Learn How To Start Investing In Real Estate
Learn How To Start Investing In Real Estate

Business Partnership Evaluation (Part 1): Introduction

Written by Than Merrill

The nature of the real estate industry favors those who are willing to establish a working rapport with those in their respective field. Progression, or perhaps improvement, is fostered by relationships that are carefully crafted over a period of one’s career. As a real estate investor, your propensity for success relies greatly on the individuals you surround yourself with. It is absolutely critical that your business partnership supplements your particular goals and aspirations.

Ultimately, the decision to enter into a business partnership is not one that should be taken lightly. The implications a business partnership can have on your company should never be underestimated, as it will be a defining junction in your career. The repercussions of selecting the wrong individual will resonate with you throughout the entirety of your business. Collaborating with someone that doesn’t meet your expectations is perhaps the quickest road to disaster.

Conversely, entering into a business partnership with the right person may result in unparalleled success. Your business can presumably flourish with the establishment of a strong business partnership as your foundation. The investors who assemble the strongest contributing members are typically rewarded accordingly.

The prospect of a business partner is a complicated and intricate undertaking, there are several aspects of which you should be aware. The following business partnership series is intended to equip you and your business with the tools required to make educated, well-informed decisions on potential candidates for your collaborative efforts.

Is A Business Partnership Right For You?

One of the most intriguing aspects of investing in real estate is the allure associated with entrepreneurship. Perhaps even more specifically, however, is the sense of freedom it accommodates. As a real estate investor, your particular path is dictated entirely by your intentions. The addition of a business partner may impose on the aspects that made your career decision desirable.

It is entirely justifiable to assume that a partnership is not the right fit for your particular scheme. Deciding to remain the sole entrepreneur in your business is respectable and will in no way serve as a hindrance. However, if the option to entertain a business partnership is available, it is important to make sure it is the right fit for you.

Investors are not advised to pursue a business partnership without a certain degree of comfort. Months, and sometimes years, are required to establish a working rapport with an individual. The process of establishing a business partnership should never be rushed. You must have the utmost trust in your potential partner and respect their wishes, as your well-being is directly correlated to their production. You must get to know your partner while simultaneously weighing all other options.

Essentially, if you are willing to share everything from profits to ideas, you may want to consider a business partnership. While not as easy as an independent entrepreneurship, starting a real estate team can lead you on the path to success and help you realize your goals as an investor.

Establishing A Successful Business Partnership

Keep in mind that this is not a decision to be taken lightly. The right partner could be the key to your business’ longevity; whereas the wrong partner has the potential to lead to its downfall. We are talking about thousands, hundreds of thousands and even millions of dollars to be won or lost. With such incredible stakes on the line, how do you go about determining a right partner from a wrong partner?

There are three particular reasons that should enable you to consider a candidate:

  • They have significant business experience and a great track record
  • They provide you with personal enjoyment and are fun to work with
  • They challenge you to become a better person and investor

Should a potential candidate meet these criteria, it is then time to determine the duration of the proposed business relationship. A long-term partnership should only be considered when both you and your potential partner have separately been involved in multiple successful transactions and you both have a good track record. It simply isn’t wise to jump into a long-term partnership with someone whom you’ve never completed a deal.

Why Do Business Partnerships Fail?

Seasoned investors are well aware of the benefits provided by a successful business partnership. However, they are equally likely to be aware of the tragedies resulting from unsuccessful partnerships. That is to say, the nature of the real estate industry will both build and destroy relationships. It is up to you, however, to maintain the ones you care about.

Avoid the potential pitfalls associated with this industry by familiarizing yourself with the following reasons partnerships fail:

  • Unequal Roles & Responsibilities
  • Poor Planning
  • Lack of Communication
  • Different Goals
  • Personality Conflicts
  • Incompatible Strengths & Weaknesses
  • Different Attitudes
  • Unequal Commitment
  • Differences in Work Ethic
  • Financial Differences

As a proactive investor, take note of these potential complications and prevent them from corrupting any business partnership you may form.

10 Steps To A Successful Business Partnership

Like any relationship, a business partnership requires nurturing. It is not something that can be neglected or cast aside. The most successful business partnerships harbor an affinity for the parties involved. That is, each individual must place the relationship amidst his or her top priorities.

There is a specific set of guidelines that will encourage a prolonged business partnership. The following is a comprehensive list of the steps required to build a successful business partnership:

  • Conduct A Self-Evaluation
  • Complete A Personality Profile
  • Determine Your Dominant Personality Category
  • 5 Core Needs In A Business Partner
  • Rate Each Of Your Personal Competencies
  • Discuss Roles & Responsibilities
  • Discuss Time Commitments
  • Discuss Financial Considerations
  • Discuss Growth Considerations
  • Protect Yourself With Legal Documents

The Importance Of An Exit Strategy

It may prove difficult for you to imagine your business partnership ending before it has begun, but an exit strategy is an essential piece of the puzzle that needs to be defined long before the partnership considers termination. The harsh reality of the real estate industry forces partnerships to expire, often prematurely and unexpectedly. Therefore, the presence of a well-devised exit strategy is critical, even necessary. Having an exit strategy that both parties can agree upon gives everyone the ability to leave on good terms, essentially mitigating the risk of legal action and hurt feelings.

Despite the relative success of your partnership efforts, there are several reasons in which you should devise an exit strategy. It is not uncommon for both personal and professional priorities to change over the course of a partnership. Alternative views, as opposed to those they entered into the relationship with, may stray from your original goals. Several changes may occur, creating a schism between you and your partner. While it is not your job to predict them, it is smart to prepare for them.

Having an exit strategy in effect will help to safeguard your interests, and at the same time, emphasizes that this new enterprise is based on a business relationship.

Understanding the rules and planning your exit strategy ahead of time also allows you the opportunity to think about your options. Doing so may help to ease the transition as business partners move forward separately.

Those intent on pursuing a business partnership are advised to exercise caution. This series was created to help you think critically and strategically, while raising crucial points of discussion with a potential business partner. It allows you to address all the key areas of a potential partnership, and begin the formalized process to do so if you choose to move forward.