The Top Dogs Play With Partners

Savvy investors utilize a main business partner and several satellite partners in their profit reaping business models.

Real estate investing is a team sport for sure. Talented real estate investors know how to find and develop lasting business relationships with qualified and trustworthy people. As promising investors become more familiar with the various technicalities of real estate investing, it becomes clear that having a business partner (or circulating “satellite” business partners for certain deals) not only deadens the legal and financial risks associated with real estate investing, but creates more consistent profits on a long-term basis. The duties to be split within a partnership often include (and may not be limited to) looking for potential deals, networking with other investors and real estate professionals, raising capital from other passive investors for acquisitions, handling legal issues, accounting practices/cash flow analyses, marketing activities, harvesting new buyers/tenants, organizing and running construction crews, and distributing payroll. Real estate investing becomes so much easier when duties are delegated between two good business partners based on their individual strengths and weaknesses.

I’ve been fortunate enough to have my brother act as my real estate business partner. Trust has never been an issue between us and our skill sets are opposite each other’s. He does certain things well that I cannot stomach and conversely, I do things with great skill that he cannot fathom doing. We think differently, and this has served us well. Once we decided to work together as a cohesive business unit, our business began to prosper.

Several years ago, an individual my brother and I became familiar with had a front row seat to watch our real estate investment business grow. This individual felt comfortable with our business model and began to invest his money with us in exchange for a set return on his investment dollars per deal. This particular person wasn’t considered our main business partner because he simply laid capital on us as a passive investor.  He was someone my brother and I had simply partnered with several times; only for the deals in which we used his funds for. This person was what I refer to as a satellite business partner. Unlike a main business partner, satellite partners come and go depending on what they have to offer and what constraints they may be under. Satellite partners can come in two forms:

• Financiers. These individuals have a lot of money and wish to maintain a passive role in real estate because they’re busy doing other things. This type of partner is essentially a private venture capitalist who puts their trust in you to make them a return on their investment capital.
• Middlemen. These individuals have little to offer in the form of finances but offer other resources such as drastically cheap homes, property management skills or perhaps sources of pre-approved buyers who will buy your deal once you’re ready to sell. Middlemen are often full time investors and have certain connections you may not have.

Generally, profit splits are predetermined and legally agreed upon between day to day business partners, but with satellite partners, everything is negotiable and taken in stride. For example, a potential satellite business partner could perhaps bring an existing investment business partnership a really good house they’ve found at a very low price. For whatever reason, this inquiring satellite partner can’t seem to obtain the financing to acquire the house themselves. Not wanting this deal to go to the wayside, the satellite may agree to receive 25% of the final profit for finding and bringing the deal to the existing investors. The existing group of investors would retain 75% of the profits generated on this particular deal for coming up with the financing and taking the risks associated with the short term ownership of the house.

Savvy investors usually have one main business partner they run their day to day business with; but they are always on the lookout for satellite partners to bring them deals, buyers, capital etc.

If you already have a permanent business partner, you already understand their importance and chances are, you’ve probably worked with satellite partners as well. If you do not have a permanent business partner or a strong armory of satellites to do deals with, here are a few tips in finding and selecting some:

• It’s great if your permanent business partner thinks differently than you. You need someone that keeps you in check if you have a tendency to be too excited and make spontaneous decisions. You can’t be impulsive in real estate. On the other hand, if you are overly cautious, you need an energetic business partner that will help you to “pull the trigger”. Like minded people usually make the exact same mistakes. People with different mindsets catch each others mistakes. This leads to faster and greater success.
• To select a permanent business partner, start with those closest to you. Good businesses are built on trust. My brother knew nothing about real estate or rehabbing houses when we formed our partnership. We learned the real estate business together as we went. But the most important thing is that we could always trust one another. Get with your family, friends and associates you’ve known for many years before you seek an unknown business partner.
• Be cautious of both permanent and satellite business partners who possess high levels of experience and seem overly eager to work with someone who is inexperienced. Their knowledge is to their advantage – especially if their knowledge set includes identifying another investor’s lack of experience. All too often I see newer investors commit certain levels of trust and personal resources to flashy looking and more experienced investors. This is a recipe for disaster. Don’t ever commit your personal resources like credit or money to anyone who appears “savvy” until you fully understand the business of real estate. If you decide to negotiate a potential partnership with a supposed real estate expert, have them commit their resources and carry you as a student for a while. Take a diminished percentage of the profits for a while until trust is built and you can offer more.
• Finding a permanent partner is not so difficult if you can’t think of anyone you already know. Real Estate Investor’s Associations (REIA’s) are good places to meet other investors to become business partners with. Currently there are 650+ REIA groups in all 50 states where you can network with various investors and real estate experts on your journey to finding a long term business partner.
• Talk to Loan Officers, Appraisers and Real Estate Agents. These real estate professionals know dozens of active investors and what their success rates are. The businesspeople and investors they introduce you to will know hundreds of other potential partners for you to work with. Your goal would be to form strategic alliances and work deals with the individuals who seem to have what you lack.
• Other great forums to meet people that may want to be your business partner arewww.craigslist.org, various internet chat rooms and your local newspapers. Try running various ads that outline what you are looking for – be specific.
• If you do not personally know your business partner candidates then make it a point to get to know them well before proceeding with any deals. Treat the process like a job interview. Meet for lunch or coffee and see what their goals are. Find out about their personal life. Chaotic people who lack time and organization usually do business the same way. Listen to your heart when selecting a business partner.
• It is wise to work with a partner that shares the same vision for your company as you do. Someone who just wants to make enough money to “get by” paired with someone who wants to grow a large scale operation is a business sin. Businesses headed up by people with different visions and goals always fail – period.
• Always form concrete written agreements by working through a mutually agreed upon attorney. Many partnerships turn bitter through miscommunication and failing to meet each partner’s expectations. There is nothing wrong with agreeing on predetermined expectations of one another. Consider concrete written agreements mandatory – even with family partnerships.

There are many ways to find both long term and satellite partners for your real estate business. Many investors make the mistake of thinking that real estate elites do everything alone. This is the exact opposite of reality. Good businesspeople always have business partners for just about every deal they do because it reduces risk and increases the likelihood of long term growth. Talented and ethical investors take pleasure in sharing their knowledge with others. They know that nobody gets to the top without the support system provided by trustworthy business partners.