PARTNERSHIP SYNERGY: 1 + 1 = 3

PARTNERSHIP SYNERGY: 1 + 1 = 3

I started my real estate investing career in 2013 by defecting from corporate America and wrapping up 20 years of military service in the Army National Guard. I felt pretty confident that I could tackle the world or fix and flip investing from my variety of experiences. I was an Army Officer with multiple deployments; hold a Master's in Business Administration; and held finance, business and marketing positions with Fortune 500 companies.

I live in Los Angeles, California, but decided to set my sites on buying houses in Springfield, Massachusetts to launch my business. I was born and raised in that area and my parents still live there so I know the area well. Also, for me it made more sense financially because I could engage in multiple projects there verse one project at a time in California. Lastly, and most importantly the most important mentor in the world lives there - my Father. My Dad has owned a Painting and Home Remodeling business for over forty years and many a Summer of mine was consumed by working for him. It only seemed natural to steal some of his retirement years.

Although I couldn't ask for a more trusted partner, mentor or boots on the ground, this is not the partnership story I am writing about. Ultimately my Dad is retired. He should be enjoying his golden years not dealing with the headaches that come with managing contractors.

I had some challenges to contend with by rehabbing from afar. Keeping the marketing/acquisitions momentum up was really difficult. I would get the marketing machine started with direct mail or networking, but once I found a rehab project to work on all focus was placed on managing the construction. It seemed that most of the work was happening only when I would get to town. At the end of the project I would be turning over the house to a realtor to simply list it. The realtor had no skin in the game and they reel in a whopping 2.5-3%.

So there you have it. I had myself an incredibly inefficient we buy houses business model — a marketing system that would operate in fits and spurts; rehab projects that needed a higher level of oversight; and bleeding out profit at the tail end. On top of it I was doing everything trying to be a jack of all trades and absolutely mastering none of them.

Taking Control

I could feel sorry for myself and blame others or take control of my situation. In my estimation, the business has three main areas - acquisitions (buying property), construction (rehab), and disposition (selling property). What I felt I could control the quickest and have the most overarching impact was getting my real estate salesperson license. This provides a lot of benefits. On the acquisitions side it provides access to Multiple Listing Service (MLS), access to properties, and ability to write my own offers. On the disposition side it allows about ability to list my own properties and keep 2-3% of overall sales price. That can be 15-25% of your overall profit!! For example, an average sale price for a home in our market is $200k with a realtor commission of 6% or $12k split between the listing and buying agents at $6k a piece. Keeping or losing that $6k is significant to the bottom line.

Now I had to figure out what I had to tackle next - acquisitions or construction. Both of these are vital to the business. I can’t rehab houses without houses to rehab. Also can’t stay in business very long if I can’t get houses rehabbed on budget and on schedule. I was at a crossroads. Either path, construction or acquisitions, was going to require a significant time investment.

I chose acquisitions. For me it played into my strengths and experiences. Also, I could market to motivated sellers who wanted cash for houses or needed to stop foreclosure from just about anywhere as long as I had a cell phone and a laptop. Having a business and marketing background I felt that this was a more natural fit for me to focus my energy and hone this craft. Onward I went doing whatever I could to get better at finding and negotiating with sellers through direct mail, Internet marketing and networking.

A Partnership is Born

My business partner Justin has his Construction Supervisors License (CSL) and has rehabbed a half a dozen homes on his own. He was born and raised in the area we invest in and lives there with his family. He too ran into the same acquisition fits and spurts when he was involved in construction phase of his rehabs. He found himself at the junction of whether he placed focus on acquisitions or disposition of properties.

We were home buying competitors of sorts. Both operated in the same market trying to attract the same kinds of deals. We even tried wholesaling properties to each other. As professionals we were respectful to each other and tried to help each others businesses out. Real estate investing can be a lonely business so it helped to have two like-minded guys talk and share ideas. The more we talked the more we realized that we were the missing pieces to each others business.

The Structure

On the acquisitions side I focus on getting the phone the phone to ring through direct mail, Internet marketing and the MLS. When I can get a hot lead that meets our buying criteria then Justin will go an get eyes on the property and develop the rehab costs. We discuss the deal and if it is a “Go” it is back with me to negotiate and close. We will both work on getting the financing (bank, hard money, or private lender) lined up and see which is the best fit.

On the construction side this is mostly Justin. He is developing and managing the scope of work and the contractors for all the day to day issues. He keeps the team on schedule and on budget. He’ll also keep the lender updated and coordinate construction draws.

On the dispositions end I use my real estate license to get the property listed on the MLS and start marketing it. Justin is getting the house show ready. I manage the showing requests and between the both of us we man the open houses.

Rinse and Repeat!

Conclusion

Separately, we rehabbed five houses a piece over a span of five years. Since partnering we rehabbed five houses in five months. There are many ways to structure a partnership. For us, we knew our strengths and we partnered to shore up our weaknesses. This has afforded us the ability to really refine our contributions to the partnership and triple our productivity. When you partner based on competencies 1+1 the synergy created can equal 3.