Every investor
has specific strengths and weaknesses that add or subtract from their bottom-line. Ideally, your strengths will outweigh your weaknesses, but if not, you can attempt to cover them up by working with a partner. However, the partner you choose can greatly influence the profitability of your company and the future it has. This is not a decision to be taken lightly. Choosing a work partner is not the same as getting an opinion on a deal from someone. A partner has a vested interest in your success and may not do things the same way as you – which is not necessarily a bad thing. With any partnership, the rewards must be greater than working on your own. Before you decide to jump into a real estate partnership, you need to decide if it is the right situation for you.
Every prospective partner should bring something different to the table. In most cases, they will either have access to money, be able to find deals or offer specific experience that will directly lead to closing a deal. If they offer something you don’t have, you should first access whether or not you can gain what they offer without working with them. If all you need to do is network to find prospective partners, you may be giving up too much in the long term. Again, make sure they are not offering you something that is easily obtainable. You need to find someone that compliments you entirely.
Too many investors will jump into partnerships with people they meet at investment groups or networking meetings strictly because they share the same opinions. When deciding to work with someone, you should really want an opposing view. If your partner thinks the same as you, it can be easy to get into trouble. If your partner has an opposing view, you are much more likely to give pause when deals are presented to you and not act on impulse. You should like each other enough to share your opinion without thinking it will lead to the end of the partnership. A little disagreement can serve as the best form of protection for your portfolio.
Before you work with a prospective business partner, you need to be on the same page regarding your goals, exit strategies, work delegation, financial commitments and length of agreement. The more you have on the table, the less chance of there being any confusion down the road and the smoother your partnership will be.
If one partner wants to sell the property while the other is looking at a longer commitment, you will have a problem. You should be on the same page in terms of what you would want to sell the property for and what your bottom-line number will be. You can disagree on what kind of work you think is best if you are doing a flip, but you should always be in the same page with the end goal.
The two biggest areas that derail most partnerships are financial commitments and the delegation of work. Unless you discuss it, how would you know if one partner feels he deserves a greater share of the profit for finding the deal over another who finds financing ? Many investors avoid these conversations at the beginning of the transaction because they may be awkward and can cause tension. In reality, it is far better to have these discussions before a contract is signed. Getting this out of the way before you make an offer sets a good precedent for the rest of the transaction.
If one partner feels they are doing the lion’s share of the work – for a substantially smaller piece of the pie – problems will inevitably arise. If you enter into a partnership having already delineated roles, you shouldn’t have any problems. For example; one partner can take care of finances while the other conducts the actual flip work. It is when the work becomes too much for one partner to handle and they end up committing more time than they thought that issues usually occur. In some cases, this may take a few deals to iron out. In some deals, the financing may be the hard part and in others the property can be a nightmare. As long as you discuss jobs prior to starting, you should be able to adjust on the fly and divide profits accordingly.
A good business partner can take your business to a whole new level. With the right compliments, your business’s profitability can increase exponentially. On the other hand, a bad partner can cause you hours of headaches and be much more trouble than they are really worth. If you focus on what they bring to the table, you will get much more out of every partnership. If you find that things aren’t working, it is best to get out as quickly as possible. Not every partnership will end in years of bliss. This doesn’t mean you can’t split amicably and possibly partner up on a future deal down the road.
Before you consider working with someone, you need to evaluate whether or not you actually need them. If the partnership is mutually beneficial, it can offer you profit that you may not have had access to otherwise.
