4 Tell-Tale Signs of a Bad Partnership (From Personal Experience)

by | BiggerPockets.com

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.

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Related: 4 Lessons I’ve Learned From My Made-in-Heaven Real Estate Partnership

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.

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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!

About Author

Sterling White

Sterling White started in the real estate industry at a early age back in 2009. The company he co-founded Holdfolio is a real estate crowdfunding platform based in the Indianapolis market. Before founding Holdfolio Sterling and partner Jacob Blackett were involved in the purchasing and selling of 100+ single family homes nationwide. In his free-time he trains for a World Record.

3 Comments

  1. joe moore

    Sterling; this is a timely post for me. This coming year I will expanding my portfolio on using more and larger resources. Using partnerships will probably be one of the ways that I will employ for faster growth. Good post for taking a looking at if a partnership will work. It have help me take a second look at potential partners.

  2. Scott Allocco

    Sterling this is incisive. Better to be aware and prepared than to just jump into a partnership because it sounds good. Personally I have two experiences, one positive and one not. The latter involved my desire to get into apartments and meeting another investor who had a deal in the works and needed capital. I happened to have some and started having conversations. Along the way I was frustrated with the fellow’s unclear communication style – saying things like “100% financing, 20%” about terms another investor was offering him. When I said “20% of what?” he simply said, “Well THEY understood it.” It also became clear he wanted someone to help do the physical work, which I did not have time to do. So I walked away.

    The positive experience is ongoing right now, as we found a flip deal for which we needed financing. A doctor friend had been expressing interest in investing, so we talked about the deal over dinner, showed him and his wife the house, offered a nice return for his cash, and we are now near completion on the rehab. With any luck, this deal will show him our competence and entice him to invest more in the future.

    Thanks for your article, and I hope these stories can help others as they look for the way to wealth in real estate.

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