Partnerships: The Benefits of Teaming Up in Real Estate Investing
Everyone has heard the horror stories of business partnerships: the tale of one partner screwing the other out of his life savings, the partnership turned Ponzi-scheme with one partner in the dark about the scam, friendships ruined by a disagreement or financial losses, and families torn apart by well-intentioned business plans. Who knows how many potentially successful partnerships never happened because of fear induced by these scenarios and others? I started real estate investing in a partnership several years ago which is prospering today, so I wanted to share the potential benefits of teaming up.
Benefits of a Real Estate Investing Partner
Starting any business can take a lot resources, often too many for one person to handle themselves. If you find a person with similar interests, goals and work ethic, it may be possible to pool your resources to get off to a smooth start. Teaming up make also make bank financing possible, where individually you were unable to qualify during this time of strict underwriting requirements.
It is important to master the art of deal analysis. For someone just starting in real estate investing, analyzing a property can be quite the undertaking. There are hundreds of considerations when searching for that first real estate deal, so having someone sanity check your analysis greatly increases your odds of an accurate analysis. I can recall several properties I concluded were grand slams, only to have my business partner point out a flaw that I did not consider, saving us from a potentially disastrous deal.
Every person brings different strengths and weaknesses to a partnership. While one person may be a numbers person, the other might be able to visualize improvements to a property. Understand what each person is good at and put those skills to use to improve your business. In my business, my partner is an engineer and is able to accurately estimate renovations costs, a skill I have not yet mastered. However, I am able to market the business in ways that he would not feel as comfortable. Our understanding of one another allows us to leverage these skills and yield to one another when necessary.
Real Estate Investing is not easy! There are a lot of tasks that can easily overtake your life if you let them. Effectively and fairly dividing tasks can ensure that all partners are able to contribute to the business while not being overwhelmed. For example, I have been out of our investing market, forcing my business partner to handle day-to-day operations. It was critical that he manage contractors and ensure our renovations remained on schedule and on budget. To contribute, I had to step up in other areas, making sure our bookkeeping was up to date; our website content was continuously improving and finding new deals. It may be impossible to split tasks 50/50 at all times, but as long as communication channels remain open and goals stay aligned major conflicts can be avoided.
The importance of networking cannot be overstated and networking becomes much easier when you have more than one person spreading the word. Additionally, each partner already knows people who could end up playing a part in your business, either as team members, lenders, contractors, or clients.
People who are on a workout plan or diet often have accountability buddies to make sure they stay on track. It is human nature to slack off when things get difficult or life gets busy, but business partners help keep each other focused. During our partnership we have faced military deployments, a marriage, a personal home purchase and other life milestones. In a one member business it would be very easy to let life slow you down, focusing on more important things with the intention of returning to investing when things slow down. However, having a business partner you do not want to disappoint keeps the business on course.
Beginning in real estate investing can be quite scary, especially for someone who has little experience in entrepreneurship or business. Having somebody to talk to who is feeling the same way is both calming and motivating. When obstacles arise, it is natural to doubt oneself and wonder if your pursuit of real estate investing is the right thing for you both personally and professionally, but having a partner to re-assure you can be revitalizing and motivating.
As with any investment, real estate investing carries risks and some people are unwilling to take that risk on their own. However, having a partner splits the risk (and the profits), making real estate investing an acceptable business.
Tips for a Successful Real Estate Partnership:
Don’t be jerk:
I don’t think I need to explain this one.
Don’t sweat the small stuff:
Like any relationship there will be disagreements and there must be compromises. If you are the type of person who must have your way in every situation, you should probably go into business by yourself, because that is not the kind of partner most people want.
Seriously, talk every single day when possible. A lot can happen in a single day and both parties need to aware of what is occurring with the other partner. Discussing daily events and future goals keeps the relationship growing and validates the reason you teamed up to begin with.
Do not start a partnership off the wrong way. Make sure the arrangement is well planned and includes an operating agreement to detail the roles and responsibilities, capital contributions, and profit splits. It should also include those things you likely do not want to talk about like what happens when the partnership ends (either by choice or death).
While partnerships have a lot of benefits, they are not for everyone, and many people are not good business partners. If you decide you would like to pursue a business partnership make one hundred percent certain you choose a business partner that will treat you fairly and has goals similar to yours. Carefully plan the arrangement and constantly communicate. If both partners remain committed to the business, you will likely develop one that is prosperous for all parties involved. When you can’t evade the picture of a partnership going down in flames, eat a pint of Ben & Jerry’s ice-cream…they made it happen and so can you.