Some of the strongest real estate businesses were founded through partnerships. A solid partner can help grow your business faster than almost anything else you can do. The more you network, the greater chance that different deals will come your way. Some of these deals need you to work with people you may not know all that well. The lure of profits can drive you to a partner that may not be the best fit. Before you enter into any agreement with a partner, you should answer a few questions. The answers you get can either lead to a great partnership or end it before you ever get going.
- How will finances be broken up? Money is the driving force behind almost all partnerships. This is the case with how it is broken up or who is on the hook for which payments. Even if there are profits to make, you need to discuss everything about the finances on the deal. Talking finances may be uncomfortable, but it is a conversation you need to have. It is important to be as open and honest as possible. Talk about your current financial situation and which obligations you feel are fair to pay. The elephant in the room will always be how the profits are broken up. There will be a tug of war between the person who found the deal and one who has the capital to act on it. Stand your ground, but be careful not to be too greedy. If one partner is unhappy with their split, it starts the partnership off on the wrong foot. The more you talk about finances, payments, bills and returns, the stronger the partnership can be.
- Clearly define roles. If you feel you are doing an unfair share of the work, you won’t be happy. Talk to your partner about what their work expectations and what the roles will be. One partner may be exclusively provide capital backing and not want to do anything else. They are willing to make less and do less. Whatever the work load is, get it on the table before you start. Inevitably, one person will do the lion’s share of the work. They need to be compensated for their time and effort. The best partners are ones that are flexible and look at the big picture. Making a smaller piece of a big pie is still better than nothing. Whatever you agree to do, you have to accept until the next deal comes along.
- Separate business & personal lives. Partnering with friends and family can get complicated at times. Some of the best businesses experiences you will have are with friends and family, but there is another side to that coin. Dealing with difficult deals or losing money can put a wedge in a relationship. Before you get started, you need to be able to separate business and personal lives. This doesn’t mean you can’t inquire about their lives, but you need to be able to draw the line. If someone isn’t pulling their weight or you aren’t happy with a decision that was made, you need to have a conversation. Turning a blind eye to something just because you are friends will not make for a long partnership. A business conversation you would have with someone from a networking group should be the same one you have with a family member. There will be difficult times on most deals and certainly most partnerships. If you are willing to accept these times with your friends and family, you are ready to move forward. Remember, not everyone close to you would make a good working partner.
- What are you expectations? Two seasoned investors can look at the same deal and have completely different visions for it. You may be adamant in doing things one way, but you need to be willing to listen to another voice. One of the things that brings down partnerships is differing expectations. What may be obvious to you may not even be on your partner’s radar. Along with expectations, you need to discuss time-frames, strategies and returns. If you can’t come together on a plan, you need to wait until the next deal. One of the worst things you can do is to dive in without a plan. Soon enough there will be no turning back. If you are not satisfied at that point, it will take a lot to get out. Talk about what you expect out of the deal – what your best case scenario is. If you are on the same page, you can move forward. If you are not, you can wait until the next deal comes along.
- Are you in this for the long haul? Some partnerships are only on a deal by deal basis and others are for the foreseeable future. If you don’t know what your partner has in mind, you can create an uncomfortable situation moving forward. There is nothing wrong with going one deal at a time, but only if your partner is aware of your plan. Most investors have other sources of deals and even other partners. If you get a new deal, how are you going to work it? This needs to be brought up before you make your first offer. Not only does this make sense legally, but you also want to have an open line of communication.
The best partners are those that compensate your business in areas where you may be weak. Taking on a partner is a difficult decision. There should be no secrets with the people you work with. The more you can get out of the way before you begin, the better chance your partnership will be a success.