Creating Partnerships - How can I watch my back?

Question

Hello All,

Over the past 3-4 months I've been relentlessly reading up on buying and flipping properties, as well as attending RE networking events. I feel as though I am ready to partner with a few people I have met and look into my first investment. My question here is before I partner, can anyone recommend any legal documents I should look into? What if the partner somehow screws me over along the way of getting the deal closed? What if he somehow takes more of profit at the end of the deal than original agreed to? Any recommendations would be awesome.

Thank you,

Mo

Llewelyn A. · Answer

Let's say you go into a deal with someone. That person then steals something that he has access to, say the money in the Bank Account, takes out a loan on the property, falsify a Deed Transfer to his name only, sells the property with out you knowing, etc.

Then he takes the money and runs to a foreign Country like Russia.

Funny, but I know a group of Investors where that sort of happened.

They guy almost left, but was caught by the FBI.

Even if they don't run away, they still commit fraud and cause you to sue them. However, the litigation in removing a partner, called Partitioning, is costly and difficult. I've seen it work in the favor of the criminal too many times.

Too many of the victims just had to settle because it wasn't worth the legal costs.

I would say the most important thing about Partners is to make sure you are dealing with HONEST and ETHICAL partners.

Screen your partners at least as much as the bank does for a Mortgage!

Get their Credit Scores, do a Criminal Background check, make sure you have some history with them (to me, at least a year), do some small business with them like lend them some money at a specific interest rate and see how they deal with it, find out about their Investments to make sure they are successful (why do you want to partner with unsuccessful people?), are they professional, check their social media to see if there are any problems, find out if they have STDs because you are financially getting in bed with them (OK..... this is a joke for anyone who is taking this literally), etc.

Believe me, when you Partner with me, I investigate you more than the Bank does.

I have about 12 Partners and I know them extremely well and they submitted to my examination. If they didn't, they would not be my Partners and they would not be making the kind of money they had made by Partnering with me.

Is this extreme? That's subjective! I just don't want any problems with Partners! Life is too short to deal with crap like that!

Maybe Syndications are different for Partnerships.

BUT, as a Sophisticated and Accredited Investor, you should know how to conduct your own due diligence on the history of the Syndicator and the strength of the pro-forma projections and the prospectus.

Everything is buyer beware. If you follow that rule, you have hope of NOT getting into a mess.

Also, because I follow these extreme rules, I have not had any issues with Partners for the last 2 Decades.

However, there's be plenty of times I have been contacted by Class Action Lawsuits that had litigation against Public Corps and even Banks, especially for mortgage fraud like what happened in the Crisis. They all have fantastic documentation.

I hate to be so pessimistic but it really is like getting into a Marriage. Getting Divorce is a nightmare.

Something to think about.

I also want to stress that Partnerships do work. However, in my case, because I'm paranoid, I tend to micromanage the Investments and set up fail safe ways I can claw back money when I'm alerted.

All the partners are ok with that because the deal make a lot of money and none of my partners have ever lost money, especially in any kind of fraud situation dealing with me and the Investments we share.

Mo Farraj · Answer

@Llewelyn A. Appreciate the thoughtful response, I found this extremely helpful!!! I do want to jump in a deal soon, but I also know being impatient will only led to some costly implications in the end.