How should I vet an out of state partner?

Question

Just as the title says, what are some ways to vet a potential partner I have never met? This is for a 20 unit multifamily deal. Wouldn't want to overstep my bounds by any means, however, we are basically getting into bed with each other.

What steps have you taken to vet your partners and also insure that you will have a symbiotic relationship?

Thanks in advance.

What steps have you taken to vet your partners and also insure that you will have a symbiotic relationship?

Thanks in advance.

E. C. "Stony" Stonebraker · Answer

@Ruben Goodbear Anders I'd recommend several steps. Have an investigative firm conduct a background credit and criminal check. They normally like to have the person's name and SSN, but if the partner won't give you their SSN, get their home address or ask the firm what information they need to be sure they find the right person. If the partner has moved over the years, get the cities where they previously lived. Then ask for referrals from previous partners or people he/she has worked with. Conduct an online search of their name and city or name and address or name and school or other combination to be sure you are getting the right person. If the partner is working, find out their employer and ask the employer to verify their employment there. Try to catch their boss at work and casually ask about the person.

This business attracts a lot of different people and a few hours of work up front can save days or weeks of problems and thousands of dollars later.

Michael K Gallagher · Answer

might be worth having each of you take some kind of personality profile so you understand how to effectively communicate with each other, and that will also help direct you to what each of your most valuable tasks would be.

Eric James · Answer

I don't understand why people insist on doing highly risky things. Especially beginners.

Dallon Schultz · Answer

@Ruben Goodbear Anders smart move! It's well worth the few hundred dollars spent on a plane ticket and hotel room. To clarify my previous response was regarding active partners that I would be doing a deal with since that's what it sounds like you're doing. If it was regarding being a passive investor in a deal then I believe you can vet an operator well enough with your phone and computer and wouldn't require to go such lengths.

Nicholas DeCespedes · Answer

Hello, I am a rookie here so just to inform you before you read my opinion. I agree with these gentlemen that you should meet with him and see if he's sketchy or not. I wouldn't want to do business with someone that you can't get along with or you think might be unethical. This can lead to problems down the road. Assuming you want to do more than one deal with him down the road can lead to problems. I would meet him in person but before you meet him I would do some due diligence yourself. Clarify what your expectations are of yourself and of him. Do you expect him to put all or some of the money in? What are his responsibilities? Etc.

Dallon Schultz · Answer

@Ruben Goodbear Anders partners can be incredible when they share the same vision, goals and have a clear understanding of their roles. I personally would never partner with someone I never met. Getting into the world multifamily real estate typically means dealing with millions of dollars, vendors, tenants etc. Would you get married to someone you never met? Don't let the excitement and possibility of getting a deal done blind you from making wise choices. With that being said I don't know the relationship you have with this potential partner but I would proceed with caution if you truly feel like it's the right move to make.

Marcus Auerbach · Answer

@Ruben Goodbear Anders - probably a bad idea. Be very careful with partnerships. My observation is that most partnerships eventually blow up, just like marriages. The best two indicators for success are: alinged personal values, because that means you will make decisions the same way and arrive at similar conclusions. And very opposite responsibilities, meaning clear defined and polar opposite roles. If you are overlapping too much, that spells trouble.

A background check will not come back black or white, but likely grey - in the middle. You may feel compelled to move forward, because you are looking at as an obstacle to close the deal. Obviously that would be a mistake.

A lot of partnerships are created to share the anxiety; thats the worst reason. You are perfectly capable to do a deal by yourself. Don't be intimidated by the size. Get the right professionals on board (inpector, lender, agent,..) - they will protect you and you don't need to "divorce" them at some point in the future.

If I'd partner with anyone, then only for a period of time, with a defined and agreed upon exit, and only with a person I truly understand their value system and had the opportunity to observe theor behaviour in similar arrangements (and under stress).

E. C. "Stony" Stonebraker · Answer

@Ruben Goodbear Anders  Good move to visit the area and meet the person.  I agree with @Dallon Schultz, I would never invest with someone I never met nor with whom I didn't have clear and matching goals.

Brock Mogensen · Answer

Meet in person, discuss your short and long term goals for the deal, make sure ethics align, make sure each person has their duties clearly outlined for the deal.

Jeremy Trad · Answer

@Ruben Goodbear Anders, @Marcus Auerbach is spot on when he talked about having a clearly defined ending/exit for the project. Doesn't matter if you've known the person for 10 minutes or 10 years, you NEED to be on the same page as to the timeline. That's not to say that you can't pivot later on if things are going well or tanking miserably, but it's important to have a clearly defined exit strategy and timeline. Another set of discussions worth having when it comes to partnerships is going through some "worst-case scenarios" to ensure that you both are in agreement if XY&Z happens. Remove emotions from the equation as much as possible.

How should I vet an out of state partner?

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