Rookie Podcast 30: How to Structure a Partnership, Part 1 with Felipe & Ashley

Rookie Podcast 30: How to Structure a Partnership, Part 1 with Felipe & Ashley

37 min read
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“I know partnerships can help me build wealth, but how do they actually work in practice?” This is one of the most common questions we get… and today Felipe and Ashley outline 6 rules for partnering on your real estate investments.

From identifying the missing piece that’s holding you back, to defining clear lanes and avoiding common pitfalls… this show is a must-listen for any new investor who realizes she can’t do it all herself.

Be sure to come back next week for Part 2 – where you’ll hear the details of real-world partnership case studies, as told by a handful of investors who have made it work!

Click here to listen on Apple Podcasts.

Listen to the Podcast Here

Read the Transcript Here

Ashley:
This is the Real Estate Rookie show number 30.

Felipe:
Are you able to fill in that weakest link for them? Do they need you, just like you need them? Is your strength also their strength? Then it’s probably not going to work out.

Ashley:
My name is Ashley Kehr and I am here with my cohost, Felipe Mejia, who is 30 years old, and this is episode number 30. I just want to know when we did episode 19 why we didn’t say, “Ashley is 19 and this is episode 19.”

Felipe:
It’s funny, Ashley. Everyone knows that I’m 30, but mo one knows your age. I don’t know if you’re 17 or 47. It’s like you can’t really tell. It’s interesting because actually, my son’s previous physician, doctor, whatever you call it, I couldn’t guess her age. She talked about her college a lot, but she also had some gray hairs, but she wasn’t … She was an old soul, so I couldn’t figure out how old she was. Ashley one day will let us know based on the episode number, so you better let it out quick.

Ashley:
Well, we’re going to find out next week, then. Speaking of next week, we’re going to do a follow up to this episode. Today, we are talking about partnerships. We’re going to give you six things rookies need to know and do to find a partner on their first deal or their next deal. And the next week, we’re going to have a handful of different successful investors on the show and they’re going to give us real life case studies of partnerships that have worked for them, maybe even bad case studies of partnerships that haven’t worked for them, how they structured them, what they looked like, what’s the percentage, whose responsibility is what, some real life case studies. So make sure you guys come back and listen to part two with the real life case studies. But today, you want to tell everyone our six things we’re going over, kind of summarize it?

Felipe:
Yeah, absolutely. Today, me and Ashley are going to be talking about the six things to create a great partnership as a rookie. I know that’s sometimes hard because when you first start out, you want to learn everything, you want to do everything. But me and Ashley have both built a successful real estate business out of using partnerships because we’ve both realized and humbled ourselves enough to know that we don’t know it all. We’re not going to learn it all. Ashley talks about that she’s not great at construction and I’m not great at Excel sheets or keeping the numbers together, so today we’re going to break down the six things that we have talked about that has been beneficial and essential for us creating great partnerships, even when we first started as rookies. Ashley, do you want to take the first one?

Ashley:
Yeah. The first thing, number one, is the missing piece. What are you missing that’s stopping you from getting your next deal or your next partner? And do you even need a partner? What does the partner bring to the table that you need? So let’s look at time, money, knowledge, experience. Do you have any of those things, or is one of those things that’s you’re missing? You don’t have time, you have a full-time job, you got a side hustle, you got a family, you got all these things going on, then go and find a partner that can fill that for you. Don’t just pick anybody. You want someone that is going to fit that missing puzzle piece.

Felipe:
Absolutely. I agree. When I first started investing and realized that I needed a partner, one of the biggest things that I wanted to do was, “What is this person going to fill a void that I have? What is it that I’m missing?” And I figured out very quickly that the biggest thing that was affecting me was that I didn’t have the time to run my numbers … or not just run them, but keep up to date with them, keep all the spreadsheets, keeping all the receipts, making sure that I’m staying within budget. I just wasn’t good at that, so I needed to find a partner that strategically wanted the same thing that I wanted, but also could do the things that I wasn’t good at.

Ashley:
Yeah. I think that’s a great point. For my example, I wanted to really learn how to do a rehab, like a full-blown gut rehab, and so I took on a partner who knew what he was doing in that department and we made a partnership and we beautified this property and rehabbed it and did a complete BRRRR. But I would have struggled, I would have probably waited longer if I wouldn’t have felt confident getting that partner. So that’s just one example for me where it was really beneficial to grow my business and to expand it and not just stay in my little tiny cosmetic rehabs and kind of adventure out and use a partner to do that. So I think as much as you can leverage a partner, the better.

Felipe:
Yeah, agreed. And before we move on to the next one, I just want to add on there. When you’re looking for a partner, just make sure that you’re finding someone that is that missing piece to what you are looking for. Are you in a position where you understand and can accept what you’re not good at, and if you are, fill that void with that partner? You don’t have to learn everything.
One of the people in my circle that keeps me running is my CPA. I know that I’m not great at my taxes, so I brought her in to fill that void. If you’re going to have a partner in real estate, make sure that they are coming in to magnify or to help with one of your weaknesses. If your weakness is, fill in the blank for yourself, find a partner that’s good at that so that you have a strength and they have a separate strength, so now you guys are a powerhouse.

Ashley:
So like Felipe, for his last partner, he got someone with really big biceps because he doesn’t have any. For those of you not watching on YouTube …

Felipe:
See, this is why-

Ashley:
… you should see Felipe’s face.

Felipe:
So this is why I don’t have bicep partners, because that’s my strength. Moving on. So the first one was the missing piece. Ashley is not my missing piece, clearly. I need a new host. No, I’m just kidding. All right, so number two is going to be, will you add value as a partner? Are you personally a valuable partner in this deal? So okay, great. You’ve found a partner that complements your weakest link, but now, are you able to fill in that weakest link for them? Do they need you just like you need them? Is your strength also their strength? Then it’s probably not going to work out because you’re going to butt heads. But you have to complement each other’s weaknesses, you know what I mean, Ashley?

Ashley:
Yeah. That’s such a good point, and I love this one because you are the one that actually taught that to me when we sat down when I came to visit you in Nashville, what was it, pre-COVID. We sat down and we were talking about partnerships and that was one thing you had said to me was, “What do you bring to the table?” Yeah, finding a partner is great and wanting to bring out the best in them, and you want them to be valuable to you, but also it’s so important that you bring value to them. So with my partner for the rehab, I put the money in the deal. He had no money in the deal, and that was my value, and I did the acquisitions, I did all of that and I ran everything. He just had to show up and do hard manual labor.

Felipe:
You say that like it’s easy. “Oh, he just had to show up and work.”

Ashley:
I know.

Felipe:
“Pick up heavy stuff.” And that brings me to another point, and it’s not actually on our “list.” But a lot of people undervalue time and they put more value on money. I hear this all the time. Correct me if I’m wrong, Ashley. “Oh, well, I’m bringing the money to the table, so I need to know what they’re bringing.” And it’s like, I have found-

Ashley:
That’s the easy part, I think.

Felipe:
Yeah. That’s the easy part. Bringing the money to the table is the easy part. I feel like the time is almost more important than just the money. Because think about it, Ashley. How long did it take that gentleman that’s helping you out to learn the skills that it takes to do what he’s doing for you and your partnership? You have to value that just as much as money.

Ashley:
Exactly. And he was the one that had to drive there, had to put in the time. I worked side-by-side with him because I wanted to learn, but even if they’re not doing manual labor … maybe they’re out trying to find the deal and you’re just putting the money in when they find the deal … that still takes a lot of time. And so you really have to think about what do you want to give up? Do you want to give up money? Do you want to give up time? Where does that go from here?

Felipe:
Yeah, exactly. One of the things that I’m going to add to this is, what kind of value are you bringing to the partner, is, are you actually continuing to work on your strengths? It does me no good if my partner comes in with a strength and then lays back. Hey, I’m already good at it, then we’re just going to keep doing it because I’ve been doing this for 30 years the same way. My question’s also going to be, “Well, what are you doing to further your education in the strength that you have?” So if you’re really good at keeping the numbers, Excel sheets, doing this, that, the other, are you furthering your strengths in that? Or if you’re a carpenter, what are you doing to get better at it? If you go on Investor Girl Britt’s IG, at the very beginning, her videos were decent, her strategies were okay, but now she’s crushing it because she’s consistently pushing that boundary and consistently getting better.
So I want my partner to do the same thing. Hey, who are you mentoring under? I’m wondering how are you growing? Are you at the top of your game right now? That’s awesome, but who are you mentoring from? Who are you coaching from? Who are you learning from to continue to work on your strengths?

Ashley:
Yeah. I love that. I think there’s so many different ways to grow yourself with personal development, but you do want to make sure that you’re not just draining and focusing on your weaknesses, but the things you’re already good at. There’s room for improvement on those and you can get better and stronger on those things, too. Let’s talk about proof of concept on this as to how you can add value as a partner. What are your thoughts on that?

Felipe:
Proof of concept, how can you add value as a partner? So one of the things that I like to give an example of is, can I prove to my partner that I’m good at this, that I’ve done it before, and do I have a history on it? For example, when I pitched my idea to Diego, one of my partners, I was like, “Hey, this property does $1500 in cashflow. This is how it does. I’m going to show you the past six months’ rent roll. I’m going to show you the deposits. I’m going to show you what it costs to do this. I’m basically going to show you a completed model that’s now just working like a machine and all I got to do is oil it.” And he saw that I’ve built three of these, so he’s like, “Oh, okay. It’s going to cost me exactly fill in the blank how much money, and this is the return, and this is the cash on cash, and yada, yada, ya, fill in all the blanks, and we’re set.”
So I had proof of concept in three deals prior to presenting it to a partner because I think that’s really important. Now, if your partner is bringing not money but time, then I want to know what they’ve done with their time. Why is their time a value add to myself? Do they just have time because they don’t have a job, or do they have time because they’ve put themselves in a position where they can bring in, I don’t know, an expertise in plumbing or things like that?

Ashley:
Yeah. I think that putting together the proof of concept and showing them exactly how you’ve been successful before or how the numbers work … the more information you can give them, the better. I just want to add to this, is, this can work with your spouse, too. If you are just starting out in real estate and you want your spouse on board, treat them like they’re going to be your partner. Get them involved, or maybe not involved. Maybe they just want to be in the loop, know what’s going on. Or figure out how much involvement they want. And just as you would approach a partner and just as you would find what value your partner brings to you, figure that out with your spouse, too, because sometimes not having that support at home and trying to build this business can really take a toll on you. It can kind of hold you back. So I think that everything Felipe just said, just do that with your spouse, too. Get them on board and figure out how much they want to be involved in the process, too. Do you agree with that?

Felipe:
Oh, 100%. Let’s talk about weaknesses before we move on. But I did want to … Let’s get a little personal. Your husband owns a huge dairy farm, right? So he’s not really involved in your real estate, but he supports your real estate. Is that right?

Ashley:
Yeah, that’s right. I mean, it’s a small dairy farm, but yeah. I mean, he’s helped me do a little bit of rehab this winter, but other than that, he’s never been involved except for, like, “Hey, do you want to cosign on a mortgage with me?” But yeah, I mean, his support has been so great and it’s really helped me grow in scale because he just trusts me, supported me, I could do whatever I wanted with it, but I also clued him in and kept him involved as much as he wanted to be. If he wanted to know how things were going, I would tell him. My one partner, he wants to set up quarterly reports for his wife so that every quarter, she’ll get a statement for each entity, so she just knows what’s going on and can stay in the loop.

Felipe:
Yeah, exactly. And then for example, my wife, she likes to be involved. She works with the numbers, she works with the spreadsheets, she pays the bills. She’s super, super involved, so I think a lot of times-

Ashley:
And you would be lost without her.

Felipe:
Oh my gosh, I don’t know what I would do without my wife. Seriously, though. It’s interesting because sometimes I get the question of, like, “Okay, I want to build a partnership with someone,” and then you want to exclude your wife or your spouse. But like you said, we both are married and your husband is not involved and my wife is involved, but our partnerships with people outside of our marriage still work because we’ve allowed our spouses to be as or not as involved as they desire to be. So I think that’s what makes it work.

Ashley:
And I think before you bring on a partner, that’s something you need to sit down and figure out, too, with your spouse or your relationship partner before you dive into a partnership with another person.

Felipe:
Agreed, agreed.

Ashley:
So I’m glad we touched on that. But let’s talk the weaknesses now.

Felipe:
Yeah. One of the things that I like to tell, also, when I’m potentially wanting to partner with somebody is don’t focus on your weaknesses. Focus on your strengths, allow them to focus on their strengths, and bring those together for a powerhouse of a team. If you focus on trying to fix your weaknesses, then you didn’t allow your partner to complement those with his strengths or her strengths. His or her strengths need to be the complement to your weaknesses so that you both are only working in what you thrive in. For example, if me and Ashley got into a deal together and she’s like, “Hey, can you run the spreadsheets?” No, no, I can’t. That’s going to be a terrible business decision.

Ashley:
Yeah, because everybody knows my new nickname, the lady in the street-

Felipe:
What was it again?

Ashley:
Lady in the street and freak in the spreadsheets.

Felipe:
That’s hilarious.

Ashley:
[crosstalk 00:14:52] episode.

Felipe:
I love that. That’s so funny.

Ashley:
Yeah, so I’m glad we touched on that. But yeah, one of my weaknesses … well, it used to be … doing a rehab, so I found a partner to help with that. Then I’m opening my liquor store and I’ve never had to open a retail business before, so my partner for that has five restaurant franchises that he owns. He’s been helping, and his manager that manages all of those stores for him is actually helping getting our liquor store going. So that was another way I leveraged a partner, and I knew that my weakness is managing employees, so I did not want to do that, so that’s why I took on a partner who would do that. Okay, so-

Felipe:
I’ll go work for you, Ashley.

Ashley:
No, you don’t want to work for me. Number three. Okay, so how to find a partner.

Felipe:
Finally.

Ashley:
You’ve figured out the missing puzzle pieces. You know what you need in a partner. You know how you can be a good partner, what you can bring to the table, what your strengths and weaknesses are. So finding a partner. First, sit down, write a list of potential partners. It could be anybody. Think of the people you know and just write it down, and then start from there.

Felipe:
Agreed 100%. Identify the potential partner, I think, is key, because if you just go out willy nilly and trying to find anyone and anyone who maybe can help you, then you’re going to have an issue because then you’re just going to be looking for that in somebody versus identifying that. And that’s really important, because you don’t want to go out and look for a partner. You want to identify a partner and then find someone that fits that mold. That’s why you never go to the grocery store when you’re hungry, because everything seems to fit and then all of a sudden, you have two baskets full of food. But if you identify what you’re going to eat, you go into the grocery store, you get what you’re going to eat, and you leave, then you’re fine. You don’t have three baskets full of food. It’s the same concept, I think, when finding a partner. Identify what a partner looks like. Draw it out, write it down, whatever works for you, and then someone has to fit that mold.

Ashley:
Yeah. So once you get that list going, you know what you need in a partner, it’s time to approach the potential partners, and this is the scary part. This is where it’s hard to ask people for money or their time. But my best piece of advice on this is make sure you are bringing them an opportunity and you’re not beginning or making it about that you need them. Because really, that’s true. If you have a good deal, it is going to be an opportunity for them and they should be happy, excited that you are bringing them something that they can be a part of.
For my first partner, I put a little bug in his ear about how I wanted to this, if he’d be interested because his dad had done it, and we would talk about it. Then when I finally found a deal that I wanted to buy, I said, “Hey, I think I’m going to buy this. Would you maybe be interested in doing it, too?” I showed him everything and we went and looked at the property and then we bought it, the first property we had looked at. But I think it’s all about keeping that balance of not, like, “Please, will you do this for me? I really need someone to loan me money, blah, blah, blah,” and just showing them on paper, giving them as much information as you can, how this is an opportunity for them. At the end of the day, they should feel lucky that you approached them for this deal.

Felipe:
100%. And the way that you can approach somebody with an opportunity is by having the numbers in place, showing history, doing what we talked about earlier, making sure that you’re not just bringing any and every deal to them, but something that you know is going to work and that you have history on. Or, if it’s your first one, that you know the numbers like the back of your hand. I don’t know if some of you guys watch Shark Tank, but one of the biggest things that I see that people fail in Shark Tank is they just don’t know their numbers.
So if you know your numbers and you have down exactly how it’s going to work the first year, second year, third year, et cetera, and you tell your partner, “Hey, this is the role that I would like you to play.” And you’re not just going to go to someone that doesn’t fit that mold. Then they know that, “Oh, this is great. This is where my strength is. Perfect.” Then I know exactly that you’re not wasting my time, you’ve done your homework on me, you’ve done your homework on the deal, this is a great opportunity, it’s a win-win for both.

Ashley:
And are you approachable, too?

Felipe:
Super key.

Ashley:
So when you bring them the deal, are they going to feel comfortable with you, too? You got to make sure that when you’re presenting it, you are approachable for the partners to be able to ask you questions for them to trust you. So I think that’s something else you really need to look at, is make sure that they can approach you with their questions, approach with your advice that they may have to ask you during this whole process, especially if they’re new for this and maybe they haven’t done real estate investing. Maybe they’re just the money this time and they’re learning from you.

Felipe:
100%.

Ashley:
But let’s talk about my favorite, favorite part of this whole partnership thing, is the partner presentation.

Felipe:
I’ll let you have to take over this one because getting financials …

Ashley:
I would just-

Felipe:
… on yourself and your partner, analyzing the deal, all that is way out of my wheelhouse.

Ashley:
I would just cut you off because I would be so excited. I’d be like, “Make sure you get the color-coded binder out.”

Felipe:
I’m going to let Ashley do what she does best and talk about the presentation portion to the partner.

Ashley:
Okay. So you need to go to your local Walmart, get a three-ring binder, and put together your presentation. First-

Felipe:
Okay, let me cut you off. First of all, if you come at me with a three-ring binder with all these numbers and doohickeys, Ashley, I’m walking out the door.

Ashley:
Okay, let’s talk about that. How would you prefer to get … If someone was approaching you, how would you prefer to receive it?

Felipe:
Oh, I like this question. Okay. So honestly, I’m more of a history type of style. So for example, you’re going to have a successful liquor store, right? So if you were like, “Hey, Felipe. I want to open up another one in Nashville or another one here. Will you partner?” I’m more of a history. I personally wouldn’t want to see a folder of the numbers and, “This is how it potentially is going to work,” and yada, yada, ya, because honestly, just like Mike Tyson said, “Everyone has a plan until you get hit in the mouth.” So for me, I want to see have you done this before, and if you haven’t, who are you mentoring under who has done it before? See, you’ve never done the liquor store, but you got the right team in place who has basically done what you want to do. So to me, that means more than numbers and Excel sheets.
Now, as I say that, I also know a lot of people that have been very successful by following the metrics on a certain Excel sheet or gathering the financials and putting it all into place. Honestly, I think you need both.

Ashley:
Yeah, and that doesn’t answer my question.

Felipe:
Oh. Sorry.

Ashley:
You were making fun of my three-ring binder approach saying that you wouldn’t like that. Would you rather receive it as a PDF in an email, a Google doc? Would you rather-

Felipe:
Over a Chick-Fil-A, maybe?

Ashley:
Yeah. Would you rather sit down one-on-one?

Felipe:
Over lunch?

Ashley:
That’s what I was asking.

Felipe:
Yeah. That’s how I would like it.

Ashley:
Okay, but you’re … No, that was a great point you made, and yes, all of that information should be in your three-ring binder or in your PDF file you are going to email someone.
So to get back to that, the first thing I like to do in tab number one is your financial history. Felipe is rolling his eyes at me. Your financial history. I would include tax returns, your personal financial statement. You can use the app Personal Capital, and it updates your personal financial statement on the daily, your net worth, and you can just print that out and put that in there. I would do any businesses you already have, do profit and loss for them. You can include bank statements. I would pull your Credit Karma report, add that in there. As much information about your own personal finances as possible, I would put in there. So great to have a strong foundation before you’re going to go and ask someone to manage their money. You want to be able to manage your own, the money that you already have, before you approach someone. And it’s not about how much money you have. It’s about how you manage the money you do have, and you want to prove that when you approach a partner.
The next thing would be is the deals. What’s your deal history? Just like Felipe said, how am I managing stuff? Do I have people in place? What’s going on with my current businesses, the current things I’m doing? Or what resources do I have for this current project? Basically, what do I bring to the table for this deal? And so I would include as much as you can about that. I’ve done the BiggerPockets calculator reports showing my current properties, what they’re cashflowing, include my current financing, how that’s working, I’ll do a profit and loss statement. I’ll show as much as I can in appraisal on the property. And then, if you actually have a deal ready that you’re ready to go on and you’re bringing a deal to them, include that deal in there. Do the BiggerPockets calculator report, add that in there, add sales comparables. Get those comps in there. Show them, “This is what comparable rents are. This is what comparable sales prices are.”
I think the most information you can give them, the better. Then at the very end, the last tab, I would include references. Who are people you have worked with or people well respected in the community who would give you a good reference? Or, have you gotten financing from a bank before? Put the loan officer that you worked with in. One of the things I really love to do is be super responsive to loan officers and get them what they need exactly when they need it. I could ask any of my loan officers right now … I think, and I have before, a bunch of them … for a recommendation for when I’ve gone to get seller financing on deals. I have them write me a letter saying that I was great and awesome to work with, just like Felipe would say when asked if I was a good cohost.

Felipe:
I would not put that on paper, but it’s there, I’m sure. No, I’m just kidding. I love that you’re explaining these things.

Ashley:
Yeah. So what would you add to that, I guess?

Felipe:
No, honestly, nothing. I think that’s a great example of why we work so well together, even just on this podcast, is because you are the strength to my weakness.

Ashley:
Yeah. One thing I want to add, too, I forgot to add in the beginning. When you do your finances … I was speaking on a Zoom call the other day and someone said, “Well, shouldn’t you be worried about that person? What if you don’t trust them with your finance information, financials?” Okay, well, you can black out your social security number, stuff like that, but if you’re partnering with this person, you want to be able to trust them with at least seeing your tax return. So I think that’s kind of a big red flag. If you don’t even trust them to look at your tax return, why would you want to partner with them in the first place?

Felipe:
Yeah, 100% agree with that. If you’re even questioning the idea of not showing them your tax returns because of whatever reason, it’s probably not going to be a good partner. Because a partner is going to see just about as much as your spouse is going to see when it comes to finances and business and all that. So super, super careful with that. I mean, listen to your gut, listen to your spirit, listen to everything that encompasses who you are, and if you just have a negative feeling towards this partner, walk away because it’s going to save you a lot of troubles. More than just money. Headaches, sleepless nights, the whole bit. So just be super, super careful with that.
But like I was saying, Ashley’s completely right. When it comes to partnerships and presenting that to the other partner, that’s why me and Ashley work so well together, because she is definitely the strength to my weaknesses and vice versa. So it helps a lot to be able to have somebody that does that.
So the last part of that is closing the partner. I think it’s really, really, really, really important to close up that conversation with somebody by speaking about your … And we’ll talk a little bit about this later. That’ll be our number six, about goal alignment. But closing the partner’s going to be like, okay, you’ve presented the deal, you know how to find a partner, you know what missing piece and you know what value they’re bringing, but when you’re going to close the partner, you need to make sure that it’s going to align for both of you guys, that this deal is going to work for both of you guys. And like I said, we’ll talk a little bit about this later. But is one person’s goal cashflow and one person’s equity? Then the deal’s probably not going to work. Present the deal, know each other’s strength and weaknesses, talk about what your roles are going to be based on your strengths and weaknesses, and then see if this deal is going to work.
Okay, so we’ve talked about the four. Let’s move on to number five, which is going to be assets and liabilities. Now, when we say that, we don’t necessarily mean structured buildings. What I’m saying is, now that you’ve closed the deal with your partner, like I hinted before, you have to identify each other’s strengths and weaknesses and assign roles and tasks based on that. So am I going to be swinging a hammer, or is Ashley going to be the one swinging the hammer? Who’s going to be … Let’s say that we have to purchase, I don’t know, a new toilet. Who’s going to go and buy it, and who is going to have to put the receipts in the folder virtually? Who’s going to set up the Zoom calls? Who is going to talk to the contractors? It’s really important that you identify each person’s weaknesses and their strengths, their assets and their liabilities … see what we did there? … to assign each person their tasks. What is your task? What is my task? Is that something that gets put in my strength or in your weakness? It’s really important that you do that.
Let me explain another reason why. If we make a list of everything that needs to get done in this project, from buying new doors, new toilets, whatever the case may be, everything that needs to get done, down to buying products, putting the receipts, opening the bank accounts, you write down a list of everything that needs to get done and then you assign tasks to each other based on your strengths and weaknesses. Oh, yielding a hammer, Felipe. Excel sheets, Ashley. Buying a toilet, picking up, and delivery, Felipe. Making sure that we stay within budget, Ashley. So assigning those tasks to each person based on their strengths and their weaknesses is key to making sure the project now runs smoothly. That’s very important.

Ashley:
Yeah, and when you structure your partnership, too, these are kind of … You can put these generic things into the operating agreement. So you want to have an agreement ahead of time stating, “Hey, when we do a rehab, we’re going to sit down together and we’re going to assign the tasks then.” Or, “When we do a rehab, Ashley does this, Felipe does this,” and it’s already ahead of time laid out for you. So put as much information as you can ahead of time in your agreement. There aren’t any disputes and you already have your strengths and weaknesses figured out and what your job roles are going to be.

Felipe:
Now, this isn’t to play a blame game, okay? We’re all human. Someone’s going to drop the ball. But this is so that nothing falls through the cracks, is what we’re trying to identify. Let’s just say that Ashley forgets to upload a receipt and we’re missing $500. This isn’t to say, “Oh, Ashley, you stole $500.” It’s like, “No. Okay, at least now we know that was Ashley’s role, so let’s go look in Ashley’s tabs to see where that is. Oh, look at this, Ashley forgot to upload a toilet or something that we had to buy, but now at least we know where that is.” So it’s not about assigning who’s at fault. It’s about making sure that items don’t fall through the cracks, because the last thing you want to do is finish a rehab and you’re missing $500 because fill in the blank. It’s not about assigning whose fault, it’s all about making sure things do not fall through the cracks.

Ashley:
And when you look at these things, too, you don’t even have to assign tasks. If you want to be a passive partner, outsource everything. That is an option, too. A lot of time, people get caught up in how to structure a deal and whose responsibility is what. “Okay, if you do this, how much equity do you get? How much cashflow do you get?” Take a breath and you can outsource everything. If it is going to be that complicated for you, go ahead and outsource it. Then you guys are passive, there’s no anything that needs to get done as you guys are each paying that fee 50/50 or however you have structured it. Don’t forget that that’s an option, too.
And then you can also pay. So say me and Felipe are 50/50 partners and as we go along, we don’t know who’s going to have time for what tasks, so in the beginning, we sit down and we say, “Okay, whoever does the bookkeeping, they’re getting paid $50 a month out of the company. Whoever is going to be the project manager on the rehabs, they’re getting paid $1,000 per rehab project,” or whatever. You can lay those out. It doesn’t have to be set in stone from the beginning that, “Okay, Ashley’s doing this so she’s getting 60%. Felipe’s doing this so he’s getting 40%.” You can pay out as you go, too.

Felipe:
100%. I think that’s super crucial. Okay, so now we’ve identified assets, we’ve identified liabilities, your strengths, your weaknesses, how you can complement, and leveraging each other towards that, assigning tasks, the whole bit. The last and most crucial step, I think, when getting ready to pull that trigger on that deal is, do your goals align? And we can talk about this forever. Do your goals align? is number six because it doesn’t matter how well you guys fit together, it doesn’t matter how well the business is structured, I don’t care how many LLCs and lawyers and everything that’s involved. If you’re goal does not align for the deal, it’s not going to work. If Ashley’s goal is for an equity play and mine is for a quick return in less than six months, our goals don’t align no matter how much we are going to work well together. We have to have the same goals as to what our deal is going to be and what our outcome is for that property.

Ashley:
Yeah. One of my favorite things that I recently learned this past year is family alignment meetings with your partner. So if Felipe and I were partners and we were going to have an alignment meeting, we would invite our spouses, maybe even our kids to be a part of this because it is so important to make sure you guys are all on the same page. In New York state … and I hate to be negative and a pessimist on this. But New York state, if you get a divorce, it’s 50/50. So if Felipe was going to get a divorce in New York state, his wife would be entitled to 50% of the company … or actually, 25. He owns 50, so 25 of the total shares. So she would become a partner. You can pay them out, all the logistics, blah, blah, blah. But there is the chance that she could end up as being my partner. And there are ways to protect yourself from that and operating agreements, stuff like that.
But I’m just saying, going forward, it’s very important to have these meetings because she could be part owner someday, but also, Felipe cares a lot about what she wants and what she thinks, and if you’re not all on the same page and she’s telling Felipe this and I’m telling Felipe this, that’s going to cause a big strain in the partnership if she wants Felipe just to sell it all and they’re moving to Waikiki but I want to keep buying more properties. So inviting your spouses to those alignment meetings, I think, is a great thing. You don’t only want to be aligned with your partner’s goals, but you want to bring in your spouse, your girlfriend, whoever.

Felipe:
Yeah, 100% agree with that. If you don’t have everyone aligned … I’ve seen more businesses not make it because a spouse was in the other ear saying negatively about the other partner. So you need to make sure that everyone is aligned together with a deal to work.
Now, the next part about goal alignment I think is very important. I think listening to understand your partner and not just listening to reply to them is crucial when setting up a business plan. If me and Ashley are talking, “All right, we need this amount of cashflow,” and we’re talking cashflow and we’re talking cashflow, but I’m not listening to Ashley to understand why she wants cashflow and I just hear, “Cashflow, cashflow, cashflow,” then I could miss something crucial in there where Ashley might be saying, “Hey, I want to do cashflow so that we can reinvest that same money.” And I might be thinking, “Oh, cashflow, so I can pay off the Tesla.” Right? So I have to listen to understand Ashley, not just listen to reply to my partner.

Ashley:
That’s definitely something I struggle with because I like to have control and I like to do it-

Felipe:
Oh, we know. Oh, we know. We know. We know. We know listening is hard for you. No, I’m just kidding.

Ashley:
I think that’s the first time you’ve made a joke at me. It’s always me criticizing you.

Felipe:
Finally we got Ashley.

Ashley:
Yeah. I mean, that one had a lot of truth in it, yeah.

Felipe:
Might have not been a joke.

Ashley:
But yeah, I completely agree with that. You need to understand. I have chosen my partners where they let me have the control and they like me to have things in control, and they have their things they’re responsible on, but they rely on me a lot and I like having that control and authority over things. I wouldn’t be a very good passive partner, I guess. I would want to know everything that was going on and I would just be nagging them like, “Oh, what’s the profit and loss look like today?”
So now that you have your partner, we talked about more of the mindset stuff and finding the right partner, what to look for, what you should be like, let’s talk about, like, okay, you’ve found your partner. How do you structure it? What are some important things you need when you put this partnership together? Obviously, consult an attorney. You want to put it together with an attorney to make it legal and make it correct. But there are a couple things that we can recommend to you, such as an operating agreement that your attorney can draw up for you. But Felipe, what are some things that you put into your operating agreement with your partner that you think has been really beneficial, such as things that you planned out ahead of time so that going forward, there’s no disputes, no confusion?

Felipe:
Sure, absolutely. If you’ve gone through steps one through five that we’ve already talked about, the operating agreement that you create should be easy. It should be super simple because you’ve already identified your strengths, identified who has what roles, and everyone is going to agree on that. So if you write down your strengths, your partner writes down their strengths in a deal, and they align to create a perfect deal, then now you just translate that into an operating agreement.
Now, in the Latino culture, a big thing with us is our last name. So for us, an operating agreement is really important. But more than that, it’s just who we are as a person and our last name. If I tell you I’m going to do something, it literally breaks my heart if I do not or cannot, for whatever reason. So in my operating agreement with my partners, we typically write out what we expect from each other, how we’re going to hold each other accountable to that, and then obviously just having a lawyer write it up to make it legit. And then we just go get it notarized, file it away, if we ever need it, there it is. But I can tell you this. I’ve looked at every one of mine once, the day we created it, because we’ve just been able to … If you follow these steps, I’m not going to say it’s going to be perfect, but it avoids a lot of the hassles.

Ashley:
Yeah. To add onto that, I want to give you guys a little tip here about the operating agreement. And Felipe, great description on what you should put in there and the important parts of it. But you can also ask your attorney for a sample document of an operating agreement. Or maybe you already have someone that has done an operating agreement and ask them for a copy of it. Maybe they can take out the different information. But what I did was my attorney actually gave me a sample copy with fill in the blanks. So now, any time I start a new partnership, I fill in the blanks and I will add anything specific in there that I need to, and then I will just have her review it and say okay, and that saves me attorney’s fees by doing that myself. I make it exactly how I want it, and then she just double checks it to make sure everything is legal and it’s good to go.
There’s other forms you can do that, too. Obviously leases. So that’s just a little tip if your attorney will do that for you guys. It saves a lot of time and you’re able to fill it out yourself. One thing I want to add that you should have in your operating agreement and something extra you should have is life insurance. I would put in your operating agreement that it’s required that the entity, the company, hold life insurance policies on you and your partner. Why I use this … So if one of my partners passed away, the life insurance policy would kick in and I would use that money to pay off his family for his shares, and then I would return 100% ownership of the company. So that way-

Felipe:
And I think this is a perfect strategy, Ashley. I don’t want to skip over this. This is really important because this shows your love, care, and commitment to not only your business partner, but to their family. If a situation like that happens, the last thing they’re going to want is to hear about your profit and loss. They’re going to want, like, “Here’s the money that Joe Schmo was involved with me. Here’s all of it. Go take care of whatever you need to take care of, and I’m going to take care of the asset and all of its problems. Here’s the money from the life insurance. Go and take care of yourself and your family during this situation,” because unfortunately, those things happen. The last thing you want is, “Oh, okay, your husband or your wife just passed away, but hey, we still got bills to pay and figure this out,” and just adding more stress.
So adding that life insurance, I think, is so important because it’s such a minimal cost monthly that comes out of the asset anyways, but it guarantees that business partners’ spouse, at least the financial strain won’t be there if something catastrophic like that happens.

Ashley:
Yeah, and I look at my own husband. He doesn’t want to be partners with my other partners on real estate if something were to happen to me. He doesn’t want to have to deal with the properties, so my partners would retain ownership and he would get a cash payout and that would be to help our boys. And for even people who aren’t married, I mean, who … if you have a will … If something happened to you, who’s going to be the one that’s taking on that entity, and would they want to? I mean, maybe it’s your parents. I mean, do they want to be partners with your partner, and does your partner even want to be partners with them if something were to happen to you? And if you don’t have this life insurance policy in place, what happens if your partner can’t afford to pay your loved ones out? And then your loved ones are stuck trying to maybe sell that entity percentage. I don’t know.
But yeah, I think that’s very important to have, is the life insurance policies, and it’s pretty cheap to get it, the premium. I wish I could remember. I actually just got my email yesterday that I need to pay the premiums for my bills for the life insurance policies for my one LLC.

Felipe:
Yeah, I agree. I don’t think it’s super expensive, but I think it’s really worth it because that’s one of those things you don’t really think about until it’s something that you have to take care of. So-

Ashley:
Yeah. I think I have a 20-year term, $200,000 for … I don’t know. I’m not even going to guess. I can’t remember. I haven’t written a check in this last year.

Felipe:
What’s really cool is it comes out of the cashflow of the property, so it’s not something that you got to put out of pocket. It’s just part of the deal, it’s part of the works. I think that adds to the spouse wanting to be in on the deal, like, “Oh, okay, that makes sense. I can tell that your partner wants to take care of me in case something happens.” So I think that eases that one.
Now, the last thing we’re going to talk about before we wrap up and then we’ll go over the six is identifying an exist strategy or an outcome, and set a timeline. I think this one’s really, really, really important because if you have your alignment meetings, you have your goals in place, you have everything ready to rock and roll but you don’t have an exit strategy in case either something bad happens or are you going to sell it … What’s the timeline on the deal? Do you have more time than your partner? Are you looking to rehab in 30 days and he’s cool with waiting six months? Making sure the timeline matches your goal which matches your partner is very, very, very, very important. Do you guys have the same timeline and the same outcome for this deal?

Ashley:
Yeah. And just because if you set a date like … Okay, so Felipe and I are partnering. We say, “When we hit a million dollars in equity, we’re going to sell.” That doesn’t mean we have to sell. That’s just the goal we’re reaching for and the end date, and then when we hit that, then we reevaluate and say, “Okay, are we actually going to sell, or do we want to keep going and do we have another timeline, another exit strategy we want to hit?” But the exit strategies, have a couple of them. Okay, let’s look at you buy a duplex. Are you able to rent that out long term? Would you be able to sell it if you needed to quickly? Are you able to do it as a short-term rental? What are your options if you guys do need to get out of the partnership, if you do need to dissolve? Look at those, too.
What happens if one partner wants to sell and the other one doesn’t? I think those are great things to put into the operating agreement, and those are things you need to agree upon ahead of time. Maybe there is no option to get out until you hit that million dollars in equity, and then that’s when you evaluate it. There’s a lot to think about when it comes to partnerships, but just remember that obviously doing it legally and protecting yourself legally … There is a right way and wrong way to do it, but as far as structuring it as to who’s doing what, how much equity you’re getting, what your exit strategies are, what your timeline is, there’s no right or wrong way. You can make it work to what you and your partner want.

Felipe:
Agreed 100%. So just making sure that you’ve identified those things, I think, is crucial when doing a deal. So let’s recap real quick. We have number one when making sure that you have a great deal is missing piece. Number two, will you add value as a partner? Number three, how to find that partner. Number four, partner presentation. How are you going to present this to your potential partner? Assets and liabilities. Do your strengths complement their weaknesses and vice versa? And then number six is just goal alignment. Do you guys have the same goals, exit strategies, the whole bit? Do you guys mesh in these six things? Now, me and Ashley are not lawyers, CPAs, or anything like that, but we have had successful partnerships by meeting these six criterias for each partner that we do.

Ashley:
So make sure you guys come back and listen to next week, too, where we do the case studies because Felipe and I are going to be breaking down the structure in partnership that we have for ourselves with our current partners, and then we’re bringing on the other investors to give their case studies. I want you guys to call in to the Rookie Request Line, too, because we would love to throw some questions at these investors, too. So it’s 1-888-5-ROOKIE, and leave a voicemail if you have a partnership question, and we’ll play them for the investors that we have on the show next week.
And if you guys want, too, we would love to hear your case studies. If you guys are currently working on a partnership or have had a successful partnership or maybe even a bad partnership, post them in the Facebook group. Maybe we can even highlight one of those stories, too, next week and showcase that. But I think it will be awesome to share as many partnership stories as we can this week.

Felipe:
So that is going to cover today’s show. Super excited. This is Felipe Mejia, as always, number one cohost. Am I your number one cohost, Ashley? No?

Ashley:
Yes you are.

Felipe:
Okay. And she is Ashley Kehr. Ashley, where can they find us on social media?

Ashley:
It is @wealthfromrentals for me and it is @tinybiceps for Felipe Mejia.

Felipe:
If someone types that in and someone makes a fake, I’m going to be so mad.

Ashley:
As soon as we got off of this, I’m going to look-

Felipe:
I am @felipemejiarei.

Ashley:
As soon as we get off, I’m going to look if that’s a real Instagram account.

Felipe:
That’s terrible. So mine’s @felipemejiarei.

Ashley:
This was fun today. I mean, you and I talk about partnerships a lot and it was fun to do an episode on that. I can’t wait to get into the nitty gritty next week and really talk about what the percentageships are, who’s responsible for exactly what. But this was good, kind of getting the foundation down as to why you might need a partner, how to find one, what to look for, and what to do.

Felipe:
Absolutely. Couldn’t agree more.

Ashley:
And we’ll see you guys next week. Thank you.

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In This Episode We Cover:

  • Identifying the “missing piece” to get a deal done
  • Knowing your numbers and being prepared
  • Making your official presentation (finances, experience, deal analysis)
  • Offering an opportunity rather than begging for help
  • Various financial structures you can use
  • How Felipe found a partner to do the books
  • Why Ashley partnered with a construction expert on a full gut remodel
  • And SO much more!

Links from the Show

Connect with Felipe & Ashley: