Finding the perfect someone is what life is all about, right? You can fill out a thorough hour-long questionnaire on eHarmony and Match.com. They know all the questions to ask to connect you with the perfect mate (so I am told — I met my wife while going to meet a different girl… #seriously #dishinsometruth). Yeah, I just said that. 🙂
So, I was pondering what other places there are out there to find the perfect someone. A quick Google search, and boom, there is FarmerRomance.com. Get it? Romance for farmers. I wonder what kind of questions they ask: Do you prefer soybeans or corn? Are you a Kubota tracker gal, or do you hold more of an affection for John Deere?
Or how about this one — DateTruckers.com! Umm, I am just taking a stab into the vast “highway” of available questions, but could potential screening questions be: What interstate do you usually drive? Or, what’s your favorite CB radio station? How big is your truck cab? Or, do you haul freight or milk… or do you drive one of those scary-looking trucks with all the metal bottles of explosive gasses or whatever, the ones with all the signs about “no open flame here or everything will blow”? That must be for the real thrill-seeking truckers.
Ok. Obviously, I know nothing about truckers. Or farmers. But the point is, after just a quick Google search, I’m sure if they got me to click through to find my long lost dream-trucker or farmer, I could have instantly found multiple options from my perfectly inputted and database-filed search criteria and credit check.
Phew… I am tired just thinking about understanding all that.
(Can’t wait to see what kind of Google ads I get after this post #thisshouldbeinteresting!)
So, you might be wondering at this point — where he heck am I going with this?
Joint Ventures, of course. #hello
The past few weeks, I have spent an incredible amount of time chatting, emailing, Skyping, calling, messaging and texting a number of people who I am in deals with, working on deals with, talking deals over with, thinking about doing deals with, telling about deals, negotiating terms on deals with, or negotiating financing terms with for specific terms on deals.
Yeah, putting it that way makes my head kinda spin, too.
But seriously. There are a lot of questions to ask. And there isn’t some 100% guaranteed to “find your perfect real estate joint venture match or your money back.” There is certainly the alternative, where you pick the wrong one, and you get taken to the bank for tens of thousands of dollars. I’ve been with that JV partner… and it sucks!
I have also been with the partner who never really becomes a partner because they keep spinning themselves into circles of neverending questions about the same stuff over… and over… and over… and over. Sound familiar? Yeah. That drives me nuts, too. There are a million ways to have these kinds of partnerships go sideways, even when we have the best intentions and no immoral or malicious actions.
Sometimes bad, frustrating, unforeseen things happen. Here are some questions to ask to minimize the risk of those things happening.
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4 Questions to Ask Potential Joint Venture Partners
1. Who are you? What’s your story? What are you into?
That might sound funny, but I’ve found myself more than a few times discussing these kinds of questions after a deal is already discussed or after terms of a potential partnership agreement have already been negotiated. Almost always, I have gotten pretty lucky with this scenario. But seriously, this is a vital thing we are talking about.
There are real implications to who you are partnering with, who you are learning from, and what kind of person you are hitching your financial well-being to.
I want to hear about the potential partner’s story. I want to understand what gets them fired up. And what they are into. What makes them tick. After all, if they aren’t really into the things I am into, how will we get along? Not that we both have to love Pearl Jam and spend entire weeks camping together, wearing our favorite matching Napoleon Dynamite t-shirts in the middle of nowhere… but some common ground is important. And it’s cool we have matching t-shirts and all; I would just prefer them to say “so-and-so real estate company.” You getting what I am putting down here?
And when you speak with the other person, do you find yourself not doing a lot of talking? Or, conversely, are you doing most of the talking? Do you feel like you would be able to contribute and be heard? And be happy working with this person? If you aren’t feeling really good about how the relationship is when you are basically in the “dating” stage, how do you possibly think it will go when you have a real issue you have to work though.
For example: This week, I called my JV partner regarding a flip we are closing on in less than a week and the new lender I was working with –basically, the whole financing feel through. It was a frustrating deal. But I called my partner, explained the situation, made sure they understood what was happening, and then we made several plan B, plan C, and plan D options. This person and I have known each other for less than 30 days.
But we have spent a LOT of time talking through the deal, and talking in general, and getting to know each other and our families, and all of the other stuff (how else would I have randomly come up with Pearl Jam, right?). So we knew once we had this hurdle we had to overcome — and we had basically a 4 hour period to restructure the entire deal and cover $225k — and we got a little tighter because of it.
We now have a little more trust between each other. Communicating on something that is a challenge isn’t real fun to deal with, but we worked through the problem, came up with possible solutions, and made the adjustments necessary to keep the deal (and our partnership) together.
2. Do you REALLY understand what you’re getting into?
There are a lot of places you can go and find no-money-down kind of partners, or hard money loans, or large institutional investors who want to loan you 100% financing for your flip. They require little or no money, little or no cash on your part, and sometimes not even a bank statement or a credit score.
Except you better read the fine print. Terms and structure, they mean everything. I learned that the hard way this week with this particular lender. By the time they finally sent me their term sheet, they were SO FAR off from what we had discussed, they literally were asking for more than half of the equity/profit in the deal from their fees, points, and interest.
Yeah, I don’t think so.
I’ve heard others ask for not only 50% or more of a deal, but large amounts of interest and points on their financing. That’s all well and good if you understand the deal, you understand your risk, and you have a complete picture and understanding of the deal as a whole, as well as your roles and responsibilities within it.
We have used our attorney to change, tweak, and maintain our agreements, and therefore our business (and personal) relationships. Don’t leave $10ks or $100ks on a wink, a prayer, and a hand shake. That’s just stupid. That isn’t how the world works anymore.
I trust my partner on this flip deal completely. Hence, why I partnered with him. We are on the same page. And we have so far worked very well together. Our roles have been discussed, the deal has been discussed, and everything is in writing. There are little things that we have not yet put into the agreement, like who will set up the autopay on the electric bill, but I’ve agreed to do it. And we mutually agreed that once we have done a few deals together, and as we find what works best, we will put those specifics into our agreement as well.
3. What will you do if all hell breaks loose?
Guess what — I can say this honestly: losing a million bucks in real estate is horrible.
And I can also say: getting screwed by your business partner is also horrible. Been there; done that, too. Don’t ever want to experience that again.
One of my mentors at the time had brought this question up to me and my then partner and asked what we would do if the deal or partnership went south, and in my positive, optimistic, and complete ignorance, I really didn’t worry too much about it. After all, people who agree to do something are going to do it, right?
We didn’t have a JV agreement, we didn’t have an overall business agreement or construction contract — we didn’t have anything. And it came back to bite me.
But we learn from these kinds of experiences; we grow and get better and don’t make the same mistakes — or we are afraid to fail, and we never move forward.
I share my story with everyone who potentially invests with me. I have never heard one time they didn’t appreciate that about me. It meant I was tenacious. I’m not afraid to fail because I’ve taken what I did fail at and turned it into something that succeeded.
4. Where do you want this partnership to go?
Are you planning to do just one deal together? Are there multiple ways for the relationship to work — as in, not only a JV partner in flips? Maybe they would also be interested in financing deals for you, short or long term. Maybe they would be interested in other businesses that spin off, like property management, or carpet cleaning or installation, or roofing… those roofers always seem to be getting the money, right?!
Anyway, seriously! Where are you going?
For instance, my partner on this deal has discussed in detail how he would like the next year or so to go: How many deals we might be able to do depending on when this house sells, how much cash we have to put in for equity, and what kind of structure we would have on our end depending on how the deals are funded. Most of the conversations have been without our attorneys involved, but once it was time to sign on the dotted line, we have made sure everything was copacetic for both of us. Not because I don’t trust him or because he doesn’t trust me, but because we wanted to do it the right way.
That All-Important “C” Word
Yep, you guessed it. It all boils down to that one word…
Without it, you are sunk. Be willing to share what is happening — to explain details, good and bad. Be willing to be wrong. Be willing to be flexible. But also be willing to stand your ground when it is appropriate.
Jim Collins’ wonderful book Good to Great explains how having the right people on the bus, headed in the right direction (together), brings something together that is greater than the individual. Obviously, you have to have a great leader, but you also need the teams surrounding the leader — a team with awesome synergy that works together to win. In the end, by bringing people together with like minded goals and different skill sets, wonderful things can happen.
So take the time to think about your goals. Write them down. Put them in your office. Put them on your phone. And think about what a great partner would look like to help you get there. And then you can, too, write the beginning of your ad:
Real Estate Investor: What are YOU seeking?
I can’t wait to hear your stories — please comment below!