A business partnership is often compared to marriage, and I get why. How well you know and trust your partner can not only determine the success of your partnership, but also your ability to make decisions together and overcome challenges.
While most of us wouldn’t blindly enter into a lifelong commitment with someone we don’t know, it’s less common that business partnerships or joint ventures are approached with the same level of seriousness.
Rather, investors and entrepreneurs could be making the decision to partner up out of fear of personal risk, with the goal of spreading out that risk or sharing resources. Or maybe they just haven’t thought it through. Haven’t we all heard the horror stories about a friendship that goes awry and a partnership that dissolves after all the work of setting it up, acquiring properties, and starting to work through those deals?
Over the years, I’ve had challenging partnerships, and I’ve had truly successful ones. I’ve learned a lot from both.
Of course, when a deal or endeavor goes south, it brings to light any issues in a partnership that may have gone unnoticed during the good times.
So, what are the warning signs?
What should you be looking at before entering into a partnership?
5 Qualities to Seek Out in Your Next Real Estate Partnership
1. Align your goals.
Goal alignment is critical for a successful partnership. What are your long-term goals, and are you in sync with your partner?
Do you have the same amount of time and/or money to invest to reach those goals?
Perhaps you want cash flow to supplement your income. Or maybe you’re focusing on building net worth.
When I first started out in real estate, I wanted to accumulate buy and hold properties for passive cash flow and then pay them off by retirement. Of course, investing goals can change or evolve over the years, and they’re not the same for everyone. Is your partner on the same page?
2. Know your preferred exit strategies.
It’s often said that we should have an exit strategy in mind before even entering a deal or starting a new endeavor. Do you and your potential partner have the same exit strategy in mind? What about a plan B?
I was once in a deal where my partner and I both intended to fix up the property and then sell it. After doing the work, the market changed, and we weren’t able to sell it at the price we wanted to.
Since my money for the deal was borrowed and I was paying on it monthly, I wanted to rent out the property for some much-needed cash flow until the market came back. My partner preferred to let it sit until we were able to sell. At that point, since we had different opinions on how to exit the deal, I ended up having to buy him out.
3. Seek out complementary skill sets.
Rather than having the same skills, it may be better if your skill sets complement one another’s.
Also, when it comes to real estate partnerships, being handy doesn’t hurt either. For example, years ago I bought a property with a relative who was an electrician, while I was a painting contractor. So, if needed, we could jump in and do the work at cost.
4. Define roles and responsibilities.
While many folks start out doing the work themselves to save money, each partner’s role and his/her responsibilities need to be clearly defined. Who’s doing what? And how will both parties be compensated moving forward?
Maybe maintenance or management will be done by a partner or maybe it’s best to outsource that. Another thing to consider is what will happen if a partner can no longer participate in his/her role or perform it effectively.
I’ve been in deals where there roles and compensation weren’t figured out ahead of time or there was no schedule for the work to be completed, and it did put a strain on the partnership. After all, both parties expect it to be a fair exchange.
5. Prepare for change.
This is one of life’s certainties: Things change. So, it’s best to have certain protections in place. For example, what do you do with the properties if something were to happen to one of the partners? Do you have a buy/sell agreement?
Of course, there are other things to consider as well, like entity selection, tax considerations, and how much liability or risk you’re willing to take on.
If everything checks out and you’ve joined a solid partnership, it can have a huge impact on your deals or your overall business.
4 Ways an Ideal Partnership Can Help You
Done right, partnerships can give you an edge, enabling you to do things that would otherwise be a much bigger challenge.
What becomes easier in a good partnership?
1. You can share the work load.
If you’re going at it alone, without a partner and without outsourcing, you are wearing all the hats, so to speak. Everything revolves around you.
When I owned my own painting company and most of my business revolved around me, I had a really hard time getting away or taking any kind of break. Now, in my note company, if my partners or I want to go on vacation, we can do so, and we can cover for each other.
2. You can focus on your strengths.
Not only can you take a break when needed, but you can also shift your focus to what you’re best at, and your partners can do the same.
One of my biggest strengths is raising capital, but my partners’ strengths are different, so they focus on things like acquisitions, research, and borrower management.
3. You can gain a fresh perspective.
Another big benefit of having partners is being able to bounce your ideas off them. Otherwise, it’s like you’re on an island, making all of your decisions on your own.
Having someone else with a fresh perspective can get you back on track or it could validate what you’re doing. It’s usually easier to solve a problem with a team of minds instead of just one.
4. You can scale up.
When you’re a small outfit or just one person, you can only do as much as you personally can handle. Scaling up into a full-blown business could be done more quickly with partners than without.
Personally, I think the best thing about having my partners is that we can build a bigger enterprise with a higher likelihood of continued success, one that also makes a larger impact.
So, have you considered a real estate partnership? If so, what planning did you do, or will you do, to make sure it’s successful?