Why partners?

Question

I've heard and read a lot about folks having "partners". Myself, I've considered it with friends in the past in order to double what I can buy. However, doubling what you can buy (as well as doubling maintenance costs...) while splitting the profits doesn't make any more sense to me than sticking with what I can afford and taking it all.

Is there something I'm missing? At the moment I'm looking to add a multi-family unit to our portfolio of single units in NJ. From there I am interested in building our holdings beyond that so I'm trying to understand the pros/cons of partnering.

Account Closed · Answer

100% agree.  There are already issues in my partnership, mainly centered around who is driving the train.  There are also issues around motivation levels; aka I have it and they don't.

I don't have issues with motivation or accountability, but I can see why someone would want to partner up to get those things from someone else. I totally agree if your partnering for that reason, it will fail.

Having said all of that, I would actually recommend a partnership if it is truly the only way to accomplish a goal.  Just go into it with your eyes wide open.

Here's the thing I'm finding... Most people don't view real estate investing to be a career. They view it to be a hobby, and treat it as such.

If a person was to start a new career, there would be an expected huge learning curve. There would be inherent motivation to learn all that was possible to learn and to take action on that knowledge. Most people learn, but not like they really should, and then never take action.

If you can network with other people in a form of unofficial partnership to help hold you accountable to learn (think mastermind or accountability groups), I can see the value in that.

But if you view a partner as someone that will push you for the sake of pushing you in the legal partnership, that won't work long term.

Mark Ferguson · Answer

I think parterships Are over rated. If you need money, try to work it out paying intrest, instead of partnering. As it was said erlier, too many things can go wrong.

J Scott · Answer

I consider partnering to be an "advanced" skill.  In other words, I generally wouldn't recommend that new investors partner, unless it's a situation where the other partner has something that the new investor can't get started without -- for example, money, deals or experience.

But, two new investors partnering is just asking for trouble.  Most partnerships will have issues at some point (and often that point is sooner than you'd think), and if starting a real estate investing business isn't hard enough, adding in the extra difficulty of working with a partner will only make it tougher.

Many new investors think, "I need someone to keep me motivated and accountable."  If it's true that you don't have the motivation and accountability to do this business on your own, you should reconsider being in this business in the first place.

Jeff B. · Answer

Good.  This is the primary idea of a partnership - - party A has a skill but is deficit in some skill that party B has in spades - - they complement one another.

Adding contractor to contractor doubles the capability, shortening the completion time, but leaves marketing, contracts, finding deals neglected.

Adding money to money may make for a fun poker night, but not provide assistance to REI development, rental operations, or know how for flips.

summary: JV and Partnerships share profits to obtain skills you don't have.

Account Closed · Answer

Two things;First, I couldn't have done my first deal without partners.  They had the knowledge.  I had the money.Second, if you do twice as many deals while maintaining the same level of profit, you're still making more money, AND you're getting twice the experience.  Invaluable, especially when starting out.

Account Closed · Answer

Cons are always that decisions get to lean on the other partner as well. Some decisions can be crucial when it comes to real estate. I have worked for both a partnership as an employee and a single owner which is less confusing and I have more input into my areas of expertise. People seem to like the single owner better because they never get two opinions and there is less confusion without the required profit shares. As an employee of Bolthouse I am thankful we only have one person at the top. Of course this is from an employee angle but the hassle and headache you will save yourself from going into business with friends may be worth just running things on your own in the long run!

Best of luck in 2016!

Gino Barbaro · Answer

@Derek Lamonde

Hi Derek

One of the benefits of having a partner with similar goals is that you have another person holding you accountable and pushing you.  You might need help and you have the ability to call a partner for advice.  My example is when my partner was having an issue with an employee, he gave me a call.  I gave him my detached opinion, it calmed him down, and he realized his actions would have been detrimental.   You can also learn from your partner and expand your network.

Real estate is all about networking and building teams.  Just make sure you and a partner each have similar goals, i.e. buy and hold, cash flow.

Good Luck

Gino

Steve Vaughan · Answer

@Derek Lamonde I'm with you and don't get the partners argument, either. For the most part.  Especially if it's just to double yourself or double your down payment.  More moving parts, emotions and D potential (death, divorce, disinterest, drug use, default etc) the more potential for problems!

If someone is a true complement to yourself, it may make sense.  Someone with a skill set you don't have. Construction meets management.  Contacts meet motivation and time.  A skill you have but they don't or vice versa.

Some big proponents of partnerships wouldn't even be here without one.  Of course they advocate it!  One got a hard money loan at the peak, prices falling fast, can't get refinanced, HML bearing down to take the house.  I'd take daddy as a partner, too.  That's an uneven 'partnership'.  When one party is desperate, it's more like a rescue. Little is heard about the rescue ones or the ones that failed.

Document everything if you have a partner!  Take the time and spend the money on professionals to set it up properly!

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