What's it like having a business partner?

Question

Hello BP Community,

I'm thinking of taking on a business partner to do out of state investing. The idea would be to have some boots on the ground in the area I'm interested in investing.

For those of you who have formed partnerships...

1. What was that experience like? Did it make real estate investing more easy or hard?

2. How did you meet your business partner?

3. How did you vet your business partner?

4. Any general tips or advice on forming partnerships with out of state investors?

Austin McClain · Answer

I'd also advise being very careful. I would go with someone you know or a good friend of a friend.

If you can't find someone like this, the risk is high. Paying someone local to help you manage it (who is not a partner) would be a better way to go

Doug Smith · Answer

Have you ever had a root canal? That's what it's like. I've had multiple partnerships in my career. If you're doing it project by project, I've found that they can work out. Every long, term partnership I've had, however, has failed because, at some point, one partner ends up bringing the lions's share to the table...either in work, expertise, or money. The partner that is contributing more starts to resent the partner that isn't contributing as much. After all these years, I'll consider a partnership if there is a finite, clearly define end goal. If it's "let's parter on flips forever", that is a recipe for disaster at some point. I do hope that helps.

Alecia Loveless · Answer

@Jonathan Feliciano Always have an exit strategy written and signed in the partnership agreement.

My spouse and I bought 2 smaller apartment buildings with a total of 14 units with a partner a few years after I was out of college. The wife was the partner and the husband was going to serve as property manager/maintenance guy.

The first year we got losses on our taxes which we anticipated. The second year we started questioning where our cash flow was and eventually discovered they had been embezzling 10s of thousands of dollars from us during the 2 years we’d owned the properties.

It took a court case to get them to buy us out and pay us what they’d stolen from us.

My spouse and I didn’t learn our lesson here and took on a second partner in a real estate/restaurant operation and ended up again having to have legal action to sever the partnership when it failed.

I’m not saying it can’t work. Just carefully vet your partners and see what other types of business experience they have first. And ALWAYS get the exit strategy mapped out beforehand.

Brandon Croucier · Answer

My business partner tried to extort me.

Just be careful and don't give too much access to anyone.

Mohammed Rahman · Answer

Hey @Jonathan Feliciano!

Great question and honestly, having a business partner can be both a blessing and a challenge, depending on how you approach it. Here’s my take:

1️⃣ Experience: It can definitely make things easier, especially for out-of-state investments. Having someone local gives you better insight into the market, and they can handle things like inspections or tenant relations while you're away. The downside? More people in the mix means more opinions, which can slow decision-making or create conflicts if you're not aligned. Communication and trust are key.

2️⃣ How I Met My Business Partner: Many times, people connect through networking, mutual acquaintances, or real estate investment groups (similar to this forum!). Others meet at events, RE meetups, or even through social media—whatever feels most natural.

3️⃣ Vetting: Vetting is crucial. I'd recommend starting by understanding their investment style, goals, and values to see if they align with yours. Also, make sure they have the right experience for the type of investments you’re doing. I personally recommend doing a small project together first to test the waters. 💡

4️⃣ General Tips: If you're partnering out of state, legal agreements are a must. Clearly define each person's roles, contributions, and responsibilities. Get things in writing before you get too far down the road. Also, use technology (Zoom, project management apps) to keep communication smooth even with the distance.

Let me know how it goes!

Chris Seveney · Answer

I would not bring on a partner, what I did is just hire a manager to manage the boots on the ground and pay them X per project. That way you reap the rewards. I would pay a bonus based on staying under budget, finishing on time.

Craig S. · Answer

@Jonathan Feliciano

It depends on how deep of a partnership you plan to form. Are they a capital partner and you don’t have much day to day interaction? Then skills, personality, etc. won’t matter as much. However, if they are going to be an operating partner with yourself, that is a different type of relationship to consider. If that’s the case here are a few thoughts:

1) Treat them similar to a spouse, would you rush to get married? Or take your time to find the right one and build a relationship (date a while) to vet each other out? Consider your shared vision, financial goals, values, morals, ethical alignment, and personality types.

2) You likely don’t want someone with your same skills. That may not add value to the relationship. You likely want someone with different or even opposite skills and strengths as yourself to have a more balanced approach. Are you a risk taker or conservative, are you organized or disorganized, are you emotionally intelligent or think more with your heart? Are you an outgoing people person or quiet and analytical? Etc.

3) Lay out expectations and responsibilities very clearly and in writing from the beginning. Don’t assume you’re on the same page with things, spell it out so there is zero confusion or wrong expectations.

Partners can be the best or worst thing that happened to you, much like the right or wrong spouse. Choose wisely.

Stuart Udis · Answer

@Jonathan Feliciano Ask yourself what competitive edge does this boots on the ground partner brings to the table a reputable GC and PM can’t provide? Seems you could be unnecessarily giving away equity for no good reason unless they can provide something of meaningful value. Also, real estate requires you to be a good judgement of characters. This holds true for contractual relationships as well as partnerships. It’s usually the individuals with the highest character who get burnt the worst because they are the ones willing to put themselves in uncomfortable situations to do right by their partners and as a result believe others should operate the same way. Unfortunately that’s not true for many in this business.

Eric Gerakos · Answer

It's like walking on sunshine, until they run off with your money. Too many horror stories.....

What's it like having a business partner?

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