someone else that you have to think about. Once you start making decisions that only benefit you, the partnership is as good as over.
Many new investors view partnerships through rose colored glasses. They have this idea that everyone gets along and has the same ideas. However, this is far from the truth. The reality is you don’t want to partner with someone who shares the exact same thoughts as you on every property. Having an opposite point of view will cause you to question your perception of what a good deal is and make you think before you act. This may cause some disagreements and conflicts, but these are good for the business. Instead of blindly jumping in on every new listing that hits the market, you and your partner can balance each other out. This will eventually force you to look at safe, profitable deals. You can still maintain a friendship, but you can do so knowing that you will not agree with everything your partner has to say.
The real estate business is often very fluid and changes from deal to deal. If you are working with a partner and want to shift gears, it is best to state that before you get involved. You never want to burn any bridges with your partners, as you never know if you will cross paths again in the future. Additionally, most partnerships are formed with people that know each other or are family members. Making money and closing deals is nice, but not at the expense of losing someone close to you. This is why you need to take the time and express your goals and intentions before a partnership forms. The more that is discussed and acknowledged prior to teaming up, the less likely there will be any problems down the road.
Finding someone to help you find or close deals can be a very valuable tool. Before you rush into a partnership that you may regret down the road, it is important that you take the time to find out if you are a good fit for each other. Eventually, if you can find someone that fits, you can reap the rewards of many deals for many years to come.