A Tale of Two Real Estate Joint Ventures: Success vs. Failure
The old saying goes “two heads are better than one.” Out of all the real estate transactions I have been a part of, some of my favorite deals were the JV deals I have done with a partner. Working a real estate investing deal with someone else can greatly increase profits, productivity and results.
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I have two joint venturing stories to share with you today. One story is of a great success that created laughs, profits and comradery. The other story is of a simple deal that let a two decade long friendship burnout.
Success in Partnering
The year was 2004. The patriots just defeated the Panthers for the first of consecutive Super Bowl victories and I had just met another young investor in town. We met at a local REIA meeting and we quickly discovered that we shared very similar ambitions and drive; the best part of all was that he was nothing like me. He was crass, rude, analytical, introverted and he knew about developing land, impact regulations, and he could rebuild or fix anything in or under a house. I on the other hand had real estate investing knowledge, experience, and knew how to find and structure amazing mobile home deals.
We sat down and discussed how to make $1,000,000 in the next 30 days. I love having these conversations even if we seem to be reaching for the stars. Over the next 3 years we created several mobile home/land transactions from scratch. We were both doing things we loved and were proficient in doing. We bought undervalued land using creative terms, he made it ready for residential use and I moved very beautiful, very inexpensive manufacture homes in place. We sold the home and land packages with seller financing until a point when we were refinanced out, making a sizable profit for the amount of time and effort applied.
A Real Estate Partnership Gone Awry
Halfway through this fun and profitable joint venturing experience, a childhood friend and I came up with a plan to purchase and fast turn homes destroyed by hurricane Katrina. Yes, this is one of those stories! Partly sparked by the TV hit “Flip This House” and the hype of real estate and flipping homes we rushed to get our investing game plan together. We were best friends and I let friendship cloud my vision to the great obvious flaw in our partnership. My friend knew next-to-nothing at the time about real estate investing or rehabbing gutted houses. My tasks in the transactions were to handle a majority of the financing, book keeping, and my friend was to handle the supervision and handling of repairs, contractors, permits and deadlines.
We got along great, trusted each other completely and went so far into debt it hurt. We purchased our first Katrina home using hard money; before we were even done fixing the first one to be ready for market the second and third homes were already bought — with hard money of course. Living over 900 miles away from Mississippi made it challenging to view repairs, pull permits and hire contractors.
Missing materials, natural disasters, insurance underwriter, alcoholic contractors, fires, power problems, and permitting issues all caused delays to mount up and expenses to multiply every month. The mounting frustration, animosity and disdain between my partner and I caused a breakdown in communication and soon the deals were doomed. I ended up losing my best friend, credit, respect and a ton of capital.
It is import to remember, before embarking on any new venture, to get advice about the destination ahead and to set realistic goals with an educated and trusted mentor. You would not try to travel to somewhere you have never been without detailed directions or a guide. Watching a few shows on TLC does not make anyone an expert in construction or management, and being naive won’t stop the bills from piling up. Things do not always happen like you plan, but if they do turn sour it would be nice to have a partner that is just as invested in the transaction, its success and failure, as yourself.
Joint venturing can be a great asset when it multiplies your efforts. Try doing a single deal, make a profit, and then do another. Test the joint venturing waters before you dive in without a tank. Partnering with an individual that has the same or more drive, successful track record and passion, yet brings a knowledgeable skill set different than yours, to a deal, can make for a fruitful partnership.
– J. Fed