I have built my business buying foreclosures and invested millions of dollars in real estate transactions through forming partnerships. Partnerships can be extremely useful tools to enhance your real estate investing portfolio, providing you the means and opportunity to buy foreclosures or other properties you may not have been able to attain by yourself. Follow these simple but important steps to avoid extensive and expensive legal battles and in the end, become the ruin of your real estate business.
Your partnership is going to work best if you and your partners have complimentary skill sets that you each can contribute to the organization. It’s vital that you bring in a partner who can complete the missing piece of the puzzle, while enhancing the pieces that are already present. For example, you may have the know-how to find and analyze the deal, the ability to finance the purchase but you may lack the construction funding and experience to finish the project. You partner search should fill in those gaps, handling the responsibilities needed to see the deal to a successful completion. This enables each partner to have clearly defined roles, with little to no overlap. Too often, when too many people are “experts” in the same field, you can get paralysis by analysis, when each side tries to prove their superiority. This can lead to significant and costly delays for you and your project. It’s not about egos here, it’s about money. If you want to stroke your ego, do it on the golf course.
Just like a marriage, real estate partnerships require the right pairing of personalities. While you should marry for love, partnerships should be formed with the goal of profitability. You don’t necessary have to like your real estate partner, although that helps, but you do have to have a mutual respect. If the respect is not there, RUN. Unlike a marriage, where not everyone has a prenuptial agreement, a dissolution agreement in a partnership is an absolute must. You may never need it, but like a good insurance policy, it’s there to save you money. If there comes a time when the partnership goes awry, not having it can potentially cost you thousands of dollars, not to mention the aggravation and stress associated with the breakup of the relationship.
Keep accurate records, no matter what structure you use. Have formal meetings set up with your partners on a monthly basis, and send out formal invitations to attend those meetings. They may think it’s silly, but keep doing it, and keep a record of your attempts and the meetings. This might sound strange, especially if your partner is a friend or close acquaintance, but by treating your real estate business as a business you will earn their appreciation over time and become to be known as a true professional. More importantly, if something should ever arise that could fracture the partnership, you will have your bases covered because you kept your partners up to date on developments, good or bad.
The key to any real estate system is putting yourself in the position where you can choose your partner. When I am buying foreclosures or investing in distressed, mismanaged properties, I am choosing my partners. You should never be so desperate to do a deal that you decide to work with just anyone, or the first person who could come to the table with money. A perfect example of this in my career was working with this investor named “Mike.” Just so you could understand how much money Mike had available, if you had Mike’s money you would burn all yours. He worked with some other real estate investors I knew and had always asked me to work with him on a deal. I choose to work with him on a project and we all made money, but during the process I got to see firsthand what is was like to deal with him. He would not follow through on payment arrangements, make double or triple the work and got involved in areas that he was not supposed to. I was happy to give him his check at the closing and even happier that I never used his money for any transaction I was involved in again.
Finally, this isn’t just about the “other guy (or gal)”. Make sure you are a great partner and you will have people lining up and knocking on your door to work with you. Always respect the other persons time; always follow through on your word; always try to make your partners the most amount of money you can.
Hyman Roth was loved because he always made money for his partners
The skill and knowledge of finding and structuring the right deals, whether I’m buying foreclosures or short sales, mismanaged investment property or estates, has enabled me to be in the position to pick my partners and not the other way around. Pick the right partners, and you will be able to achieve greater profits in real estate than you ever could alone. Most importantly, make sure you are they type of partner that helps your partners achieve the same thing.