The Truth About Real Estate Investing Partnerships

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Well – that’s a loaded question if there ever was one!  In the video from last week I warned you about partnerships.

Today, however, please allow me to add some color to this conversation:

When I was in school at the University of Cincinnati College-Conservatory of Music, there was one class which I had a love-hate relationship with more than any other.

To be sure, some classes I flat out hated while others I enjoyed, but this particular class was neither here nor there.  This class was called, if I remember correctly, the Incline Orchestra…

All of us freshmen had to participate in the Incline Orchestra.  It was basically a sight-reading session once per week whereby we had the opportunity to read through the major repertory.

The orchestra was conducted by the graduate student conductors, which enabled them to have a taste of real-world experience.

And finally, the upper classmen who were preparing to take job auditions in orchestras had a chance to play through their concertos with an orchestral accompaniment in lieu of simply a piano reduction.  So you see, on the surface this was a well-designed program which was to benefit all involved…

I felt Incline was a waste of my time; I felt I was too good for it; I just didn’t see how being there with all of the silly freshmen was good use of my time.  What can I say, I was a bit cocky in school – can you believe it?  Don’t answer!

And Then There was This…

There was one element to this activity, however, that I truly did enjoy, and his name was Mark…oh, stop it; it’s nothing like that – why do you got to go there every time!  Get your mind straight and listen:

Mark, whose name naturally wasn’t Mark at all, was an upper classman; post-graduate to be exact.  He was a violinist, and a good one at that, but he’d decided to come back to school for a couple of years to earn an Artist Diploma in viola performance, and he did this because he felt that it would increase his options relative to employment.

And in fact, Mark decided to enroll in Incline as a violist, since while he had performed all of the standards many times on the fiddle, Incline provided a good opportunity for him to gain exposure to the viola scores.

Needless to say, whenever he was there Mark inevitably sat in the first chair since while inexperienced on viola he still played circles around us freshmen.  And on the days when Mark was present, Ben Leybovich, who typically sat in the second chair next to Mark because even as freshman he was not terrible on viola, enjoyed Incline

In fact, I only enjoyed Incline on those days when Mark was there – this was a brilliant opportunity to learn from experience.

Have you ever noticed that beauty is in the eye of the beholder?  Have you noticed that the same paint on the wall looks to be a different shade at sunrise and at dusk?  Have you noticed that experience “colors” our perception…?

I have noticed.  I am a smart guy, which means I can think deductively and arrive at conclusions.  However, often enough my conclusions, through harking at the truth, are indeed somewhat removed from the truth.  Has this happened to you yet?  The secret is experience.  Experience is what frames out thinking process and allows us to internalize the truth – in a lot of ways I am just too young to know all that I want and need to know…

Well – Mark was indeed a significantly more experienced musician than I, allowing me the opportunity to, as they say, ride his coat tails.  I was being trained by him simply being right there and playing the music with me.

I’ve always been this way guys in that I’ve always loved to be with and around smart and capable people; smarter and more capable than I.  I am drawn to and excited by people who have forgotten more on a given subject than I will ever know.

I don’t wait for them to find me – I reach out to them!  I have to say, this is likely the primary reason I enjoy BiggerPockets!

Related: Seven Reasons You Might Suck at Building Relationships

Syndication is No Different…

This is also why as a new syndicator I made the decision to align myself with someone much more experienced than myself!  In that I say “I made the decision” I don’t want you to misunderstand that it was simply a matter of me deciding – hell no!

This guy made me jump through hoops for months, and frankly still does (more on that in a bit).  But, in the end he decided that I am not stupid (the jury is still out on that – really, but please don’t tell him anything to the contrary or he might change his mind).  He said yes!

I guess it would be silly of me to tell you that my partner’s name is Mark – it’s not, and eventually you may find out who it is.  But, I will tell you that reaching out to him was a great decision since my learning curve in the past few months has absolutely shot through the roof.

The lines are rather blurry at the moment as to whether he is a mentor, teacher, facilitator, or partner.  But, at the end of the day a good partner, someone worth having around should be all of the above!

So my friends, history repeats itself – just like in school I am now learning from an upper classman…  My learning curve is through the freaking roof.  I am exposed to rational and perspective that I had never have thought of before, and I am just scratching the surface. You can be certain that I will sneak bits and pieces in the coming articles, so stay tuned!

A Few More Thoughts

Why do I need a mentor?

Because, while I know lots of stuff about real estate investing, I don’t know what I don’t know!  I’ve seen what the paint looks like in the morning, but I have yet to find out what it looks like at dusk… Guys – I am playing with millions dollars of other people’s money, and I don’t feel like making a mistake.  This is why I need a mentor!

RelatedShould You Pay For a Real Estate Investing Mentor? Here’s My Strategy…

But, aside for the obvious benefit of his knowledge and experience, which can be difficult to quantify, there are other, more pragmatic and easily understood benefits:

For example, how easy do you think it might be to get a loan for $4,000,000?  Do you think that a balance sheet of certain caliber might be looked upon favorably by the lender?  Do you think that I have this type of a balance sheet?  No – I do not.  I’m working hard to get there, but today I do not.  Do you think that having a partner at the syndication level whose balance sheet has room for a few more zeros than mine will help…?

Or, how favorably do you think the banks are going to receive the notion of me repositioning 120-units that are half empty?  Yes – I’ve repositioned a 10-plex, but in more ways than you can imagine those two are not the same thing at all.

And this is why for the first time ever I Have a Partner!

Oh, one more thing – he is flat out a great guy, or I wouldn’t have asked :)

Wrapping Up

There is no single answer to the question of whether partnerships are a good idea or not that fits everyone and every situation.  The answer in a lot of ways goes to the quality of people involved.  As I’ve tried to illustrate here, where I draw the line on partnerships is…SHARING OF KNOWLEDGE.

It’s not about money, nor is it about the balance sheet.  My partner opened to me his knowledge banks; a decision he does not take lightly.  Some would view it as competition – he chooses to see it as synergy.  This is the stuff that partnerships are made off.  This is the stuff relationships are made off.  This is the stuff friendships are made off…

Partnerships have to work outside of business in order to work in business!  Partnerships need to be built on friendship.  Partnerships have to add value to your life outside of anything to do with money, and then they work…

Would you agree?

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About Author

Ben Leybovich has been investing in multifamily residential real estate since 2006. His area of expertise is creative finance. Ben works extensively with private as well as institutional financing. Ben is a licensed Realtor with YOCUM Realty in Lima, Ohio. He is also the author of Cash Flow Freedom University and creator of a cash flow analysis software CFFU Cash Flow Analyzer.

11 Comments

  1. Partnerships are great if you can position yourself as the lazy partner who does nothing for a 50% return.

  2. Sharon Tzib on

    I’m with you, Ben! I’m a big fan of mentors and partners. Giving up a little to get a lot is a no brainer. Glad to see you’ve found a new “Mark!”

    • Ha – I am giving up a lot. But, the type of knowledge and backing that I am receiving is worth more! Not to mention that the first deal is not going to be the last – what’s the value of a long-term relationship…

      Thanks so much Sharon!

  3. I almost pulled the trigger on a TX 52 unit, with a syndicate. 8% guaranteed return, 10%+ projected over the life of the investment. I was going to do it for the money, but also because of the experience in doing it. The other investors were much more knowledgeable and spent a year and a half putting it together. It would have been a great learing experience.

    Ultimately, I declined to participate. It’s still open, maybe, for a few more weeks if I change my mind again. I have another opportunity for my own deal, better return, and I could not do both. Funny how that money things works…

    I would be interested in seeing the video of you playing the viola, it is posted somewhere?

  4. Sara Cunningham on

    I have to agree with you on this one Ben. It’s the old saying that two heads are better than one. You are right when you say that it’s not just a partnership it’s a friendship and all the other stuff that goes with it. You have to be 100% invested in it. Good luck .

  5. Ben,
    I think the most important variable in the success equation of a partnership is the issue of trust. Firsthand experience has taught me some very expensive lessons regarding whom I chose to work with on real estate projects. It has also benefited me greatly when the partner was of impeccable character.

    If you have the benefit of a female partner (in my case it’s my wife), do yourself a favor and introduce your potential partner to her at a sit down dinner. You would be amazed how a woman’s intuitive sixth sense can smell something fishy from a mile away. Maybe us guys are so wrapped up in the beauty of the deal that we don’t see the dagger pointed at our back.

    Just sayin’

  6. Ben, I have a current partner who is long term friend and my contractor. We have been planning this current deal ,a SFR Rehab, I think I bring the brains and he brings the work. I am still trying to put together a sharing split but will surely do it again. I’m new at this and I will be making more partnerships as I go and look forward to the learning and the sharing.
    Thanks for the piece. Tom

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