“Alone we can do so little; together we can do so much.” — Helen Keller
Isn’t this the truth? Most of us know this to be the truth, but it is not always easy finding and cultivating strong partnerships with others in this real estate investing business. Last night, I gave a presentation on this topic to a local real estate investing meet-up group. I began the presentation by asking a question to the audience:
“Why are partnerships so important in real estate investing?”
A member of the audience said it perfectly — in this business, there are so many specialties that it prevents you from being an expert in ALL of them. Therefore, it is wise to form partnerships — that way, you have all the expertise covered by multiple people. I could not have said this any better.
Over the last 10 years, we have attended the school of hard knocks when it comes to forming partnerships. Some partnerships have worked out well, and others have not worked out as well. I hope this post helps you attain the most success when it comes to forming and cultivating strong partnerships!
Download Your FREE guide to evicting a tenant!
We hope you never have to evict a tenant, but know it’s always wise to prepare for the worst. Navigating the legal and financial considerations of an eviction can be tricky, even for the most experienced landlords. Lucky for you, the experts at BiggerPockets have put together a FREE Guide to Evicting Tenants so you can protect your property and investments.
Types of Partnerships
The most common type of partnership in this business is the traditional “business partnership.” This is where two people (or more) align on their goals and decide to partner together in an actual business. This always should be done by forming a legal entity and creating an operating agreement that spells out everything! If you go this route, consider it like a marriage. You want to make sure you are forming a business partnership with the RIGHT person. I will share some tips later in the post on this.
Another common partnership is “money partners.” For most people involved in this business, these folks are incredibly important as you grow and expand your business. The two types of money partners tend to be in the form of private loans or private equity. Private loan partners are folks who lend you money on a short term basis. They can loan you money from their savings or from their self-directed IRA. Private equity partners are actual partners with you on the deal. This strategy is used for long-term deals. Both partners are incredibly important team members in your business.
Lastly, you should consider forming “project partners.” This is where you partner with individuals on specific projects. For example, for our latest fix and flip project, we had two partners. We formed an LLC just for this flip project. This is a great way to start small with people — whether it is a fix and flip or rental project. Most people simply form a business partnership, however, I would highly recommend this strategy before jumping into a business partnership. This gives you the opportunity to “try one another out” and avoid getting into business partnership with the wrong person.
5 Top Tips for Creating a Mutually Beneficial Real Estate Partnership
1. Complete alignment on goals, values, and the “why” you are doing what you are doing.
If you are looking to bring on a business partner or project partner as I explained above, this is an absolute must. You need to be aligned and on the same page when it comes to the goals of the project and/or partnership and the “why” you are doing what you are doing. You should also share in the same values. You might value helping the community through your real estate business, and your partner might be all about making money only. This is a recipe for a weak partnership. Your goals must be aligned as well. For example, if your goal is to make some money on the side and your partner is looking to replace his/her income in one year, then you are not aligned on your goals — and the partnership might fail.
2. Bring something different to the table.
While you want to be completely aligned with your goals and values, there are areas that you want to have diversity with. You want to have diversity in the following:
- Skill Set
- Personality Style
If you are a risk taker, it is great to have a partner who is more cautious (and vice versa). If you are talented at sales and marketing, then find a partner who is great with the numbers and is more analytical and technical. The last thing you want is someone who shares your passion and has the same skills and talents as you. Find someone who complements you and brings the best out of you.
3. Always be in communication and don’t avoid difficult conversations.
The biggest reason partnerships fail is lack of communication. I have never heard of people ending a partnership because they “over” communicated. Partners need to constantly be in communication. This is not just about the tasks and what needs to happen. This also includes the difficult conversations. Great partnerships have open, honest, authentic, and real communication. Don’t avoid difficult conversations or conflict. Just like any great relationship, discuss these disconnects head on, learn something from them, and grow from them.
Related: How to Use Partnerships to Move Your Real Estate Business Ahead Faster & Further
4. Continually re-evaluate the effectiveness of your partnership.
After every project, you should ALWAYS have a debrief meeting with your partner. You should discuss what went well, what would you do differently on the next one, and how to work even more effectively together. You want to ensure your needs are getting met along the way. Don’t wait for three years go by when you have a laundry list of frustrations to share with your partner. If you put the practice in your business to debrief after every project, then you will nip things in the bud early on.
5. Start small and put everything in writing.
When considering a partnership, I am a HUGE fan of beginning with forming project partners as I explained above. This allows you both to start small with each other. If you start small and partner only on one project, then you can determine after the project is over whether or not to continue working together. It is like dating before getting married. Dating is like “project partnerships,” and marriage is like “business partnerships.” I would also encourage you to put EVERYTHING in writing for any type of partnership. This includes (but is not limited to) financial contributions, financial distributions, roles, responsibilities, etc. Get the counsel of a great attorney to put the right legal entity together and operating agreement in place. Avoid handshake agreements!
I hope you found value in this post. I would love to hear from folks on their experiences with forming and cultivating partnerships. What has made your partnerships successful? How have you avoided bad partnerships?
Be sure to leave a comment, and let’s talk!