Want a Real Estate Partner? Think Twice!

12

“I think this shade of tan looks best.”

“No way. This shade of tan one tab over looks so much better!”

Although a bit silly and overly simplified, the concept is one that absolutely needs to be well thought out before you go into real estate. The concept being:

Do you want 51% of the “say” in your business decisions, or do you want 50%?

There are many reasons why at some point in your career, a partner may be wise or needed, but my personal opinion is that unless you absolutely need a partner, take the journey alone!

Personality Check

The first thing you need to do is take an honest assessment of yourself, particularly, your personality. This could very well be the thing that creates major bumps in your ride. I won’t go quite as far as saying it would END your ride, but depending on the situation, it could get pretty darn close.

  • Are you a control freak?
  • Are you obsessive compulsive about details?
  • Are you great with numbers? Do you enjoy numbers?
  • Do you know how to pound in a nail?

Whether you answered ‘yes’ or ‘no’ to any of these questions doesn’t matter, what matters is what you do with this information. There are plenty of other questions to ask, but these will serve as a guideline for some examples.

Can I Compensate, but Avoid Partnership?

After you have the first round of questions out of the way, you can begin to try and structure how your business management will work. We’ll use my personal answer to these questions, and how I applied it.

  • Are you a control freak? - Yes
  • Are you obsessive compulsive about details? - No
  • Are you great with numbers? Do you enjoy numbers? - Yes
  • Do you know how to pound in a nail? - No

I love control and being an engineer by degree, I love numbers. I’m okay with details, but not great and when it comes to construction, it’s embarrassing.

Does that mean I need I need to partner up with someone to overcome my deficiencies? No!

I compensate for this by using a project manager and an assistant whom I pay separately.  Yes, I could give them equity stake and then not have to pay them; however, I want equity for myself, and more importantly, I want CONTROL. It just fits my personality.

If you’re not very good with numbers, find someone who is, and create an arrangement with them. “If you can help me analyze my deal and crunch the numbers, I’ll pay you x-amount.” Sure it is money out of your pocket and an expense, but it keeps you in control, and you’ll find it is well worth it.

Can I Temporarily Partner, but then Avoid?

The one instance where you truly have no other option to partner is if you have no capital. Yea, yea,  yea — I know about all those “no money needed” real estate strategies, including wholesaling. I have no empirical data to back this up, but I’m guessing for every 10 people who approach the wholesaling strategy or “no money down,” maybe 1 or 2 actually survive as real estate investors. If the odds of success were higher than that, I sure wouldn’t struggle as much as I do to find “true” wholesalers. (sorry, went off on a tangent there, let’s get back on track!)

If you love control, I would try and arrange a partnership on JUST THAT DEAL. Not a partnership for your overall company. This way, you can get access to the capital you need, but when things are done, still have the option to continue on your separate path.

Do you have capital, but not enough for rehab costs? Partner up with a contractor. In this case, you definitely only want it as a “per deal” basis as in the future you can just include the contractor in your budget, but if you’re short on cash, this is a justifiable reason to partner up.

Avoid this Trap

“We’ve been friends since middle school. Let’s go into real estate together.” Uggggg… T-minus x amount of months before business and friendship go sour.

Yes, I know. You know of partnerships that work (same with me), but when I personally stop and think about it, I can think of double the amount of partnerships that have just failed.

If you find yourself with capital, but are inching towards a partnership out of “fear-of-the-unknown” and using the shield of “This person is my friend/family, that’s why I want them as my partner” as an excuse, then you need to step back and truly think twice about it. I’m not saying this is impossible to accomplish (my brother-in-law and his brother have run a successful lawn-care business for numerous years), but what I AM saying is this…

If the only reason for wanting a partnership is for personal comfort, DO NOT DO IT.

If you have the capital and want to work with a person, then by all means work with them, just pay them separately though instead of giving up 50% equity in your business. Don’t fall into the trap of “my strong friendship/family ties will overcome any difficulties.” When actual money is on the line, it has a way to completely dismantling those “ties.” Again, it may work, but why RISK IT if you already have the needed supplies (capital) to get started.

Step outside of your comfort zone. Push yourself a bit. You’ll be glad you did when you can look at the other person in the room and say, “It’s my company and my decision, so we’re going with MY shade of tan.”

Photo: Jesse Wagstaff

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About Author

Clay (G+) is a licensed real estate agent and the owner of Huber Property Group, LLC, a real estate investment company located in Grand Rapids, MI. His company purchases distressed properties with the main exit strategy of fixing them up and reselling with owner financing, particularly, land contracts.

12 Comments

  1. I have a built in partner(wife) and we settle decisions on our properties like most other married couples, she wins!
    I agree with most of your article, partnering up without spelling out individual responsibilities is a recipe for disaster, but I don’t think it should be avoided like the plague. Having another set of qualified eyes to help with due diligence is always valuable, a trusted person with a vested interest to bounce ideas off of or just a shoulder to cry on sometimes can make life a lot easier.

    • Valid points all the way around. Thanks for the comments.

      I would just also say that you can get good advice and form trust-able relationships with people “outside” your company, the key being, their needs to be a mutual understanding and clarity of ‘how’ the relationship is a “Win-Win” for each party.

  2. I agree on the idea of partnerships as being somethng you decide on per deal. Overall, there’s no need to have a partner, but partnering on individual deals works well I’ve found. Once the deal is done, you go your separate ways.

    I just partnered with a contractor friend because we just so happened to be going to the same auction to bid on the same land. I had no idea that morning I would form a partnership, but instead of bidding against each other we teamed up. It just made sense. He’s a builder, I’m a real estate investor – complimentary skills – voila, we had a partnership but aren’t bound to each other past that be deal. Those partnerships work in my opinion.

    • Nice Michael. That’s a perfect “real life” example of just what I mean.

      You partnered because it “made sense”, not because you were afraid to step out of your comfort zone.

  3. I agree that partnerships can be wonderful – especially if there’s no money involved or changing hands. I think everyone needs a partner in business – whether it’s the spouse they go home to vent frustrations to at night; or their administrative assistant in the office that’s going through everything with you. Is it great to get it to a point where you’re actually investing partners? I think it’s too broad, and there are too many types of people, to say one way yes or no. I do agree though, do it for the right reasons. And feeling safer just because you have a partner isn’t one of them.

  4. You make some great points. I do personally avoid partners like the plague. I’ve seen friends destroy friendships through partnerships. I’ve also seen family members quit talking after doing deals together. In most cases partnership problems are due to things not being well defined up front. Although even in a well thought out deal, I don’t think it’s worth it. There’s just too many variables and too many things that can go wrong.

    • That’s an excellent point.

      If you do form a partnership on a deal, things need to be specified in as much detail as possible, but as you also point out (which is why I still try and avoid partnership per deal arrangements) is because of Murphy’s Law and those pesky variables that always seem to arise!

  5. A very good friend of mine works as a partner for a real estate agent. She started out just doing marketing-related tasks but eventually got her real estate license and now she works primarily as a marketing assistant and occasionally as a agent for her. I know that my friend is paid $15 p/hr for the marketing stuff but I don’t know if that is also the case for those tasks she does as an agent. They must work out well together because they’ve been working like this for at least a year now and things are going well for them.

    • As the old saying goes, “if it ain’t broke, don’t fix it.” Sounds like everyone is currently happy with how this ‘partnership’ is arranged. When that’s the case, life is good!

      Thanks for the comment.

  6. Great article Clay! Equity becomes a big factor in business and to give up a lot of it for comfort is irrational. I am an Engineer by trade as well, and I agree with many parts of this article.

    Again, great work!

    -Tony

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