Finding a Partner to Multiply Your Investing Ability

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Finding a Partner to Multiply Your Investing Ability

Dale Osborn
Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes

Many people involuntarily find themselves involved with real estate investing. They stumble around making all kinds of mistakes as they are looking for guidance or training to help them along their path to wealth. Sometimes they find assistance - other times they continue to stumble around the world of investing. At some point they reach a stone wall and realize that to make any further progress - they need to find someone to partner with. If you were in their shoes looking for a partner what would you look for? I have put together some items below, but know there are probably many more aspects to look at. Here is the skeleton assembled so far:

1. Skills of each potential partner
2. Credibility of each partner.
3. Trustworthiness of each partner.
4. Assembled team to do repairs/rehabs.
5. Knowledge/Experience of each partner.
6. Credit worthiness of each partner.
7. Who gets to be in charge to make the hard decisions?
8. What kind of percentage splits?

These are a few items to look for when looking for a partner - what would you add to the mix?

Along the same line, for a good partnership to work, it needs to be well outlined in writing before even doing anything else. If you cannot agree on how things will be set up it would be a waste of time being in a partnership with that person.

What would you place in your real estate investing partnership agreement?

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Ibrahim Hughes
Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
14y
Originally posted by Chris Gabriel:
This is really interesting, because recently I've been thinking a lot about having a partner to share the workload, and grow the business. The problem is that I wouldn't have the faintest idea as to where to look. My guess is that most partnerships form on their own from past dealings with each other, as opposed to seeking out someone.

Those of you who have partners, how did yours form?

Chris - I just formed a new partnership with someone I wholesaled a deal with. I found the deal (my specialty) and he found the buyer. I can find buyers but I'd rather spend my time finding distressed sellers and resolving title issues. I feel that when people are able to focus on what they do best while developing (at their own pace) what they're not necessarily 'great' in, I think they can make more money and be more productive.

I didn't seek out my new partner nor was I looking for one. But strangely while shopping my wholesale deal I found myself wasting my time in a meeting with 2 clowns who swore they were ready to close only to find out THEY wanted to wholesale it. And do it retail at that (smh)! But one of the clowns, ironically, gave me the idea of partnering. I left the meeting and the first call I made was to my new partner who actually annoyed me when I first spoke with him 2 days before. I thought he was a bit rude at the time. Come to find out that was more of his strategy and personality when he deals with other investors. He's actually a really nice, spiritual and family oriented guy. And I felt his 'rough-around-the -edges' approach to the business would compliment my nice, patient and easy demeanor (it works great with distressed sellers). And honestly I grew a little tired of the Dr. Jeckel/Mr. Hyde persona I often find myself taking when wholesaling.

So far our partnership is great. We have a few more wholesale deals on the table we're working together plus planning and building our infrastructure. I see big things for our partnership in the near future. And it feels great to exchange ideas with someone experienced and visionary yet coming from a slightly different perspective at times. And I can finally concentrate on buying properties and really structuring that end of the business. It's tough being a 1-man operation. And I don't know too many people who are really successful at it. Most successful people I know in business have at least 1 partner.

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  • Account Closed
    Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes
    14y

    Some other thoughts to consider:

    What would happen if one of the partners passes away? Or perhaps both partners pass away at the same time.

    What happens when one partner wants to get out - will the other partner have first right of refusal.

    How will the partnership value talent and abilities contributed to the partnership in lieu of cash or property?

    Where will the accounting, business records be kept and how and when can partners access this information.

    Will outside parties be required to give assurance of the accuracy of the records and if so will the partnership bear the expense or will a requesting partner bear the expense.

    1Reply
  • Dale Osborn
    OP
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    Those are some very good items that would need to be incorporated into the written partnership agreement. The average person probably would not think about the accounting method or even consider having an outside third party to audit the books. Some very good points!

    Probably would also want to cover the term of the partnership as to whether it was for one property or for multiple properties. At some point there also would need to be an exit strategy allowing for the dissolution of the partnership.

    0Reply
  • Steve L.
    Investor · Rancho Cucamonga, CA · Member since 2008 · 1k+ posts · 684 votes
    14y

    Partnerships are the way to go! Pretty much all the real estate pros I know have one (or many).

    0Reply
  • Chris Gabriel
    Real Estate Investor · El Cajon, CA · Member since 2012 · 21 posts · 9 votes
    14y

    This is really interesting, because recently I've been thinking a lot about having a partner to share the workload, and grow the business. The problem is that I wouldn't have the faintest idea as to where to look. My guess is that most partnerships form on their own from past dealings with each other, as opposed to seeking out someone.

    Those of you who have partners, how did yours form?

    0Reply
  • Dale Osborn
    OP
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    Steve L. since you have so many partnerships could you expand on items needed to be in a partnership agreement? It would be great to get some input from someone with experience in this area.

    0Reply
  • Dale Osborn
    OP
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    Chris Gabriel when you go to REI meetings to network with others part of it is to find someone with some different skill sets than you have to partner with to have a stronger team than doing things by yourself. Others have mentioned finding people to partner with here on BP. Once you find someone to work with it is time to get things in writing to eliminate any confusion and for the partnership to have a solid base or foundation.

    0Reply
  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y
    Originally posted by Chris Gabriel:
    This is really interesting, because recently I've been thinking a lot about having a partner to share the workload, and grow the business. The problem is that I wouldn't have the faintest idea as to where to look. My guess is that most partnerships form on their own from past dealings with each other, as opposed to seeking out someone.

    Those of you who have partners, how did yours form?

    Chris - I just formed a new partnership with someone I wholesaled a deal with. I found the deal (my specialty) and he found the buyer. I can find buyers but I'd rather spend my time finding distressed sellers and resolving title issues. I feel that when people are able to focus on what they do best while developing (at their own pace) what they're not necessarily 'great' in, I think they can make more money and be more productive.

    I didn't seek out my new partner nor was I looking for one. But strangely while shopping my wholesale deal I found myself wasting my time in a meeting with 2 clowns who swore they were ready to close only to find out THEY wanted to wholesale it. And do it retail at that (smh)! But one of the clowns, ironically, gave me the idea of partnering. I left the meeting and the first call I made was to my new partner who actually annoyed me when I first spoke with him 2 days before. I thought he was a bit rude at the time. Come to find out that was more of his strategy and personality when he deals with other investors. He's actually a really nice, spiritual and family oriented guy. And I felt his 'rough-around-the -edges' approach to the business would compliment my nice, patient and easy demeanor (it works great with distressed sellers). And honestly I grew a little tired of the Dr. Jeckel/Mr. Hyde persona I often find myself taking when wholesaling.

    So far our partnership is great. We have a few more wholesale deals on the table we're working together plus planning and building our infrastructure. I see big things for our partnership in the near future. And it feels great to exchange ideas with someone experienced and visionary yet coming from a slightly different perspective at times. And I can finally concentrate on buying properties and really structuring that end of the business. It's tough being a 1-man operation. And I don't know too many people who are really successful at it. Most successful people I know in business have at least 1 partner.

    3Reply
  • Chris Gabriel
    Real Estate Investor · El Cajon, CA · Member since 2012 · 21 posts · 9 votes
    14y

    It's funny you say that Ibrahim, because I find myself wanting to partner with someone like yourself. One of the aspects I least enjoy is locating motivated sellers. What I enjoy the most, is the rehab aspect, managing contractors, budgets, etc...

    1Reply
  • Jay Von Mohr
    Real Estate Investor · L.A., CA · Member since 2011 · 29 posts · 9 votes
    14y

    Good post. I agree, I prefer to work with partners. There are always things they are good at that I don't like (or want to learn how to do) & vice versa.

    The trick is finding the right person & also the personality match.

    JvM

    0Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    Great post, I have been considering several partnership opportunities and until now I could not come up with a reason to have a partner. I have completely ignored the aspect of the business that could provide healthy profits. I have a buy and hold mentality and have dealt with wholesalers predominantly form a buyers prospective. There will come a time when I should sell some property and perhaps someone with a wholesalers prospective would be a good fit. Ibrahim S commented he eventually partnered with a wholesaler who annoyed him. I now realize that I have met many who may be partner material for me.

    2Reply
  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y
    Originally posted by Michael Lauther:
    Ibrahim S commented he eventually partnered with a wholesaler who annoyed him. I now realize that I have met many who may be partner material for me.

    LOL - I've realized over the years that you can learn something from virtually anyone. Even if watching them completely screw something up teaches you what NOT to do. So I've always analyzed situations I initially felt were a waste of my time to see if I could get something out of it. This particular meeting was a drag 3/4 of the way through until one of the guys said something that made a lot of sense. That's when I hit my Eureka moment and realized I could use a partner. Maybe 'Clowns' was sort of a harsh term. These guys were smart, just not being honest up front. Thankfully, my partner will deal with them and guys like them going forward.

    1Reply
  • Dale Osborn
    OP
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    Trying to get Ibrahim S and Chris Gabriel back on track - do you have any ideas to add as to what should be included in a partnership agreement?

    1Reply
  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y

    Sorry Dale :)

    But it (my contribution to your initial request) goes back to my report card in the 3rd grade when my teacher determined if I could "work well with others".

    I would add: can the partner respect systems and processes needed to run a business efficiently and (eventually) on autopilot? There are a lot of skilled guys out there who can help you make money. But can he respect the idea and vision of actually growing and running a BUSINESS? Can he make it to meetings on time? Does he respect procedures that you and he put in place to help run the business? Can he work as an important part of a TEAM? Or is he just a maverick who really just likes to go it alone.

    I partnered with someone like that when I first got started and (primarily due to his youth) it didn't really work too well. I thought (and still do think) that he lacked the professionalism and discipline needed to actually build a business. He was a great salesman but our company ran like crap because he really didn't respect the work needed to build it.

    Not sure how you would word it on your list Dale but that's my "back on track" contribution.

    0Reply
  • Dale Osborn
    OP
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    Ibrahim S - Thanks for contributing your items to the list.
    Using systems, having good business sense and being a TEAM player are all good things to have in a partner. They all help achieve the end goal of the partnership.

    1Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    14y
    Originally posted by Ibrahim S:
    And I felt his 'rough-around-the -edges' approach to the business would compliment my nice, patient and easy demeanor (it works great with distressed sellers). And honestly I grew a little tired of the Dr. Jeckel/Mr. Hyde persona I often find myself taking when wholesaling.

    Wow and ouch... so familiar. I love working with sellers because it feels like a service. Even when they are needy, demanding and manipulative, I find the mental and emotional space to deal with them. I don't feel that way about too many of my buyers (or their agents!). The buyers just want a deal to do what they do best but I'm already tired of them the minute after I set my asking price. I dislike who I become when dealing with them.

    This thread has given me lots to think about.

    2Reply
  • Dale Osborn
    OP
    Mobile Home Investor · Spanaway, WA · Member since 2008 · 1k+ posts · 578 votes
    14y

    K. Marie Poe do you have and additions to contribute to the partnership attributes or agreement?

    0Reply
  • Account Closed
    Investor · Central Valley, CA · Member since 2012 · 6k+ posts · 3k+ votes
    14y

    Dude, I just said I was thinking about it. I don't have partners and have avoided previous partnership "opportunities" like the plague. Some interesting thoughts posted here about the value of partnerships have got me thinking. So, when and if I come up with something to say about attributes or agreements, I'll be sure to chime in. :)

    0Reply
  • Account Closed
    Residential Real Estate Agent · Ocala, FL · Member since 2009 · 255 posts · 65 votes
    14y

    Everyone travels at different speeds. What happens if one of the partners starts to slow down and leans on the other? Would seem difficult to adjust any deal if the "lazy" one doesn't agree.

    I find it hard to believe 2 unrelated people can setup a deal that works long term as those people change and grow. I realize people partner all the time, but is it really in both of their best interests down the road.

    I love the concept of only putting my strengths to work and letting someone else cover my lets say "less than strengths". Just the thought of having someone else deal with all personal contact with the outside word makes my heart skip a beat. With that said, maybe the struggles that challenge us keep us motivated to work harder.

    Lets assume this situation.

    Guy A finds all the deals, able to sell them but sucks at it.
    Guy B able to sell most of the deals Guy A finds, but can't find a deal to save his life.

    I'd be curious how many more deals Guy A can find in the same amount of time if he doesn't have to deal with the task of selling his own stuff. Is it double? I doubt that.

    If Guy A sells his own deals, lets say he doesn't get as much money for them, but he gets to keep all of the profits. Is guy B adding a significant amount of profit to the deal? I doubt it.

    So quick math, Totally pulled from thin air. If guy A can find 20 deals a year, and wholesales them for an average of 3,000 a deal. He makes a living at 60k/yr.

    If A+B partner, Guy A needs to find lets say 30 deals a year (50% increase) and guy B needs to sell them for 4,000 profit each to make the same money. I'm sure this is possible, but doesn't seem that probable. I also don't think they come to the table with equal skills. Guy A can make a living on his own, Guy B can't.

    2am and rambling.

    0Reply
  • Account Closed
    Residential Real Estate Agent · Ocala, FL · Member since 2009 · 255 posts · 65 votes
    14y

    Ibrahim S, I would of just worked out a deal with the other wholesaler to give him your inventory at a set split when he sold it. I'd also continue to half-heartingly market the properties to make sure he wasn't getting lazy at roughly the same price your "partner" suggested. Don't undercut him, but don't be dependant either.

    I'm curious though, do you get a piece of his business when dealing with someone else? Or does the partnership only work for your inventory?

    0Reply
  • Ann Bellamy
    Lender · Tyngsboro, MA · Member since 2009 · 3k+ posts · 2k+ votes
    14y

    Three things I think are critical when forming partnerships:

    1. Credibility and integrity

    You have to be able to trust your partner to do what he/she says, and not sneak around with a different agenda than you were planning on. Sounds obvious, but even if you've worked with someone successfully before, they can have a plan to use your joint business as a launchpad for something else without your knowledge or consent.

    Although I'm pulling this out of the air, an example might be using motivated seller contacts developed by the partnership to obtain listings for a real estate agency that is not part of the partnership and won't benefit the other partner. If this was known and agreed to, fine, but if you have to spend time policing your partner and making sure he/she is not doing something behind your back, it's no partnership at all.

    If you both have the same level of integrity, it will make the partnership smoother.

    2. Setting expectations

    I find that even when two people thoroughly discuss an issue, and even use exactly the same words, expectations can vary widely. And unmet expectations can sink a partnership.

    An example might be the amount of time each partner puts into the relationship. The term "full-time" can mean 40 hours to one person, and "whatever it takes until it's done" to another.

    3. Put it in writing

    The process of putting it into words will help define the meanings behind the words, and will provide a framework to refer back to. Don't forget to outline how you will end the partnership if necessary.

    2Reply
  • Brad Z.
    Investor · Member since 2009 · 132 posts · 30 votes
    14y

    I have had some success with partnerships (typically a passive partner). I have purchased a few buy/holds this year with partners. They secure the financing and lend me half of the down payment/rehab expenses. In return, I manage the property and they enjoy a passive return that exceeds other investment vehicles available to your average investor.

    In short, I get 50% ownership in additional properties with 0 credit or cash in the deal. The passive investor gets 50% ownership and a very strong return on their money.

    To be successful, expecations need to be very clear and a strong operating agreement is a must.

    1Reply
  • Michael Lauther
    Investor · Hampton Bays, NY · Member since 2009 · 907 posts · 258 votes
    14y

    Brad Zerhusen If I understand your partnership arrangement the partner is putting up the down payment and his good credit and lending you an amount that is equal to one half the down payment and all rehab expenses.

    How is this treated in your partnership agreement , is the loan of the down payment being payed by the cash flow and is it personally guaranteed?

    Was a copy of the partnership agreement requested by the lender or was the property just purchased personally with no formal agreement?

    What is the price point of your properties and what terms were you able to secure with this arrangement?.

    0Reply
  • Brad Z.
    Investor · Member since 2009 · 132 posts · 30 votes
    14y

    @Michael Lauther

    We treated it as if my passive partner was buying the property in his personal name then immediately transferred to a newly formed LLC that we were 50/50 members. We documented all terms within the operating agreement. The lender didnt even need to know it was going to be transferred to a partnership LLC which made it very straight forward.

    The terms were that he would front down payment and renovation funds. I managed the renovation and property mgmt for no fee until he was paid off. He got 100% of the cash flow until my 50% of cash was paid off. Once we were all square, I managed the property for our LLC at a discounted rate (5%). We take equal owner distributions from our LLC account every 6 months.

    On one of the deals, we used a purchase +rehab loan so my partner just fronted down payment funds. On the other 2, we used a conventional note so he fronted down payment and renovation funds.

    The properties that we have successfully executed this strategy on are 30k-40k single families that needed 5k-10k in renovations. All are rented for 825-875.

    I have only done this with 2 investors and they actually approached me. I also had an existing relationship with them. Just like any friend/business situation, it needs to be the right fit for all.

    0Reply
  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y
    Originally posted by Aaron Churnick:

    Lets assume this situation.

    Guy A finds all the deals, able to sell them but sucks at it.
    Guy B able to sell most of the deals Guy A finds, but can't find a deal to save his life.

    I'd be curious how many more deals Guy A can find in the same amount of time if he doesn't have to deal with the task of selling his own stuff. Is it double? I doubt that.

    If Guy A sells his own deals, lets say he doesn't get as much money for them, but he gets to keep all of the profits. Is guy B adding a significant amount of profit to the deal? I doubt it.

    Aaron, it sounds like you're assuming that it's all about profit for me. It isn't. It's about being profitable and productive while maintaining my sanity. I will gladly make less if it means I don't have to travel outside of my spirit too much just to get a deal done which is what I feel I'm doing when dealing with both distressed sellers (which I'm sure K. Marie Poe will agree can often make you distressed as well) AND shrewd and manipulative investors. I don't mind the distressed seller part. I do a lot of family and community-family related work and so dealing with distressed sellers falls right in line with that. I actually feel it's a part of 'my calling'. And I feel blessed to be able to make a living from it. If that's all I primarily had to do (along with building the infrastructure of a business - much like reorganizing a family and community for maximum productivity and holistic health - another part of 'my calling'.) then I can probably double or even triple my output.

    1Reply
  • Ibrahim Hughes
    Real Estate Consultant · Bloomfield, NJ · Member since 2010 · 2k+ posts · 1k+ votes
    14y
    Originally posted by Aaron Churnick:
    Ibrahim S, I would of just worked out a deal with the other wholesaler to give him your inventory at a set split when he sold it. I'd also continue to half-heartingly market the properties to make sure he wasn't getting lazy at roughly the same price your "partner" suggested. Don't undercut him, but don't be dependant either.

    Good point Aaron. But I tried to stick to the script here and not really get into all of the reasons I decided to partner. It was more than just having someone else do the marketing and sales.

    His other attributes are that he has construction experience AND he speaks spanish due to his Hispanic heritage. So this allows me to (1) not have to deal with Contractors as much (sometimes they can be worse than investor-rehabbers - and yes we're looking at rehabbing together as well. We both have rehabbing experience but want to ensure that we work well together on wholesales before we take it to the next level) and (2) tap into the spanish speaking markets that I've previously shied away from because I didn't speak the language.

    He's also from a neighboring county (Hudson co.) and grew up in the region's most booming city, Jersey City. It's a huge market I've been wanting to tap into but don't know it that well geographically. So after we had our successful closing and sat down and talked we realized that a partnership structured correctly should be very successful.

    On his end he hasn't had much luck finding deals from distressed sellers. Part of the reason I suspect is that he is a bit more aggressive than I am with sellers. I assigned a Spanish speaking seller of a boarded up house to him a couple of weeks ago and I feel he may have been a bit pushy in the way he handled it as we have yet to land that deal (time will tell as I feel a deal isn't lost unless the seller officially sells it to another investor). So I feel we both can probably learn a lot from each other.

    Originally posted by Aaron Churnick:
    I'm curious though, do you get a piece of his business when dealing with someone else? Or does the partnership only work for your inventory?

    Right now we’re splitting virtually everything down the middle. An exception is the equity partnership (EP) I’m involved in with a money partner. I’m going to have to analyze that as I don’t want it to interfere with the new partnership. Perhaps I’ll reserve all activities of the EP for another county that the new partnership doesn’t farm in. OR somehow integrate my new partner into the EP. That way the deal making will seem more efficient and productive as I can just feed deals for the EP into the pipeline set up by the new partnership. Not sure how I’m going to work it though.

    But he’s also involved heavily in his church as I am in my community youth group. We both want to do deals for our respective institutions and have agreed on a separate entity where the money will be split 50/50 and donated to our respective causes.

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