I am curious to know what investors have a 50-50 partner ship with all properties purchased. I want to go into RE investing on my own but I have a friend who is graduated from Grad school come May and is pretty much ready to buy properties with me. What are the pro's and cons of a Partnership?
My thoughts right off the bat would be more cash on hand, more properties to buy, less risk(as far as if things went sour one or the other could cover the mortgage payment/expenses), Two people to feed off each other a motivate each other, half the work load.
CONS: Split all profits down the middle, possible arguments (but what would you expect).
To me it seems that a partnership has more pro's than cons and could be better than going in by myself. Both of us have excellent credit and cash reserves ready for purchases along with solid jobs right out of college. What are your guys thoughts?
The biggest risk with a partnership is not having a common view of the company strategy. When one person has one set of expectations for where the company will go and the other person has differing expectations, it can make decision making very difficult.
Even if you both agree on the direction of the company from the outset, things often change, and once they do, it can be very difficult to break up a partnership in a clean manner.
If you're going to enter into a partnership, do so because the other person can provide something to the team that is invaluable...something that you couldn't possibly provide yourself (could be money, expertise, relationships, etc). Don't do it just because you think it would be fun working with another person or because someone else needs you.
Most partnerships don't work out, and if there is a friendship involved, oftentimes the friendship won't survive a partnership dissolution.
From reading your blog it seems like you are running your business with your family.
Did you sit down before any business plan was written and talk about the reality of going to business together with family?
I'd like to partner with my father, but one of my main concerns is what you wrote about having a partnership not work out and then leading to personal problems...
Oliver,
I spent much of today (yes Saturday) meeting with an attorney over a partnership dispute on behalf of a friend (I have power of attorney over his affairs). The partnership seemed a good idea at the time. Here's the problem- life changes. In this case a partner is incapacitated mentally. The agreement reads that the other general partner can ask to have the man evaluated by 2 doctors and if they declare that he is unable to tend to his affairs (which he is) then the other guy can exercise complete control. The attorney advised that he has seen cases where the partnership was still making money and one of the partners hired family members at high wages to do very little so that there is not much mula left to pay out to the incapacitated partner.
I know it seems tempting to take on a partner. Why would one do this?
1. The other guy brings money to the table
2. The other guy brings a lot of skill to the table (perhaps making up for your lack in some respects.
3. It seems like it will be fun.
In my view, I think you should do this on your own. Make all of the decisions. Control everything and possess everything. You can arrange financing even if it means growing slower. Please don't do a partnership, run from it!!!!!!!!
Ask yourself, and by honest, why another person would want to take you on as a partner. Then ask why you would take on another partner and refer to your line about disagreements. Why would you even think about it?
I am partnered with my father. We both have different skill-sets and a lot of the same ones. Between us we do what needs to get done... sometimes he does WAY more sometimes I do WAY more.
We disagree, but we are family first. At the end of any discussion, argument, etc we know that we are not willing to put our family relationship on the line we typically can come up with a solution. This type of relationship is not for most people...
Overall, I've been involved in numerous partnerships. Some have succeeded, some have failed. If you're going to work with a friend, I'd suggest a lose arrangement. Before you do anything complicated do one property together... see how it goes. After a couple, you will know if you can work with the person or not.
I work with both my wife and my brother. My wife is my partner (equal owners of the company) and my brother is a full-time employee. With my brother, we have an employment agreement, he gets a salary (and commission) and he officially doesn't have any say in the company direction, strategy or high-level decisions (though we highly value his opinions and always consider them).
Therefore, the only partnership issues that arise are between my wife and myself.
While we certainly don't always agree, the value of the partnership between us is that we both have very different skill sets. Without my analytical abilities, my negotiating skills and my ability to manage projects and schedules, there is no way the business could succeed. Without her creativity, her marketing skills, her staging skills, and her people skills (she deals with other agents, buyers, etc), there is no way the business could succeed.
So, we essentially break up responsibilities across those lines. ..
I'm responsible for finding deals, negotiating them, performing due diligence and getting the rehab completed; she's responsible for picking the colors/finishings, marketing the properties, finding and dealing with buyers/agents, and then getting the sale to the closing table.
Any time that we may disagree, it's generally pretty clear whether the disagreement is within her area of expertise or mine, and that decides who gets final say. For example, if we disagree over paint colors or marketing techniques, she gets final say. If we disagree over how much we should offer to purchase a property, I get the final say.
Of course, there are in-between situations, like whether we should refinish the cabinets or replace them (it's both her area -- design -- and my area -- financials), but luckily we trust each other enough that we can generally come to a quick agreement.
Oh, and the partnership also works because we both recognize that at the end of the day, she gets veto power over everything... :mrgreen:
Feb 13 '09, 10:27 PM
