In this blog post, you’ll read my very candid thoughts on whether or not you should have a partner in your investing business, and exactly what strategies you should use when you do partner with someone
In the world of real estate investing, you’ll quickly find that there’s only so much you can accomplish on your own. Real estate investing is often so much more effective when you have a team.
Some of that team might be outsourced workers (such as contractors), others might be employees… but what about partners? Should you partner with other real estate investors?
The partner question is complicated. And if you’re coming here for a “yes” or “no” black/white answer then you’ll be disappointed because there are layers to this answer. Partners can be a great asset to your business – helping you grow because they share the same passion and stakes as you. But you’ll find just as many investors who feel burned by a previous partnership that has dissolved.
My most important advice is this: A partnership is VERY much like a marriage. You probably thought carefully before you got married and you should think just as carefully about any business partnerships. After all, the upside might be great with a partnership but a breakdown and even dissolution of a partnership can be painful and costly.
I’ll share with you my thoughts about partnerships but remember that I can’t possibly know every scenario or the subtleties of every business relationship.
If you are just starting out and severely lacking in skills and/or money then a partnership can actually be very beneficial. You can provide a ton of sweat equity in exchange for learning the ropes… and as a partner, you only get paid when the deals close so you’re incentivized to actively participate. I like this model a lot and I wish a lot more newbies would use it. (Don’t expect a 50/50 partnership right away. If you’re just starting out, you have to earn that).
Once you’ve built up your investing business and have the skills and money, then a partnership may not be necessary. Basically, all the reasons you had for partnering early in your business have been resolved with experience. At this point, I think you have two main choices to partner:
I really like the subordinate partner model because it’s a great way to help new investors and “pay it forward”.
But the equal partner relationship? Well, that’s okay but you need to be VERY careful…
If you choose to take on an equal partner, here are some important factors to consider:
1. Be cautious when partnering with people close to you. Hey, if it works for you, that’s great. It’s worked for me. But it doesn’t always work for everyone and it can cause very deep hurts and very awkward family get-togethers.
2. Make sure the relationship is very clearly spelled out… VERY, VERY clearly. Outline who is responsible for what, what the compensation terms are, and how you expect to grow as a business. Review the agreement regularly and adjust as necessary (since sometimes a partner’s responsibilities might increase in unexpected ways as a business grows).
3. Keep accurate records of your work and your transactions so you can always map out the activities of each partner, and to back you up in case the partnership becomes strained.
If you want to partner but don’t want to take on the relationship risk of equal partners, consider something I call a “subordinate partner” – someone who partners with you and performs some aspect partnership in your business and earns a smaller portion of the business… but isn’t an equal partner. Perhaps they earn a small share of your entire business or are equity partners on only a few properties.
You may have versions of this in place already that you don’t realize are subordinate partnerships – like private money investors. If you buy and hold investments and partner with other investors to acquire them, you are partnering with them in a way that doesn’t risk your entire business but allows you to enjoy the benefits of multiple partnerships. Expand this same concept in other ways – perhaps partnering with marketers, contractors, management companies, etc. You can grow a very large investing business this way without risking your entire business to any single partnership.
Partnering – it can be very valuable to your investing business but it can also be very dangerous if you’re not careful. Use my tips above to help you partner wisely – at the right times and with the right people – and consider intentionally building many subordinate partnerships instead.
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