6 Partnership Tips I Wish Someone Shared with Me!

You hear it over and over again.

Half of a deal is better than no deal, right?

True... sometimes.

However, make sure you know who you are partnering with. Just like a tenant screening, make sure you do your due diligence and know what you are getting into from all aspects.

In partnerships, you are either contributing time, money or both.

If you are the money partner, great. You still need to find out how your partner views and manages money. Is this a full-time gig for them? If so, how are they going to make a living while the partnership gets started? Do they have reserves? You want to make sure there isn’t an incentive to skim off the top. Make sure you know how the accounting system will be done.

Some lessons I’ve learned after going through several partnerships:

1. Have an accountant and bookkeeper do the books and report how things are going. You want a neutral 3rd party that is asking for receipts and uploading them and reconciling them on a consistent basis so you can make good decisions. A weekly accounting of what is happening is the best way to go until you have systems set up.
2. Talk through scenarios to get an understanding as to how they would handle issues and opportunities. Look at the quality of work and level of finish that you are agreeing to. My first partner and I agreed not to be slum lords but to instead to provide safe, affordable housing to lower to middle-class tenants. However, when I looked at the houses he rehabbed on my dime - there were holes in the floors, walls and roofs were leaking. The plumbing and electrical work was shoddy. He hired cheap, unlicensed labor that didn’t show up, didn’t fix things correctly the first time and in some case scared the tenants.
3. Talk about your philosophy for screening tenants. How will it be done and by whom? If you are going to use a Property Manager, talk about how you will screen them and what questions to ask. the tenants had prior evictions and arrests for meth distribution violent felonies!
4. Make sure you partner with someone that complements your skill sets but doesn’t get on your nerves. I’m a big picture person so I surround myself with accountants, lawyers, assistants, property managers that manage the details and provide me with information. I ask questions, I request data and make decisions from there. However, I’m a true entrepreneur at heart. I want stuff done now and I’m comfortable operating and making decisions without all of the information. However, one partner, I had had analysis paralysis. On one hand, he looked at decisions from every angle, on the other hand, he had a hard time making decisions or coming up with solutions to move the business forward. It was extremely frustrating for me. We divided up our properties and moved on.
5. Talk about work-life balance. You’re rarely going to be on the same page here but you need to suss out lazy or extreme workaholics before you get into partnerships. Find out if you're dealing with a morning bird if you are a night owl.
6. Develop an exit strategy when you put together an operating agreement. I did my last partnership for 5 years. It’s a 50/50 partnership and at the end of 5 years, we divide up the properties into 2 lists. One person makes the lists, the other person picks the list they want.

What have you learned from Partnerships? Were they worth it or not?