Investing solo or with a partner?

Question

I've been trying to find some good information online (including bigger pockets) and I haven't really found a good discussion on this subject.

I have been looking for good investments and found a few but they have seemed to fall away. In my  efforts to find money, rehabbers, etc. I have had more than a few people ask me if I want to partner together and start a company together. I have my reservations about working with a partner, but each offers a unique skill.

Question being, does anyone have insight as to what strategy is better for REI? Working alone or having a partner in the LLC?

Thanks for your time.

-Don

Patsy Waldron · Answer

Well, there's really no right answer to this question! Some people succeed very well with partners, others on their own. Some have an excellent experience with partners, others have horror stories to tell.

I think the key to success in a partnership is finding the right partner, as Bradley mentioned above. Ideally, your partner is someone with whom you work well (NOT the same thing as "get along with", although that is important too and helps tremendously), brings something to the table that you don't have (specific skills, great connections, the ability to spot or negotiate great deals, thorough knowledge of an area, etc.), and has the same short- and long-term goals as you do. If you meet someone who fits that description, by all means, partner with them! But take the time to discuss with anyone who wants to partner so you can make sure (as much as possible) that they are a good fit.

In any case, make sure you draw up a water-tight partnership agreement that details exactly what the contributions/ responsibilities and rights/benefits of each partner are (i.e. don't assume that you are on the same page and that this or that is understood) and that provides for exit strategies from the partnership if it doesn't work out or if one partner just wants out. Get a good lawyer to draw up your partnership agreement; this is one area where you don't want to skimp.

Michael Gansberg · Answer

@Don Antoncich, for your first deal, I'd recommend going solo. For your last deal, it's also probably best to go solo. For your deals in between your first and your last deal, I also think solo is best.

Here are my arguments against a partnership. First, if you choose a friend, it's likely that a bad deal will destroy a friendship, so in partnering with a friend, you risk too much. Now, if you choose someone who isn't a friend, then aren't you trusting someone you don't know with your financial future? If you're thinking of doing that, you may as well buy stocks.

Let's take the partnership case where you are the minority holder(I'm not going into various types of entities here, so insert LLC, TIC, or whatever you please, the type of entity wouldn't change my response.) If you're the minority holder, and you disagree with an action, well- too bad for you, you're the minority holder, so zip it, please. If you're the majority holder, and the minority holder disagrees with an action you're taking, well- too bad for you, 'cause you're gonna get an earful- and are you really getting paid enough for that earful? If you're equal partners and you disagree with an action, well- you guessed it! Too bad for you! But don't worry, you'll probably only have to deal with your partner until you sell the building in five or ten or twenty years...why did Attica just pop into my head?

One of the best things about RE is you can become your own boss- but in a partnership, you must answer to your partner(s). There may come a time when being a lone wolf is self-limiting; maybe when you own 50 to 100(or more) buildings, and banks don't like it when you're the only guy at the top of a very broad ecosystem, because if something happens to you, then the lending bank can have a big problem. But it doesn't sound like you're facing that issue at the moment. But if you ever want to face that issue, I'd recommend staying solo awhile.

Good luck!