Real Estate Investing Basics

Creating a Real Estate Partnership That Works

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Last week we discussed partnering on a real estate deal (article). It was more about why you would do that and used an example of a deal that worked. Today we will discuss how to do it.

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To steal a phrase from Stephen Covey’s The 7 Habits of Highly Effective People, Begin With The End In Mind. So many people jump into joint ventures for all the wrong reasons. Often someone finds a great deal but has no money and another person with cash sees profit potential. But much like a celebrity marriage, you should have a pre-nup. Lay out the specifics of how, when, and why to dissolve the business marriage. Make no mistake; a business partnership is very much like a marriage.

Why to Partner

We all have our strengths and weaknesses. Many of us are well aware of our good points but are often blind to our shortcomings. A good partnership begins with a real honest evaluation – of us.  Take the time to list what you are good at and, more importantly, list where you need help. Hint – it’s more than cash.

The ideal partner will be someone who is strong in areas where you are weak. You are the ideal partner for someone who is lacking in areas where you are strong. It seems so obvious but many people miss this. A typical example of this would be two people with a construction background form a partnership even though neither one of them has any understanding of how to run a business.

Set Expectations

We’ve all heard the bit about “everybody” thinking “somebody” was going to perform a task but in the end “nobody” did. That’s because it was never clearly defined who “somebody” was. The role of each partner needs to be spelled out in great detail. Be as specific as possible and when you think you’ve nailed it down, ask yourself how you can be even more specific. To have a partnership run smoothly everyone involved needs to have a clear understanding of their role.

When things go wrong (and they will) avoid playing the blame game. Fix the problem and refine the agreement so it doesn’t happen again. In the deal I mentioned last week the only real snafu was the failure to obtain a necessary permit. It was a simple misunderstanding as to who was supposed to do it that was easily corrected, but it set us back more than a week. In a situation like that it’s easy for hard feelings to arise; in this case it didn’t because we had spent a fair amount of time laying the groundwork for our venture.

A great partnership is a synergy where the sum of the whole is greater than the parts. When it works it’s beautiful. When it goes wrong it’s a nightmare. Some people are not cut out to be involved in a partnership. It can save you a lot of heartache if you recognize that at the outset.

One final, and perhaps most important point – Write It All Down! A verbal agreement is the easiest way to have a misunderstanding. People hear what they want to hear and remember things in a way that is convenient. A written agreement solves that problem

By the time a partnership dissolves, it has dissolved. – John Updike

Photo Credit: Cushing Memorial Library and Archives, Texas A&M

    Liz Voss with San Antonio Real Estate
    Replied almost 10 years ago
    Richard, I think the last paragraph should have been the first paragraph, and in bold letters. Too many people get into business partnerships without treating it as a real business. Example: having a writen contract outlining job descriptions, who brings what to the table, job duties, etc.. Visit Liz Voss’s last blog at San Antonio Homes for Sale.