Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
Looking through the forums, it seems that most of the partnerships that I read about are typically involved with flips instead of buy & hold properties.
Has anyone considered joining forces with a partner to purchase a larger buy & hold compared to purchasing a smaller property on your own? I'm hoping to purchase a two or three unit in the next couple of months before the snow hits, and could really take advantage of a nicer property in a better location if I were to join forces with another investor.
Looking forward to hearing both the good and the bad!
Rental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
12y
I am at the end stage of a 24-year partnership. We started with three partners. One went bankrupt after about 5 years and we had to buy out his shares. The two of us have had good and bad days. Early on we determined the relationship was more important than the $. My partner is retiring and ready to be done with repairs, tenants, etc... I will buy his shares and carry on ... I still have 15 years of ambition:) We may ink the deal this week, effective Jan 1st. (I'll write about it after it's done).
We started with a 4-plex. Moved into 6 units. Then traded up to 13, added a few more before trading into commercial. The partnership currently has 78 units: 66 apartment/commercial and 12 SFR / duplex.
LESSONS LEARNED: (not an exclusive list)
Each partners ability to maintain their own finances affects the partnership! Their credit affects the partnerships ability to purchase ... at good rates. Or the need to buy one out (ready or not!)
Common goals, personal values and ideals make decision-making much easier.
Clear communication and defined roles are a must. Make time to evaluate where you are at different stages - roles can change (We had a military partner that was gone for 4 years). Know who will get paid for what beyond partnership shares.
Have a defined exit plan. Account for unexpected events (death, divorce, change in life goals).
Have fun together! Take the wives to dinner, travel to Hawaii, go scuba diving, skiing ... at company expense!
Don't get greedy! Greed destroys relationships!!
Don't take yourself too seriously. Be flexible (my partner was the most flexible ... he almost always did what I said!)
Partnerships have advantages and disadvantages. So many end in disaster. We are probably an exception having lasted this long. I've enjoyed and benefitted greatly from it personally, professionally and financially. I'm ready for the change, looking forward to accomplishing my next set of goals to be accomplished beyond the partnership.
Investor · Dallas, TX · Member since 2014 · 2k+ posts · 1k+ votes
12y
My partners & I have not activated the Buy & Hold portion of our business plan. However, it is a central component of our overall plan. I believe that as long as responsibilities and equities are clearly laid out, and assuming this is someone (or many someones!) you want to be in business with long-term, it doesn't matter what you're doing. Just make sure any partner is someone you match up with in terms of your philosophies and approaches. For me, it was important that I was involving myself with individuals who share my values and beliefs that doing what is right is more important than profits and that creating win/win deals is the only way to truly succeed long-term. We want to help others, while we are helping ourselves and our families.
Queen City, TX · Member since 2014 · 50 posts · 6 votes
12y
It depends on your partner. A good investment partner isn't easy to come by, but if you find a good one it is very beneficial. You just have to be careful because there are some sorry SOB's in our world.
Queen City, TX · Member since 2014 · 50 posts · 6 votes
12y
We are all business men and women here, but always trust your gut. If you have some discrepancies about a business partner, maybe do a few smaller deals with them and see if those pan out. other wise keep it to yourself and make your own money.
Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
12y
@Hattie Dizmond I like your perspective Hattie, and I agree. It definitely seems like there is a greater chance in buy & holds for you and your partner to develop differences of opinion over time, which creates some additional risk there. I guess the trait I would look for the most in an investor is one that (within reason) maintains the property meticulously to ensure the long-term value, even if cash flow takes a hit because of it.
@Teal Lambert Teal, where did you find your investing partners? I work with a few guys interested in real estate, but any suggestions for branching out in addition to here on BP? I seem to hear many more stories about partnerships gone bad than successful ones in all different aspects of REI.
Queen City, TX · Member since 2014 · 50 posts · 6 votes
12y
Look in my experience, as long as money is being made everyone is happy. But, as soon as a deal goes down the drain, which will happen, a partner will blame you, and you will blame your partner. You really have to have a good working relationship and above all a solid trust in someone before you go into business with them.
Queen City, TX · Member since 2014 · 50 posts · 6 votes
12y
I'll tell you something else very important about having a partner. You must have very good communication. It's 50/50 you cant make a decision without first making sure they are on board and vise versa. It get complicated, but I will say this on record" I couldn't have done the best deals of my life without having a good business partner to help me."
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
12y
@Steve Wilmers Our Ann Arbor REI group invests using partnerships a lot. My partner and I do too. It solves issue where an investor(s) needs something like financing, credit, knowledge, etc...and finds it in a JVP.
Rental Property Investor · San Marino, CA · Member since 2011 · 398 posts · 144 votes
12y
One thing to be wary of is how your vest ownership of the property in your partnership: joint tenancy or tenant-in-common. In CA, this has major implications on how you can dissolve the partnership once the deal is complete.
The biggest impact would be as a tenant-in-common, the partners can take their proceeds and perform a 1031 exchange seperately, however in a joint tenancy, the partnership has to "stay together" in order to do a 1031 exchange.
There are obviously many other things to take in consideration on the vesting of your property and everything else but that is just something that I experienced. We bought a property together and now we face paying the capital gain taxes or buying another property together, which isn't necessarily a bad thing but takes away from your flexibility.
Investor in Louisville KY! · Denver CO · Member since 2013 · 27 posts · 8 votes
12y
I have three partners and we are about to close on our 9th unit. We've been at it for around three years and haven't had any issues yet thankfully. I was so nervous about going at this alone that joining up with partners was the only way I felt safe enough to make the dive, and I'm sure glad I did.
Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
12y
@Jason Mak That's a very good point, and something that didn't even cross my mind. I guess it builds in a little extra security in case the partners' relationship goes down the tubes later on.
@Account Closed One of those issues is what i'm looking to solve by potentially joining forces with another partner in the Grand Rapids market. Some of the properties that I've been looking at are in prime locations, but the higher price reflects that.
Specialist · Portland, OR · Member since 2010 · 3k+ posts · 1k+ votes
12y
Sometimes it is about chemistry but then we can assume our partner thinks like we do; it is a shock when they don't.
You mentioned meticulously maintained. Unless you are working with very high end properties you can (IMO) go broke and crazy trying to keep everything perfect. Engineers have a tendency to overdo the maintenance and put ideals before dollars. Doing a remodel every time someone moves is tough on the pocket book.
Can you try it alone once? The learning curve can be steep but necessary.
Investor and Real Estate Agent · Maize, KS · Member since 2014 · 270 posts · 53 votes
12y
I have a buy and hold portfolio of 8 properties with 1 partner (my mother in law)
The good :
-2 incomes to pay for properties creating leverage to buy additional properties
-We were each able to get a $100,000+ line of credit
-Twice the income to factor in our debt to income ratio to help qualify for a higher number of permanent fixed rate loans
-2 people to split the workload ; pick each other up when the other is down etc
The Bad :
- Arguments
- Easy to fall into an "all business relationship" hurting our personal relationship (can bring you closer as well depending on how things are going)
Overall -- I would recommend always having a partner. Define rolls early on ; clearly define an out clause that will not let one partner take advantage in any way if they leave the partnership; and only pick a partner that has the same end goals as you and things will be good.
Rental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
12y
I am at the end stage of a 24-year partnership. We started with three partners. One went bankrupt after about 5 years and we had to buy out his shares. The two of us have had good and bad days. Early on we determined the relationship was more important than the $. My partner is retiring and ready to be done with repairs, tenants, etc... I will buy his shares and carry on ... I still have 15 years of ambition:) We may ink the deal this week, effective Jan 1st. (I'll write about it after it's done).
We started with a 4-plex. Moved into 6 units. Then traded up to 13, added a few more before trading into commercial. The partnership currently has 78 units: 66 apartment/commercial and 12 SFR / duplex.
LESSONS LEARNED: (not an exclusive list)
Each partners ability to maintain their own finances affects the partnership! Their credit affects the partnerships ability to purchase ... at good rates. Or the need to buy one out (ready or not!)
Common goals, personal values and ideals make decision-making much easier.
Clear communication and defined roles are a must. Make time to evaluate where you are at different stages - roles can change (We had a military partner that was gone for 4 years). Know who will get paid for what beyond partnership shares.
Have a defined exit plan. Account for unexpected events (death, divorce, change in life goals).
Have fun together! Take the wives to dinner, travel to Hawaii, go scuba diving, skiing ... at company expense!
Don't get greedy! Greed destroys relationships!!
Don't take yourself too seriously. Be flexible (my partner was the most flexible ... he almost always did what I said!)
Partnerships have advantages and disadvantages. So many end in disaster. We are probably an exception having lasted this long. I've enjoyed and benefitted greatly from it personally, professionally and financially. I'm ready for the change, looking forward to accomplishing my next set of goals to be accomplished beyond the partnership.
Los Angeles, CA · Member since 2014 · 85 posts · 10 votes
12y
@Steve Wilmers Our company, National Home Buyers LLC, does partnerships with buy and holds properties. Most of them are in the Indiana area. These are usually on the lower end of the price range, so the ROI is higher.
Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
12y
@Westin Hudnall I think defining the roles early on is huge. The major concern I have about long-term partners is with priorities changing over time, but I think @Jason Mak suggestion about nipping that early on with how the partnership is formed could solve that issue. But kudos to you Westin on keeping a profitable business relationship with the in-laws!
Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
12y
@Jeff S. I guess "meticulously" is a bit of an exaggeration. Living in the downtown area, there are so many houses/duplexes that you can tell investors have just let go over time, and must have been satisfied with receiving lower rents. I'm talking about siding falling off of the house, porches settling away from the house, broken windows, etc. The point I was trying to make is that I'd really rather keep a property in good condition (doesn't have to be fantastic) in an effort to uphold the long term value, and potentially save some of the larger fixes that might be needed due to deferred maintenance.
Also, I wouldn't mind trying it alone once, but currently looking into the different financing options.
Grand Rapids, MI · Member since 2014 · 75 posts · 19 votes
12y
@Curtis Bidwell Not a bad way to wrap up a RE career, ending on a solo note. When you and your partners started, did you have a defined growth plan? That's another thing I'm worried about. Also, over time how much did your investing plan change compared to what you "visioned" at the beginning.
Rental Property Investor · Olympia, WA · Member since 2014 · 781 posts · 744 votes
12y
@Steve Wilmers We started with a plan to buy a 4plex. It all grew from there. It was a buy-pay-it-off and hold plan. Two years later we sold and traded into a 6plx. One of the partners was a realtor (without a plan) and needed to make a deal happen. So we ended up with another 4plx with his cash and our good credit. We all had 'other' jobs and this was to be a passive activity operating in the background. It was this way for 10 years as we worked on paying down 10 units. Then I started calculating what I would need personally to retire with and went looking for 2 more duplexes of my own. I met an agent that understood the possibilities and she cast a new vision for us. We had built up considerable equity and so we traded the old, doggy, 2/1 duplexes into 13 new construction homes and duplexes. We learned about new markets at different socio-economic scales. As we grew, so did our vision. So, yes, we became far more than we ever anticipated in the beginning. Even yet, my personal vision is taking form and adapting as we walk through this time of transition.
A plan is not meant to restrict but to guide. Make a plan and then regularly evaluate it against your needs, abilities, interests and future goals.
Plymouth, MI · Member since 2013 · 13k+ posts · 19k+ votes
11y
@Steve Wilmers I don't see any reason to leave the Michigan market either. In fact, I have most of my partners coming from out of state (CA, DC, Virginia, Maryland, East Coast, etc...). I ended up developing a program designed for them so it was consistent with what their needs were...and of course mine. Like you, and the out of state investors coming here, I'm focused on holds and not flips. Michigan is just too good to lose the cash flow by flipping. Now we do access that equity still when we hold, so we get the benefit of both, but that's because we can.
You just need to have a really good repeatable, and self sustaining system in place to take full advantage of the Michigan market...especially when you are dealing with a partnership.