There are many ways to grow your real estate investing business. One of the most popular methods entertains the idea of entering into a partnership with someone you trust. A good real estate partnership allows you to find and close deals that you would not otherwise have had access to. It also allows you to make a profit on deals that, without a partnership, would be unattainable. For as great as finding the right real estate partner can be, it can be equally as damaging working with the wrong one. Instead of focusing on your business, you will end up spending most of your time arguing about splits and work allocation. When deciding if a partnership is right for you, there is a few things that must be discussed beforehand. Here are a few tips to help you decide if a partnership is right for you:
1. Goals: The most fundamental aspect of any partnership is the shared belief in a common goal. This doesn’t mean you have to agree with each other on everything, but your goals need to be on the same page. If you want to flip a property as quickly as possible and your partner doesn’t mind holding it for a few months, you will have a problem. It is OK to have different opinions and thoughts on how a project should go, but you must move towards the same goal. Ask each other what you want out of a deal, or even the business. It is important to never assume that you feel the same way about something without asking. Partners that have the same goals will do everything they can to accomplish them. Without this in common, a partnership will have a difficult time working. Before you do anything together, you need to take the time and find out what each other want out of the business.
2. Risk: Before you get very far, you need to assess each partner’s risk tolerance. Everything you do in real estate offers some level of risk. Your goals may be the same, but the path you take can be completely different. When all is said and done, if you are not comfortable with the risk on a certain deal you will be miserable the entire process. No deal is worth not being able to sleep at night. There will be times when a deal is just not in a potential partner’s wheelhouse. This doesn’t mean you can’t work together on a different project. It is important that you stand your ground if you are unsure of a deal, or feel it is too risky. If a potential partner tries to push you to take action, you should consider their motives. Every time you enter a partnership, you both need to know all of the risk and potential rewards associated.
3. Roles: An ideal partnership is one where both people bring something different to the table. Someone may handle the finances while the other deals with the real estate side of things. One partner may organize the work on a rehab while the other manages the costs and expenses. There are many different ways that partnerships can work, but it is important to know and understand who is doing what. Nothing can derail a partnership quicker than unrealistic expectations or uneven work allocation. However the work is broken down, all members of the partnership need to be aware and in agreement. There will be deals where you are doing more work than your split indicates. This is the nature of partnerships. You will work longer and harder if you are organizing the work on a rehab then if you were simply writing a check. As long as you are comfortable with the bottom line, that’s all that matters.
4. Return: After you receive a check at closing, it is too late to argue about percentages. As mentioned in the previous section, your split is not based on the amount of work you do. In a rehab situation, both the financial backer and the one doing the rehab work are essential for success. What each is worth is based on whatever you and your partner decide. This may change from deal to deal, but once you agree you should honor it, regardless of how much work you end up doing.
Entering a partnership should make your business more productive and efficient. It will minimize the risk, as well as distribute your roll in a given transaction. Without taking the time to know exactly who you are partnering with, you open the door for disagreement and conflict. There is too much business at stake to create enemies and harbor ill feelings. Take the time to totally vet any prospective work partner and vice versa. A solid working partner will totally change the way you look at your real estate business. Not everyone needs a partner, but there are those that wouldn’t have it any other way.
