When to partner - or not
Looking to get some input from the BP community on 'investment partners'. Right now, I am scaling pretty well, (started with 2 units in January and growing to what will be 63 units by October), but the idea of a partner keeps coming up on BP podcasts and also other YouTube channels.
i definitely want to scale as fast as I can, but is it best for me to just keep going as I am, or to start to take on partners/investors who can help grow faster - but with the caveat of having to give something up (control/profits) at the same time.
Any input would be greatly appreciated! Thanks BP fam
@Glenn Barlow if you’ve got line of site to 30x growth on your own, I’d consider building a support team rather than a partner. You’ve either gotten really lucky (unlikely) or you’re driven and have a good plan (more likely). I’d only partner if you can find someone who adds whatever you’re lacking or just can’t stand doing.
There are only 3 reasons to form partnership. If the potential partner doesn't fit into one of the 3 reasons, don't partner with that person. The 3 reasons are:
1 - The Partner must do something you can't do.
2 - The Partner must do something you don't want to do.
3 - The Partner must do something you shouldn't do. Just because you can do something, doesn't mean you should.
I've brought partners onto some of my projects when I've been in a position where the project was bigger than I could financially take on myself. As they say, 50% of a deal is usually better than 0% of no deal.
If you can keep scaling on your own and you're confident in your ability to find deals, fund deals, rehab when needed, fill vacancies, and manage, then no need for partners.
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Just going to add one thing to what @Joe Villeneuve wrote:
4 - A Partner must provide something you don't have, have access to or have the resourecs to access. (money, money connections, government connections, etc.)
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If you want to go fast, go alone, if you want to go far, go together.
Certainly there are individuals who make billions in real estate as a lone wolf, but they typically never even question the need to bring a partner. They can and will do it all themselves via support network (paid vendors, project carry, etc.)
Quote from @Drew Sygit:I would say that is the same thing as #1
Just going to add one thing to what @Joe Villeneuve wrote:
4 - A Partner must provide something you don't have, have access to or have the resourecs to access. (money, money connections, government connections, etc.)
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@Joe Villeneuve we may be splitting hairs here, but I took your #1 to mean something like Accounting or Architecture, etc.:)
Quote from @Drew Sygit:
@Joe Villeneuve we may be splitting hairs here, but I took your #1 to mean something like Accounting or Architecture, etc.:)
...and you'd be correct. However, my #1 also includes things like "not being able to fund". If you don't have access to money, etc..., then self funding qualifies as something you can't do. It may be splitting hairs, but just I look at it as an example of something "you can't do"...which is why I feel it is part of #1.
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All of the above.
I would get a spreadsheet out and decide financially when you can't keep growing. You should be able to see it coming at you.
a. Bank- federal lending limits.
b. Personal- wealth
c. SBA- $5mm cap
d. Number of deals cap
Use your 63 potential units as your baseline. Take the above and see how much larger you can grow on your own.
When you hit your cap, you have two options: 1. Sit tight and let your equity grow, which is slow.; 2. Re-appraise and see if you can get more collateralization based on your existing value add and rent rates.; 3. Sale a property and use the gain to do more properties, losing effort on short-term gains 37% tax.
Prior to maxing out, because you can see it coming; set up a syndication strategy. This will be easier to control the work, deals, profit allocation, getting rid of investors versus a partner.
If you do get a partner the key is how do you both exit. We just bought a property because one of the partners became financially stressed due to another business deal outside their partnership.
That is a tough question to answer, it really depends on what your long term goal is. It will definitely be easier to scale quicker with partners, but it also adds some more complexity. If you prefer to grow at a more steady pace and have complete control, continue with what you are doing. If you do decide to go the partnership route, syndication can be a good strategy to pursue.
If you are growing that quickly I'd keep your head down and keep doing what you're doing.
I've got some partnerships in Columbus Oh. One is where I found the deal but my partner has great connections and is a strong borrower so I brought him in. Then the other I found the deal but have much more experience with construction so he funded more capital.
Ideally, I'd rather to raise debt then share equity but I think partnerships can make sense.
I only partner if it's to spread leverage but they must offer a skillset or some sort of value proposition when adding them to the deal. Perhaps if you decide to go into a different market or business model, a more experienced partner would be a good option to scale in that area. If you are scaling quickly, I would keep my focus on what's working and see if someone comes along with a perspective you would like to do business with.
Quote from @Glenn Barlow:
Looking to get some input from the BP community on 'investment partners'. Right now, I am scaling pretty well, (started with 2 units in January and growing to what will be 63 units by October), but the idea of a partner keeps coming up on BP podcasts and also other YouTube channels.
i definitely want to scale as fast as I can, but is it best for me to just keep going as I am, or to start to take on partners/investors who can help grow faster - but with the caveat of having to give something up (control/profits) at the same time.
Any input would be greatly appreciated! Thanks BP fam
I have enjoyed partnerships. I find it is a great way to bring someone in and keep growing. Do you know what you can offer a partner? Do you know what you need in a partner?
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Quote from @Ricardo Hidalgo:
I only partner if it's to spread leverage but they must offer a skillset or some sort of value proposition when adding them to the deal. Perhaps if you decide to go into a different market or business model, a more experienced partner would be a good option to scale in that area. If you are scaling quickly, I would keep my focus on what's working and see if someone comes along with a perspective you would like to do business with.
Thats a good point too. If someone is partnering with a similar skillset, presumably I could just scale by hiring it out (since I know the job). When I partner with someone on acquisitions/leasing, I don't know what I dont know!
Quote from @Scott E.:
I've brought partners onto some of my projects when I've been in a position where the project was bigger than I could financially take on myself. As they say, 50% of a deal is usually better than 0% of no deal.
If you can keep scaling on your own and you're confident in your ability to find deals, fund deals, rehab when needed, fill vacancies, and manage, then no need for partners.
50% is better than 0%. Great advice!
Human Capital is the best form of leverage I know of. It takes a team to build an empire. Just make sure whatever partner you bring on you have an operating agreement that defines the roles, equity, and exit strategy. Partners are not forever, but just having one can change the direction of your life even if it's only for a short time.