5 Tips I Wish I Knew Before Partnering on a Real Estate Deal
As an active real estate investor, it is likely only a matter of time before you joint venture, team-up, or partner with another investor, friend, or family member. Many investors will choose to utilize a partner for a variety of reasons; some reasons are valid, others less so. Remember that every partner you bring into a deal will likely reduce your potential profit. While it is better to have a small piece of the pie versus no pie at all, perhaps there is a way to safely keep the entire pie for yourself.
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5 Tips I Wish I Knew Before Partnering on a Real Estate Deal
1. Gain clarity before going into the partnership.
Ask yourself, “What’s my excuse for not doing this solo?” You are only one person. As a single person, you have limitations. Oftentimes an investor may choose to work with a partner out of fear, discomfort, lack of capital, lack of experience, location, a perceived lack of time, and/or much more.
- Capital: Instead of partnering and splitting a percentage of your profits, consider borrowing money from a friend, family member, IRA, private money lender, or hard money lender. Borrowing money from a public or private lender may seem a bit more time-consuming to find and organize; however, you will likely keep a significantly higher portion of your profits.
- Fear: Fear often comes from the unknown. Ask more questions to seasoned real estate investors to gain more clarity. Understand your ideal step-by-step process before moving forward with your specific situation. This website has many helpful investors waiting to give a helping hand to active investors with genuine questions.
2. Understand how much knowledge you’re lacking.
At best, you are an expert within a few areas of real estate investing. Still, no one knows everything about real estate investing. There is just too much to know and too much changing at any given time. With that said, there is nothing stopping you from learning what you need to know to close the deal ahead of you. If you do not have the specific knowledge or experience to successfully navigate an entire deal, then if is important to understand if:
- You have little to no idea what you’re doing. If this describes you, then it may be best for you to gain more clarity before moving forward with any particular deal. This clarity can come from asking dozens and dozens of questions to experienced investors, investing via trial and error, or working/partnering directly with an experienced investor you trust.
- You have more than a basic understanding but still have questions. If this describes you, then you may not need to partner with a more experienced investor to invest safely. However, it may be a wise idea to have the phone number or email address of an experienced investor you may ask general/specific questions and bounce ideas off of. Keep in mind while working solo, it is your responsibility to keep yourself and your business safe.
- You are pretty sure you know your stuff, but would like a second opinion at times. If this describes you, then you may not need to partner with a more experienced investor to invest safely. However, it may be a wise idea to have the phone number or email of an experienced investor you may ask specific questions and bounce ideas off of. Keep in mind while working solo it is your responsibility to keep yourself and your business safe.
Related: 9 Possible Pitfalls of Real Estate Partnerships
Use the help of this website and your local real estate investor clubs to reach out to experienced investors in the niche you need help with. For example, ask the president or leader of your local real estate investment clubs who they would recommend as the local triplex expert or wholesaling expert. You may then reach out to these people and hopefully get a number of your questions answered. With any luck, this person will be able to answer some questions for you before, during, and after your specific deal(s). You may also ask to partner on the specific deal if this investor is interested.
3. Always vet potential partners before the deal.
Talk is cheap. Especially in the real estate investing world, there are many people who tend to over-promise and under-deliver. This is not a trait you want in any partner you work with. Ideally aim to know somebody for a few months, look over their deals, and have multiple interactions with them (and other investors they know) to properly vet any potential partner before working together one-on-one. It may be a prudent idea to:
- Walk through any deals your prospective partner may be working on currently.
- Make sure there are no current warrants or legal suits against your prospective partner.
- Inspect his or her books/files to see how organized your prospective partner is when it comes to incoming/outgoing payments.
- Ask for referrals of other investors who have partnered with or lent money from/to your prospective partner.
4. A good agreement can save you.
Assume your business partner will eventually try to take advantage of you. When everything is going smoothly, there is typically nothing to worry about. However, when things go unexpectedly or there are problems ahead, it can be very important to have a written agreement outlining who is responsible for what and when. Agreements and contracts can save time, money, friendships, and headaches.
Related: 4 Tell-Tale Signs of a Bad Partnership (From Personal Experience)
Consider only working with a partner on specific deals you need specific help with. If you are able to find, fund, fix, and resell/rent a property by yourself, then a partner may not be needed. Consider only using a partner if needed.
5. Take control of the risk you’re taking on.
If you are the “money person” in the deal, then listen up. While it is said that money/capital is very easy to come by, assuming that a real estate deal is solid/profitable, it does not mean that this money has to be “dumb money.” If you are the person contributing the majority of money in the transaction, make sure you feel 100 percent confident that your money is protected and accounted for. Aim to work with a partner you can describe as a hard-working investor who is experienced, tenacious, accountable, and ethical.
In conclusion, always aim to have clarity with regard to your entire situation. Aim to think long-term about what is best for both you and your potential partners’ businesses, reputations, and future dealings together. Sometimes the best deal is the one not taken.
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