Partnership Horror Stories

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I would have to say that I am very very lucky because I have partnerships now that work amazingly well like marriages made in heaven. One of my current partnerships is with someone who I could literally chat with for hours on end on the phone. I have another partnership where are so in sync that it's like we can independently make 10 moves and compare notes and we'd make 9 out of the 10 same moves. I would say that many of my partners are the most creative, go-getter type, intelligent and most contribution minded people that I have ever met in my life.

But for every one partnership that has worked out amazing, there have been about 4 that did not work. Here are the horror stories over the years.

1) I had a partner that died in a drowning accident and he was only 32. That is quite the saddest thing one could go through. I had loaned him $50,000 so he could buy shares in a Hollywood media company that he introduced me to. He had 12-months to pay off the loan or lose his shares as the underlying collateral. About two weeks prior to the loan coming due, I get a call from him all excited that he had the money and was ready to pay-off the loan. Then he died in a freak accident. If that wasn't traumatizing enough, imagine the look on my face when his parents initiated litigation against me. It never went into litigation but they thought I was trying to take his shares in this media company. After many rounds of lawyer conversations, it all eventually got sorted out. Amazingly, in my life I have never sued or been sued. Well, except some brand names that I owned that Warren Buffett's company said infringed on their brand. That doesn't count (and I had to sign something that I would never reveal how much money I walked away with).

2) I use to be the king of the short sales in 2009 until they passed some laws that basically made going after pre-foreclosures very risky. In this partnership, I went away on vacation and when I got back found that the partners decided not to pay me about $60,000 in distributions.

3) I have been in partnerships where I basically did 95% of everything. That situation sucks. Have been in partnerships where we are supposed to split the cost overruns and holding costs 50/50 but ended up having to pay it. Often in partnerships you may have different agendas like one wanting a quick profit and the other wanting the tax advantages of a long term buy and hold. And of course there has many partnerships where we just see the world differently and have different values. There was one partnership where the partner was amazing at finding deals but horribly organized and terrible with money.

4) I invested in a company (not exactly a partnership) that did really well making $80,000/month in revenue in year 2. The CEO never had much money before and starting partying with girls and then started taking heroin. You can imagine the rest. He ended up taking money from clients and I spent about $250,000 out of pocket cleaning up the mess.

I have the fortune to have made millions of dollars and have always been action oriented and willing to test out new partnerships. Ultimately, I believe partners are a reflection on yourself. Are your partners contribution minded or hustlers? The answer is probably a reflection on who you are. I have seen amazing personal growth in myself over the last sixteen years and now believe I enjoy high quality partners because I have evolved as a contribution minded person.

You're not going to succeed in real estate unless you go through massive failure. Failure makes you a better person and as a real estate entrepreneur you learn on the go.

I have partnered with another family for 23 years and everything has work great. It like a marriage and we sometimes have different options but we all want the same thing to make money for all of us. My nephew took business classes at a big university where he was told partnership never work. I told him they work if you work at it just like a marriage and you don't run out and take just anyone for a partner  but look around and find that person that understands you and you understand them. 

@Ryland Taniguchi When you use the term partner are you referring to a person that you've done multiple deals with and continue to work with? Are you willing to divulge what type of role they've assumed versus your role? I've never had a partner and I'm curious to know if there's a distinct role that partners take in REI situations. I, myself, am a CPA and business-minded person with solid funds to put forward and I've also been a buy-and-hold investor for about 10 years now. I work a full-time job but would like to spend the next 5-10 years studying hard and learning more to put myself in a position where I can invest wisely (and be diversified, of course) in real estate. My close friends have plenty of money and drive but REI doesn't interest them. I'm not a huge stock market person myself and I prefer to limit my equity positions to 35-40% of my overall net worth. Like you, I'd also prefer to not be the person who does 95% of the work and I know my personality would push me to do that if it were necessary.

Originally posted by @Jenny W. :

So how can you foresee certain characteristics won't be good fits for you and your business ?

 There are some things you can do.

1) Get super clear on your vision and purpose. And find a partner that share a common vision and purpose.

2) Get clear on your values. Create a 10-part questionnaire and score each 10 pts on value match. Probably only want those that are a 90% match or better.

3) Do a DISC Behavior test and see if your skills are compartible. Google Anthony Robbins DISC and these are free.

4) Take the tests at strength test.com to see if there is a match.

5) Walk before you run. Like dating, see if there is a match before getting too committed. I prefer going into partnerships with not that much money involved so a buy-out can be arranged without too much moving cash around. Just know that most partnerships won't work out.

6) Learn how to license your brand. I have done lots of partnerships but have always licensed the brand. I have the same brands going for years and won't have to start branding all over if the partnership doesn't work out.

7) Make sure you find a partner who has integrity. Do they do what they say they will.

8) Make sure your partner has the same work ethic as you.

9) Make sure that you find a partner that can communicate. Difficulties will happen and you must be able to communicate. You don't want passive aggressive or aggressive behavior.

Originally posted by @Greg Harriman :

@Ryland Taniguchi When you use the term partner are you referring to a person that you've done multiple deals with and continue to work with? Are you willing to divulge what type of role they've assumed versus your role? I've never had a partner and I'm curious to know if there's a distinct role that partners take in REI situations. I, myself, am a CPA and business-minded person with solid funds to put forward and I've also been a buy-and-hold investor for about 10 years now. I work a full-time job but would like to spend the next 5-10 years studying hard and learning more to put myself in a position where I can invest wisely (and be diversified, of course) in real estate. My close friends have plenty of money and drive but REI doesn't interest them. I'm not a huge stock market person myself and I prefer to limit my equity positions to 35-40% of my overall net worth. Like you, I'd also prefer to not be the person who does 95% of the work and I know my personality would push me to do that if it were necessary.

 There are many different type of partnerships that I have been involved with some real estate, some media, some tech companies and other business ventures.

Some partners are more permanent in nature but I like to test it out with partnering on a couple of deals first. Some are just on one project.

If you had $600,000 in your qualified retirement plan, you wouldn't put it all into Amazon stock, would you? Yet I see investors doing crazy things like this in real estate.

Better in my opinion to take a diversified approach to real estate. 1/3 in wealth preservation strategies without partners like performing notes at 50% LTV (which I have) or tax lien certificates. Target return a min 6%. 1/3 into cash flow. If you can't find locally you can buy from a turnkey provider. Target return a min 18% IRR. If I were a passive investor, the only time it would make sense for me to partner would be with a full-time experience vet who can get 120% IRR on flips or land development and give you 60% IRR for your half. In this case, you out in the cash and they get you 60% IRR on your money. I would limit your overall portfolio to 1/3 to these type of partnerships. Only work with the top people who have years of maintaining a good reputation and track record. These people are full-time and the biggest players in your market.

I would either do an LLC partnership with an exhibit A JV agreement that defines the roles and expectations. Or you can also do it as a Joint Tenants in Common where you have 50% ownership on the title.

Very inspiring. I am currently in process of creating a partnership with my high school classmate. We will definitely have to read this post to get a better understanding of what OUR goals are vice just our individual goals.

Originally posted by @Chris T. :

@Ryland Taniguchi

Thank you for sharing.

For your current partners, do you still have contracts signed on a per deal basis or is it 1 contract that covers everything? 

 Depends if it is a permanent partnership or a partnership per project. Actually, these days I run three hedge funds and so I have gone away from partnering on specific deals. 

But I do have an amazing long term partner where we do BRRRR... I have the driving for dollar database and marketing systems, she negotiates with sellers, we split the money going in, she uses her credit on the refinance, and I also have the construction systems. For this, we just have an LLC set-up and we are both managers of the LLC. But we do have a contract with my GC company. We do also set-up an LLC per property half owed by her company and half owned by my company.

Good advice @Ryland Taniguchi ! Do you have any suggestions on how to execute a new partnership with less headaches down the road? Anthony Angotti and I have these sort of questions. Would love to hear some advice when there's a lot of partners looking to get involved on projects together.

Nice post. I am the anti-partner kind of guy, except for my wife of course. I generally know what I want, how I want it, how much I want it for, what I'm willing to sell it for. I have a clear long-term strategy and when it comes to money prefer being solely responsible for the profits and losses. I work harder than most people I know and am unwilling to split profits with slackers!

Wholeheartedly subscribe to your last line. I have had a spectacular failure that I hope to never repeat, that I have described on these boards before. It's easier to swallow when you don't have to answer to another person/person's family regarding your role in said failure. 

Originally posted by @Austin Mudd :

Good advice Ryland Taniguchi ! Do you have any suggestions on how to execute a new partnership with less headaches down the road? Anthony Angotti and I have these sort of questions. Would love to hear some advice when there's a lot of partners looking to get involved on projects together.

 Could be a cache 22. If your in a state like mine that does not have de minimus statue, having one person make decisions for others could be considered a security. Ask your attorney. On the other hand, you don't want too many chefs in the kitchen.

Originally posted by @JD Martin :

Nice post. I am the anti-partner kind of guy, except for my wife of course. I generally know what I want, how I want it, how much I want it for, what I'm willing to sell it for. I have a clear long-term strategy and when it comes to money prefer being solely responsible for the profits and losses. I work harder than most people I know and am unwilling to split profits with slackers!

Wholeheartedly subscribe to your last line. I have had a spectacular failure that I hope to never repeat, that I have described on these boards before. It's easier to swallow when you don't have to answer to another person/person's family regarding your role in said failure. 

 Failure is an inevitable part of investing in real estate. That's why people should take a diversified approach to real estate and keep 2/3 of their money safe. Have enough liquidity to be able to buy partners out when things don't work out.

I am on the opposite spectrum than the DIY with no partners. I feel partners help cover my weaknesses and highlight my strengths. Have been in over 250 partnerships since 2000. But having great partners allows me to manage three hedge funds with about $45 million assets under management and my goal is to increase to $200 million in the next 12-months. I could not do that all by myself:

Hey Ryland,

Thank you so much for posting this.

I'm in the midst of a partner sabotaging our business by offering a competing service to our shared email list.

Without getting into detail, the stress and depression have been crippling. I'm thankful for other people who dust themselves off and keep adding value even if it means entering a new niche. 

Your problems were a level up from mine, in financial terms. 

I'm going to keep loving myself and reminding myself that when one door closes, another opens, while I take massive action toward realizing my dreams.

Thanks again and many blessings,
Andy