Real Estate Investor Partnership Horror Stories

[Joshua Dorkin]

Have you partnered up with someone on a real estate deal, where it got really ugly for one reason or another? Do you have a partnership horror story?

If so, please share it so we can all learn how to protect ourselves from making similar mistakes.

Beyond just sharing what went wrong, please tell us what you could have done to prevent this from happening in the first place, if possible.

Lets keep this from becoming a divisive thread. Please keep names out of this to protect the guilty.

[Don Konipol]

I entered a business partnership in 1981 that worked out very well. Sold out to my partner's family in 1985 for a 275% profit.

Entered into a real estate speculation with same partner in 1991. We immediately sold half the land and recovered 90% of our cost. Sold the remaining half two years later and booked very nice profit.

So the same guy comes to me with a partnership proposition a couple years later. This involves purchasing land, building an automotive repair facility, obtaining a franchise, having my partner run the franchise for a couple years, and selling the franchise while maintaining ownership of the property. He's running the business for about a year and sales begin declining. He calls me to tell me he needs $25,000.00 immediately or we are out of business, and of course all his personal assets are tied up. I visit with him, examine our books and records, and come up with three different alternatives to right the ship. We agree on one of the alternatives and I transfer $15,000.00 into the company bank account. So, I'm getting weekly updates from him, at the end of the month I receive a financial statement. Things have really picked up. The next month another financial statement - revenues are up again. In fact business is so good, we need additional working capital to carry receivables.

So I wire another $10,000 to company account. Third month I receive another excellent financial statement. Now summer is over and I am on my way back to Houston (spent three months in cooler climate). I get a call from an individual who owns a business across the street asking if I would like to sell the business and or property. I ask if he has spoken to my partner. He tells me that he has not seen anyone at the shop for three months, the business has been abruptly closed three months ago, equipment removed, lights out, etc.

I come back to Houston and immediately go out to the property to confirm this info. Sure enough it's true. So I track down my partners family, nobody will give me any information. I finally arrange to "bump into" my partners wife a the grocery store, and she fesses up.

Seems my partner obtained a bit role in a movie being produced locally. While the shooting occured he left the business unattended and revenue was way off, inventory and equipment was stolen, money was stolen, etc. Meanwhile, a secondary actress in the movie thought my partner had acting potential and connected him with her agent. My partner needed money to go to Hollywood and persue this dream. All his money was tied up with his wife and needed joint signatures for withdrawl - which his wife refused. So he closed the business, scammed $25000 out of me, concocted the financial information for the now fictional business.

My partner's acting career fails, six months later he is back in Houston reconciled with his wife. I tell him he owes me $25,000.00 that he stole - and he tells me he owes me only $12,500.00 as we are partners! I file a lawsuit against him for the $25,000.00 he stole, and the $10,000.00 of other bills I ended up paying that he skipped out on. He retains an attorney and we agree on a $35,000.00 note with monthly payments. Payments are paid for three or four months and then I receive notification that he has filed for bankruptcy and listed me as a creditor to be wiped out with the bankruptcy! So I call him a few times, he never returns any calls. I leave a message for him telling him exactly what i think of him. He then leaves me a message justifying what he did because his therapist told him that he had a mental breakdown and was not responsible for his actions!