First time partnership

[Michael Colebank]

Hi Everyone, I'm buying a mobile home park with a friend of mine. We both have multifamily experience. Neither of us are lazy,and we're very enthusiastic about the deal. Huge potential. I'm taking care of government officials and marketing/ big picture, along with filling the park. He's got a contractors license and does excavation work. So he's taking care of infrastructure, dealing with utilities, surveyors, and the moving in of new homes. Profit split is 50/50 . But we'd like to have good verbiage to protect our friendship and the partnership in the future. What should we be including in the partnership agreement to protect us down the road?

[Jana Cain]

You'll for sure want language that details want happens when you are no longer partners - death, someone wants out, etc. Your agreement should also make it clear how the capital works - are you both putting money as well as expertise into this venture? Is that 50/50 also? You want for both of you to understand what you each have at stake.

I'm sure others on here who are more experienced with creating partnerships will have more specific details to suggest.

[Rachel H.]

@Michael Colebank You may want to consult with an attorney for guidance and to help draft up the partnership agreement. Both of you should attend the meeting so you both know what's involved. Hope that helps! 

[Michael Colebank]

Thank you Jana. That's what I was thinking. Buyouts, deaths, when to sell are the ones I'm probably most worried about. Thank you Rachel. That's our plan, I'm kind of asking for ideas to make sure we address the important stuff in the agreement. I'm sure the attorney will cover everything, but I wanted to be sure he's covering the most important stuff.

[Jack Martin]

@Michael Colebank there is a lot more to this than what most people think. A good attorney with a real estate and business focus will be well worth both your time and money. How you agree to get out of the partnership is just as important as how you get in. Who contributes money when the partnership is in financial need? What happens if one of you dies or becomes incapacitated in some way where you cannot serve in the capacity required by the partnership? What happens if one of you decides to go another direction in life? A good attorney will be aware of all the questions you have not considered, so do yourself a favor and put together a budget to get some professional guidance. 

In addition to that, the two of you need to decide if you are pursuing a business partnership wherein you plan to acquire multiple properties, or are you simply partnering on this deal?  If the latter is the case, then this is much simpler and a good attorney can get you to the finish line quite easily.  If the former is the case, there are four items for the two of you to be 100% in agreement on before you engage with an attorney:

1. You must be in alignment with respect to vision.  When you consider a ten year goal for the partnership, are you completely in agreement?  Take the time to challenge each other and make sure you are on the exact same page.  Lack of alignment with respect to the vision of the partnership will be the source of problems. 
2. You must trust each other implicitly.  If either of you is not of high character, it is just a matter of time, and the absence of character will cause problems.
3. Your individual skill sets, personalities, and natural inclinations need to compliment each other.  Opposites tend to be the best partners.  Particularly where friendship is involved, this often gets overlooked.  What good is it for two people who are essentially copies of each other to form a partnership?  Take the time to understand the roles of a partnership as required 10 years from now, and don't limit yourself to the roles you see yourselves in on this one deal.  Buy the book "Traction" by Geno Wikman and read it.  That perspective is extremely important and if you don't take the time to outline what the partnership will look like 10 years from now, you might choose the wrong partner. 
4. Your work ethic needs to be the same.  If one works harder or more than the other, it is just a matter of time and that will cause problems.  

All the best,

Jack

[Michael Colebank]

Thanks Jack, and everyone else. You all gave me some great info. Exactly what I was looking for. Love this community.

[Ethan Cole]

Hey Michael,

I know I'm a little late to the scene here, but if you still have the need, my partners and I had an operating agreement drawn up by a local attorney. He's located in Bridgeport, WV. Incredibly helpful throughout the entire process, and the agreement will protect our business, and our kids in the future as it lays out what happens with the business, and how our kids will be involved in the future. Contact Davin at Ivory Legal, PLLC. He can help you out.