Partnering With a Friend: Yeah or Nah?

Is it smart to partner with a friend on real estate deals and real estate businesses?

Partnering up can be a great thing in real estate. You can partner with others for a short time on specific deals. Or you can align investments together with others for the long haul. Or you could even go into business with a partner.

However, this type of situation can also end up being a relationship that’s harder and more expensive to get out of than a marriage.

Still, the biggest investors and funds use partnerships all the time. It’s a smart way to lower personal risk, speed things up, and collaborate throughout your investing journey.

The question is: who should you partner with?

Who to Choose as an Investing Partner

There are very different perspectives on this. Some swear they’ll never do business with friends and family; others believe it’s the only way to invest.

It’s possible to build a highly successful business either way. I’ve had a variety of partnership experiences with different people. Some have fallen away; others have been okay for a while. Then, there are those that have really been amazing!

If you’re considering teaming up with someone who’s currently your friend, there are certainly some things to consider first. Let’s discuss.

The Pros of Partnering with a Friend

Among the advantages of partnering with someone you know, like, and consider a friend are:

These are people who are easier and faster to do business with.
You already have a foundation of trust.
Going in, you’ll likely have fewer misconceptions about the other person.
The relationship can foster strength and motivation from the get-go, and you might just have some fun on the journey!

Billion dollar businesses have been built by entrepreneurs who teamed up with their childhood friends and then went on to create grown-up versions of their lemonade stands.

However, even with the best friendship in place, in the beginning, business can be tough. Not to mention, people can always change.

Think about going from casually dating someone to moving in with them. No matter how well you thought you knew them, it’s a different game when you are with each other all the time under the same roof.

Life can take you in different directions, or you can grow to want different things. These things could introduce conflict to a romance, friendship, or business relationship.

How to Set Yourself Up for Success

Like buying property, you have to be very objective when partnering with a friend. The failure rate out there is just too high to ignore it.

You’ll be best protecting your friendship for the long term if you set up the partnership in a truly businesslike way from day one. The same goes for partnering with family, too. Avoid awkwardness at family functions in the event things go south by setting up the business relationship in a professional manner.

And if you are raising money, savvy investors will want to know you have all your bases covered so that they are covered, as well.

Begin by setting very specific boundaries, roles, and expectations. Be willing to have tough conversations up front. Map out what will happen if you decide to go your separate ways later or if one partner gets hit by a bus.

Put it in writing. Then, there shouldn’t be any arguments (but there’s always the possibility).

When I started partnering on deals with my first real estate mentor, it worked really well. But eventually I wanted to move into a much larger scale and into multifamily apartments.

Ensure You Know Them Well—Whoever They May Be

If you are starting a business with people other than friends or close acquaintances, you really need to spend time getting to know each other.

Your individual skill sets, pains, dreams—discuss them all. These characteristics will influence how they grow, their decisions, and so on.

I really found the yin to my yang in my current partner. We were excited to work together and knew we really wanted to do business together, even though we didn’t immediately know what that would look like.

That fact was carved out over a pool table in his house. And it’s a relationship that’s worked well for years.

If you don’t take the time to ensure you are aligned prior to going in, then the odds of issues popping up are going to be much higher.

You might also want to compare different partnership models with boss versus employee options, revenue sharing contracts, and loans, etc. There isn’t one way or a necessarily correct way to do it.

Summary

Partnering with a friend can work out! Or not. It really depends on that friend, and how you set it up.

Partnering with people who aren’t friends initially can be great, as well. And, in those instances, it’s not as emotional when it doesn’t work. (Although you’ll likely still be frustrated for a moment.)

Equally as possible, new partners can also become some of your best friends over the years. But no matter who you choose to team up with, make sure you go into it with a briefcase of legal paperwork to protect yourself.

It’s always good to have a golden parachute on your back in case the plane starts coming apart.

How do you feel about partnering with friends or family members? Where do you find partners if they are neither friends nor family?

Let me know in a comment.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.