Real estate, business, and investment partnerships can be powerful. They can also be disastrous.
Partnering up in one way or another ultimately becomes a necessity for most investors and businesses. This is regardless of size of capital, skills, and IQ. Buffett and Charlie Munger — and even Steve Jobs and Steve Wozniak — are classic examples of partnerships. It can be very beneficial for both protecting what you’ve got and getting to the next level. However, bad partnerships can get very costly and messy quickly. Speaking from experience, a bad partnership can be mentally draining. I recently exited a partnership that had all the signs of a toxic relationship. What signs should you be watching out for?
1. Different Investment Strategies & Goals
If you and your partner do not share the same goals and strategies, you are going to get frustrated and butt heads consistently. For example, one partner may want to buy and hold for the long-term, while the other wants to fix and flip. This will impact all areas of your business. It means looking differently at what types of deals you want, how you maintain properties, how you build your organization and operation, and who you engage with as clients and vendors.
2. Too Many Overlapping Skills
It has always been my opinion that if you have a partnership where your skills constantly overlap, it will lead to quite a few extra challenges. You’ll have significant gaps in your overall business. You’ll need to hire out and pay for others to fill those roles. That can put a strain on a startup. You will also be trying to do the same tasks and have very different opinions on how they should be executed.
In contrast, my current partner has quite a different skill set than I do. There are areas where we may overlap, but we specialize in different parts of the business. While he excels in business operations, running the numbers, and legal, I focus on marketing, business development, and branding, amongst other things. It just works better — and is more profitable.
3. Opposite World Views
If you have two totally different world views that can cause issues, too. It shows up in how you treat people, customers, and vendors. It makes a difference in daily business decisions, such as your approach to rehabbing and maintaining properties. You might not agree on everything, but you’ve got to be able to get along and work in synergy.
4. Un-Aligned Interests
Your interests should be more aligned than just wanting to make money in general. Who doesn’t want that? Billionaire real estate investor Sam Zell says the definition of a true partnership means equally sharing risk. It should also mean being equally motivated to make progress. Now, you may both bring different things to the table. One of you may bring cash, the other time and knowledge. One may be the technical expert, the other may have connections and marketing experience. You both really need to be invested in making it work, at the same scale.
Related: 5 Reasons for Engaging in Real Estate Partnerships (Other Than Money!)
For example, in my previous partnership, I wanted to scale and purchase more properties, while that partner was fine with the properties we already had. The ambition levels were completely different. It felt stagnant to me — I wanted to grow. It’s no good when one partner is complacent and the other is trying to grow and do more.
If you are considering a partnership, know what to look for, know the warning signs — and if you’ve made a bad choice, correct it fast.
What are some of the issues you’ve had with partners? What signs do you think indicate that you’re entering into a good partnership?
Let me know your thoughts with a comment!