How Partnerships can 10X your Business

There are a myriad of questions about partnerships in Real Estate Investing. How do you find a partner? How do you structure a partnership? What are the benefits?

In 2020, I started two partnerships that took my portfolio from 3 units to 8, and I was able to start working on a flip at the end of last year. Both of my partnerships were partnerships of necessity. Without them my business would have stalled out!

While I can’t speak for every partnership out there, I can lay out my experiences and how they allowed me to quickly begin expanding my portfolio.

Partnership 1:

My first partnership started at the beginning of 2020. After I finished refinancing my second BRRRR property, my friend (who introduced me to Real Estate Investing) was curious about what I was doing. After laying out the details and numbers for him, he decided to invest with me.

We decided to structure our partnership as a 50/50 split, both in work and profit. I am in charge of the day to day operations. This includes finding and vetting new deals, coordinating with Realtors and Property Managers, and managing contractors. I also offer my experience in a lower cost market, where we can scale our units more quickly. My new partner, along with his father, decided to use a line of credit they had on a stock portfolio as a way to finance our deals. My friend also has more overall Real Estate experience and is always available if I need a second opinion! This partnership resulted in buying 5 units between August and December.

We will be refinancing these units in Q1 of 2021 to restock our coffiers and keep this property buying ball rolling!

One lesson I learned from this partnership is that it’s imperative to have regular check-ins with your partners. My partner and I began to schedule weekly calls and we each brought a list of items to talk about. These calls help keep one another updated on our projects and is a time we can discuss our goals.

Partnership 2:

Between purchasing a pricey house hack this summer and my rental revenue not counting toward my income yet, I found myself with a high debt-to income ratio (DTI); this made it very difficult for me to be able secure financing from lenders.I had a college friend helping me with some rehab work I was doing on a rental my first partner and I had purchased. On our hour-long drives to and from the house, we got to talking about Real Estate after he expressed his interest in what I was doing.

We decided we would look into partnering on a flip first! I didn’t have enough time to manage another property, let alone a flip. However, I did have money to invest. My friend had enough free time, good credit and a good DTI. Our deal was that I would fund the first couple of deals with my liquidity and he would do a portion of the rehab and manage contractors.

In November, we purchased a flip house that is projected to be finished this spring! Excitingly, we were also able to find and purchase a BRRRR property. We closed on Jan 27, 2021 and the work on this deal will be split the same way. My partner and I agreed to hire out more work than on the flip so he will be managing more contractors on this job!

The lesson I learned from this partnership is that you need to have specific goal-setting meetings with your partners. This ensures that every action taken really counts and is helping you reach your goals as quickly and efficiently as possible!

Conclusion

In any Real Estate deal, there are many tasks that need to be assigned. Whether it is financing, managing contractors, property management, sales, marketing, etc., I think it is important to figure out what your weaknesses are and look for a partner who has them as their strengths. In my first partnership, my partner offered financing and Real Estate experience, while I offered my time, knowledge in finding deals, and my ability to follow through on projects. In partnership two, I brought the financing and experience to the table, while my partner brought his time, physical labor, and his ability to manage contractors.

When you’re forming a new partnership you need to analyze what someone is bringing to the table and figure out what it’s worth. Managing contractors may not be worth the same as someone fully financing every deal. Those partnerships may have to be set up with adjusted percentages of work and profit. If someone is only doing 25% of the work, the profit should reflect that!

Finally, my most important tip on how to find a partner is to network! Don’t hesitate bringing up what you’re working on or letting someone know what you could bring to a possible partnership! You never know if you’ll find someone looking for a partner like you!