How To ‘Survive and Thrive’ With a Real Estate Partnership

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What are partnerships?  Have you ever thought about what it really means to have a partnership and what does it mean in the real estate business?  I can tell you that partnerships can be both hard and easy and sometimes in the same day!  While there are many different ways to make money in real estate and structure partnerships around each, I am going to focus on partnerships within your business.  The business of being a professional in the real estate investment sales world.  For starters, I’ll give you the quick text-book definition of a partnership:

Partnership –  An arrangement by where parties agree to work together to advance their mutual interests.

That is a pretty formal way of saying I agree to do my part if you agree to do your part.  And…there is where the problem exists in most partnerships.  The word “IF” is involved!  It is a funny little two letter word that is responsible for the down fall of more partnerships than any other cause .  Of course, I don’t have the scientific data to prove this, I am just making an educated guess from having been involved in a few!  I’ll never forget one piece of advice I received from a mentor a few years back.  We were talking about the future and where I saw myself in 5, 10 and even 20 years and he made a statement of fact so concrete he didn’t even try to qualify it:

“All Partnerships End.  You Get To Choose If They End Good Or Bad!”

For a guy who is in a partnership with his brother and dad that was shock to hear.  Especially with how casually and matter-of-fact that he put it.  But my mentor was no dummy and he had been through several business cycles including successful and failed business partnerships so he knew what he was talking about.  He also knew my brother and father very well so he was not just talking blindly.  He was really trying to help and his advice still serves us well to this day.  If you are going to form a partnership, do it right.  Do it well. Be respectful and always prepare for what is next.

What Makes A Great Partnership in Real Estate

First and foremost, any great partnership can thrive if the parties involved give each other the room they need to operate.  Partnerships exist so that each person is able to concentrate on their strengths and hopefully the partner is able to concentrate on your weakness.  A really well thought out partnership will come together because each party brings something to the relationship that their partner needs.  If that is the case, then the only way for a partnership to work is to get out of each other’s way and let everyone do what they do best.  So partners have to be mindful of what they do well and what they do not do well and be willing to admit it.  Failing to admit weaknesses and then bringing in a partner only to tell them how to do their part will be a deal killer…quick!

Communication in a Partnership

What do You Bring to the Table?

The third component of a great partnership is to hold yourself accountable for your expertise or the talent that you bring to the partnership.  Going back to the definition, you have to remember that the point of the partnership is so that everyone thrives.  A mutually beneficial partnership means that everyone is acting in a manner that lifts the whole company up.  Each partner is working hard and doing their piece to be successful.  Again, it may sound almost basic, but too often, partnerships are formed as a crutch.  They are formed as a way for one partner to leverage the work of others so that they can do less!  I’m quite sure we have all seen this and know it to be true.

Nash Equilibrium

Lastly, when talking about partnerships, especially when formed to build or grow a company, I am always reminded of the movie “A Beautiful Mind” and the game theory called a Nash Equilibrium.  Simply put, it states that any two people are in a Nash Equilibrium when they are making the best possible decisions they can based on their belief that everyone else involved is also making the best decisions possible.  No one should enter into a partnership to go backwards.  We only enter partnerships to improve our own position in life whether it be financial independence or to gain control over our time, etc.  Why else would we enter into a partnership?  So, consider a partnership like playing a game.  A game that each of us individually wants to win.  When we enter into a Nash Equilibrium, then we are all trying to win individually, but we only make decisions based on the belief that everyone else is trying to win as well.  When this is done in concert, no one makes a decision that is not good for the group.  In essence, we all win!  Is that not the purpose of forming a partnership in the first place?

Summary

To recap, great partnerships exist because we all have particular talents and we all have skills that need improvement   The quickest way to improve our talents is to focus on our strengths and surround ourselves with others who are stronger in the skills that we need to improve.  That is a great partnership.  After it is formed, we need to always be mindful of what we bring to the partnership and make sure we bring it full force every day!  Then we need to have very clear and open communication including taking time to get away from the company and meet as partners to discuss issues in a different environment.  This allows for open and honest communication.  Finally, we need to remember that the partnership will work best if we are holding our selves accountable for doing our part and making decisions that are based on what’s best for the partnership.  While it may all seem basic, there is a reason my mentor told me all partnerships end.  Remembering that line, I remind you that we get to choose if they end good or bad and that choice starts with how we act each day.

I would love to hear about your experience with partnerships or you thoughts on how to make one successful! 

Photo: buddawiggi

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About Author

In 2005, Chris Clothier (G+) began working with other investors and has since helped hundreds of investors purchase over 2,300 properties in Memphis, Dallas and Houston through the Memphis Invest family of companies.

14 Comments

  1. Sometimes I think that the first “move” a partner makes is to find ways of getting one over on the other partner.

    Perhaps it is a good thing when an early partnership does NOT work out. The partner will then have a lesson — hopefully not TOO expensive — in how to handle partnerships.

    One rule in my book is to contemplate and plan for ALL possibilities and to have those plans and contingencies PUT IN WRITING AND SIGNED. Once things turn sour, it is very difficult to settle disagreements amicably.

    Another good rule is to have accountability standards. How does one partner measure the progress of the other partner and keep that partner accountable for his/her duties.

  2. As a former partner in two businesses, just don’t do it!

    That said if you are a glutton for punishment and really think you’ll find a clone of yourself or if you plan on being the lazy good for nothing part of the equation, then by all means take on a partner.

    Now that you have made the biggest mistake of your investing carrier by taking on said partner, make sure you do not make the second biggest mistake of your life.

    The partnership will always end badly, unless you make that impossible.

    The only way to make that impossible is to plan the breakup before it happens, like before the ink hits the paper on the partnership agreement.
    This is done by setting up an irrevocable method to divide the booty.

    I will only use the Texas Shoot Out method, this is carried out in this manner, each partner places a total value on all the booty in the partnership. For example I say the property is worth $1 million, and you say no way $2 million, at that time each partner has the right to declare if they are buying or selling.

    Kind of like when I was young my father bought a candy bar for us all to split (they were a lot bigger in those days) my father would say son you cut the bar, but remember your brother gets to pick first.

    • Chris Clothier

      Dennis –

      Thanks for taking the time to write your comments! I have a feeling your comments are going to be the same as many readers in regards to whether you enter one in the first place or not. You are correct though on two points. Get it in writing and decide when things are going good how you will divide if things go bad and put that in the language of a contract. Tell each other exactly how you will handle things if and when they go bad.

      Of course – mine is a family operation and we have done a pretty good job of working out how everything will occur during power transfers or possible buy-outs. You just have to put it in writing at the beginning and then go to work.

      Thanks again for writing –

      Chris

  3. Chris, since my partner is my wife, I think learning the phrase, “yes Dear” and “you’re right again Dear!” has really proved to be successful. :-) Please don’t mention to her I said anything! LOL, no she is a great partner and we do best when we let each other focus on our strengths. Mutual respect is very important in any partnership. Another good post Chris.

    • Chris Clothier

      Hey Glenn –

      Awesome comments – another family business partnership!

      Somehow a paragraph of my comments got cut out so I will write it here. Under the communication headline I wrote that great communication is extremely important including taking the time to get away from the office and communicate about big picture. You know, keep each other “in the loop” so everyone has a clear vision. Too often, and especially in family businesses, the communication is almost always about the day to day running of the business and almost always right there in the office. I think it is vital that partners get away for lunch, breakfast, coffee, mini retreat – whatever – and communicate about the big picture!

      Thanks for reading and writing!

      Chris

  4. Chris –

    I think on the whole, very few people manage to have lasting business partnerships. When I look at my friends some of which are business owners and others that have great upper level jobs, they are great friends. They are good a what they do. But…..there is only one person that I would even remotely consider having as a business partner. Even then, I would really have to think about it.

    This is so true: “All Partnerships End. You Get To Choose If They End Good Or Bad!”

    Folks should definitely think long and hard about taking on a partner. Great post.
    Sharon

    • Chris Clothier

      Hey Sharon –

      I agree with you that some people are simply not cut out for partnerships. I have written on here before that I have had failed partnerships in the past. I do believe the statement as well that all partnerships will end. At some point, and we hate to talk or think about it, but the second generation will take over our company. Hopefully we do a good enough job and then the third generation will be ready. No matter how you look at it, each of those transitions is an ending of one partnership and the beginning of another.

      Lets hope we get everyone prepared for doing it well!

      Thanks so much for reading and writing a comment!

      Chris

  5. Do not do it!!!!!!!!!!!!!!! Someone always feels as if they are doing more than the other person because bottom line life is not equal and it never will be. As time goes bye animosity will be created which will in turn be the death of the friend/partnership.

    “All Partnerships End. You Get To Choose If They End Good Or Bad!”-Great statement however sometimes the other person decides how it is going to end without your consent

    • Chris Clothier

      Jennifer –

      Your comment made me laugh…you were very emphatic!

      Human nature always has a way of sneaking in and messing up a good thing like a working partnership doesn’t it. I think your statement about the other partner ending the partnership is true and really reminds us of the importance of some of the other comments. Have a great contract that spells out what you will do regardless of who ends it.

      Thanks for reading and sharing your comments.

      Chris

  6. Melodee Lucido on

    Chris,
    SUCH a great article. In many ways.

    I liked all of it, but in particular, the Nash Equilibrium. If we suspect that the “other” does/did anything other than the best to our best we definitely get jaded.

    Having said that, I have very dear friends that I wouldn’t do biz with as partners but I still love dearly (thank God).

    Communication is the greatest Key. But that isn’t profound. It’s just a fearful and important part of the partnership. If we don’t speak out then we can’t blame the “other” for not getting us or making it work.

    I could go on and on—since I am a BIG relational—lets all win one for the gipper—kinda gal. But let’s just leave it to say well done on another great article!! Thank you : >

  7. I was spoiled in my early years. My older brother was my partner and best friend. As we invested two of his best friends and two of mine became interested in investing and started doing it. We started meeting for breakfast every Saturday morning to to hash out what we were doing or now what is called masterminding. Finally a 7Th member joined the group and we worked together or separately depending on the project.

    We all became fast friends and the wives loved it when we all went out to our special club every Wednesday night for dinner and dancing. It was loose and informal. If you needed money quick you just called the others and took what they had available and gave a IOU on a business card. Had a problem you had 6 other guys and their connections to help you out. This was a once in a lifetime deal and as we started to die you realized how rare it was.

    I did more formal partnerships with others over time but a good partner is rare, so I had a clause in our agreements when I did a partnership with some one new that either of us could buy out the other at any time and the other partner had the right to match your offer and buy you out instead. That saved me a few times when a partner was a very poor fit or something or someone entered the picture and changed the relationship. In one case it was the new wife from hell. I made the buy out offer, he matched it and the bride and he took over and two years later she had led him into bankruptcy and a divorce..

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