I have to admit, being the independent creature that I am I have generally shied away from the idea of partnering up with another investor in real estate. The reasons behind this are many – partly because I just like to work at my own speed and be the one making decisions and keeping track of things, but also to some extent because I know I would feel a great responsibility to outperform so as not to disappoint that person in any way by my participation and I wasn’t sure if I wanted to take on that additional pressure.
So, I have gone about investing on my own so far. That doesn’t mean it hasn’t been a team sport in many ways. There are lots of people I have worked with along the way that are integral to successfully getting things done – realtors, mortgage broker, mentors, etc., but none of them have been investing partners so far. There have been a few individuals I have encountered that I thought the possibility might arise to partner on an investment, but for whatever reason it just never seemed like a good fit. However, that has changed this year as I did cross paths – or more accurately met along the same path going the same direction – with another investor that I am now embarking with on a partnership. We initially met through the real estate online network Biggerpockets as we were participating in the same forum thread on a particular topic. It turned out we live about an hour apart and have many of the same goals (long term and short term) in real estate. After a few email and phone interactions sharing real estate information, we started meeting up regularly about once a month half way between where we each live. The intention was not initially to jump into a partnership together but rather to help each other with resources and second opinions on things we were already pursuing on our own. Over several months it was pretty apparent that we were truly headed in the same direction with the same motivation and that we had an ease of working with each other, so considering going into a property together started to seem like a reasonable consideration. We had several discussions about the possibility and eventually decided it made sense for the both of us and came to agreement on what that would look like. Since that time, we have recently closed on the purchase of a new property together and are looking forward to partnering on more in the near future.
In many ways, finding a business/investing partner can be equated to dating: you interact with a lot of individuals until you meet a particular person where things just fall into place. It’s one thing to say you’d like to partner with someone, but it’s a whole process (and perhaps a little luck) to find a particular person that you know you will work well with. You might encounter that person by chance, but you certainly increase your odds if you know what you are looking for, what you bring to the table, and then stay active in real estate investing groups or forums where you are more likely to encounter such an individual. That being said, I wanted to take a look at some of the things to take into consideration or be on the lookout for in a partner:
It goes without saying that a shared goal of what you want to accomplish in real estate is pretty important. Of course that means you, as an individual, need to have determined what your goal is individually. Usually I suggest that be one of the key things new investors spend some time thinking about. If you don’t have a well defined concept of what you want real estate to do for you or why you want to get involved in real estate investing, how will you ever back out a strategy or concrete steps to take to get you to that goal? Most people, especially highly successful ones, are pretty good about figuring out what steps they likely need to take to get from A to B once they determine that getting to “B” is the goal. However, without having determined that is the goal, they may be very unproductive or aimless in their pursuits. Figure out your goal, then figure out how to get there, then you will be much more likely to recognize when someone else is on that same path that could potentially partner with you if the other factors make sense.
2. Investing Strategy/Time Horizon:
Just like having shared goals, it is important to be on the same page with an investing partner in regards to strategy and investing time frame. If one person wants to acquire long term buy and holds for cash flow over many years and the other wants to flip houses to generate chunks of profit with each property turned over it probably wouldn’t make much sense for these individuals to partner up. Also, if one person wants to be in and out of a property in 5 years for whatever reason and the other wants to hold property indefinitely that isn’t a good match either. Even if they have an overall similar goal, the strategy they each want to take might be so far apart that a partnership just doesn’t work.
3. Skill Set:
On one hand, it’s easy to communicate and feel comfortable around people that are like us or that perhaps we share things like similar education or careers. The thing to keep in mind though is that these people might be TOO much like us to make good partners. Partnering with someone that has the same knowledge base or same skill set as you won’t do either of you any favors. That’s fine if you both have some skill sets in common but you don’t want to have the majority in common. Perhaps one person is more of a people person and is great at interacting with tenants or realtors and the other person is more experienced and proficient at setting up systems, doing the bookkeeping, tracking the financials and metrics of a property. By having different skill sets from your partners you are essentially using another form of leverage to accomplish more (or at least more easily) than what you could efficiently do on your own.
Each person, having a unique history of where they come from, where they have worked, where they went to school, etc. has a unique set of contacts – both personal and professional. When you partner with someone, their network also becomes your network to a large extent as the connections they have made over the course of their life will likely be available to you as it pertains to your business endeavors. This can multiply the number of people and experience you can tap into throughout your partnership.
Many times people seek partnership because they are the ones that either have money to invest but little time OR they have little money to invest but a lot of time and/or resources to put together and manage deals. Even though they might be bringing different things to the table, they are both valuable and necessary items to acquire and maintain properties, so each is valuable to the other. Sometimes it is just a matter of one person in the partnership that has a strong balance sheet or credit history that will be beneficial in getting good loan terms. Again, this alone can be very valuable to someone without that history or balance sheet. Think about what you bring to the table in this regard and if you would be a good financial partner for someone or if that might be something to look out for in a potential partner.
6. Risk Tolerance:
Somewhat similar to your shared investing strategy, you should partner with others that are relatively similar in their risk tolerance or risk aversion. A reasonable risk for one investor might be completely crazy for another. Take those kinds of things into account ahead of time as you don’t want a partner that has a much higher or lower risk tolerance than you or you will both be unhappy with the properties you end up with.
7. Time Availability:
One thing that can work out well for partners is that you may have variable or complementary availability of time to work on your properties together. That could mean completely opposite schedules or the same schedules, but whatever it is if it complements your availability that will also leverage your function together. One person might not work regular hours during the day so can make important calls or handle business during normal business hours but can’t get much done in the evening because of family responsibilities; perhaps the other has a busy day job but has more availability in the evenings or weekends when they can do tasks that aren’t necessary to be done during regular business hours. Whatever it looks like, just make sure that at least one of you is regularly available to tend the business and get important things taken care of.
You probably wouldn’t even be considering a partnership with another person that you found completely annoying or you couldn’t communicate effectively with, but it still seems important to mention that having personalities that get along well, communicate effectively, and perhaps even enjoy and have fun working with one another will go a long way in making for a successful partnership. Just remember, you will be spending many hours either communicating from a distance or actually in person. If being around that other person is a drag for you, why set yourself up for that? Look for someone that inspires you, motivates you, makes you feel even more likely to succeed with them than without them. And if you can share a sense of humor that would be icing on the cake, as sometimes that alone might be what gets you through the ups and downs.
Feel free to share your anecdotes of successful or failed partnerships or what you learned or would recommend to anyone else considering a business partnership.