Partnerships with friends?

[Chris McDaniel]

Ok, one of my best friends and I have been thinking about partnering on a few deals to make our cash go further. We have each done several good deals on our own but realize that it would have been much easier had we joined forces. The only problem is we are best friends and our families hang out often and we don’t want to do anything to jeopardize that. We are both like-minded on real estate; we are both land lords and have the same long range goals.

I am asking for advice from others on the best way to structure a partnership with friends? Is it even a good idea at all? What are some successes or failures that you have had in a partnership, with our without friends?

[John Blackman]

Anything other than 50/50 is likely to cause some tension.  It's very much like a marriage.  You'll need to both bring equal sweat and equity to the table.  More cash from one side is easy to justify more returns for a specific deal.  It can be great fun to do deals with your friends because you are going to know you already work well together. 

You also need to ask yourself how you will handle a situation where there is a financial loss.  That may test your friendship, so predetermining it early will help mitigate any bad feelings because you agreed and put it on paper.

I would also recommend adjusting your splits on a deal by deal basis.  There might be a case where one of you is bringing more money to a deal or where one person isn't as available and one side is doing more work (time) on the deal.  The more you clearly define up front in terms of how you will compensate each other prevents blow-ups later.  Negotiate wile your friends and get it on paper and backed up in the cloud.

So when disagreements come up you can fall back on your agreements.  I've done this plenty of times with Bryan.  We get enough deals going on that we forgot how much money we put in or who was doing what.  So we go back to the agreement, and go oh yeah that's what we wrote down 8 months ago, ok.

If you have all of your arguments up front, it will practically eliminate them when the tensions are higher.