If you have been around the real estate business long enough, you will eventually find yourself in a place to partner with other investors. While the idea of a partnership may be appealing to many, it may not always be in your best interest. For as much as a sound partnership can help you grow your business, it is also filled with many headaches and potential problems. Before you enter into any partnership agreement, you need to determine exactly why you are doing it, what you are getting out of it and if you really need it.
Working with a partner can be a deal saver, but it may not be necessary on every deal. The basic premise of a partnership is to work with someone who brings something to the table that you can’t or don’t have. This could range from means of financing to the ability to do repair work. If you are both bringing the same skill set, there isn’t really much of a need to work together. An ideal partner will help you get deals that you normally could not get on your own.
If you are talking about a small single-family property where there is not much work to be done, there is not a great need for a partner. However, if you are looking at a large apartment complex or a series of multifamily properties, there may be a great need for a partner and this would be the ideal situation to partner up. In situations where all partners stand to make money, partnering works well. It is on deals that partners aren’t prepared for when horror stories are made. Unrealistic expectations, lack of structure and uneven work delegation are just a few of the reasons that partnerships go south.
In addition to seeing if you could do the deal without a partner, you also need to make sure that the returns make partnering worth it. There will always be some degree of difficulty in allocating assets, discussing steps in the process and making decisions with the property along the way. Some of these discussions can turn into arguments and ultimately take time and energy away from looking at other projects or handling other tasks. If the returns don’t make partnering up worth it, you should look to move forward on your own or move away from the deal altogether.
There is no such thing as a sure deal. This must be taken into consideration when exploring the idea of a partnership. Some deals may be more conservative than others, but there is always some degree of risk associated. That being said, it is important to discuss this risk and the worst case scenario on every deal. If your partner is investing most of their assets on a deal that you brought them and it doesn’t pan out, you don’t want that guilt hanging over your head. Talk about the exit strategy and what they want out of the deal, but also talk about what could happen if the market changes or there are issues discovered with the property.
The more you put out before you start, the stronger your partnership will be. Finding the right partner to invest with can bring you deals that you would have otherwise never been a part of. Make sure you are on the same page with any partners before you start. It is more important to find the right partner than any partner.