5 Reasons You Should Take On A Business Partner
By JD Esajian on January 30, 2017
Investing in real estate can be a daunting task. Not only do you need to know your market and understand the process you also need to line up financing and build a solid team around you. This can be increasingly difficult if you are working forty plus hours a week while trying to balance your family and personal life. The best way to reduce your work load and accelerate your business is by taking on a partner. The right partner can help offset any deficiencies you may have in your business and give you the push needed to move forward. Prior to jumping into a partnership you need to determine if you are a good fit. As great as the right partner is working with a bad one can be a real struggle. Here are five questions you need to ask before getting involved in a business partnership.
- What is the financial commitment? Finances and capital requirements are at the heart of any potential partnership. Talking about finances with a partner is not always easy but is an absolute necessity. You never want to get involved in a deal where the finances are unknown. Simply ask how much they are comfortable contributing to the partnership. You can probably make things work regardless of the amount by lowering their profit splits but you need to know what you are working with going in. If your pool of money is not as high as you anticipated you can look at properties that fit your budget. This will take longer to get reach your goal but it is a starting point. By not asking for a financial commitment things can get very uneasy the further along you get with your partnership.
- What kind of deals/properties will we pursue? There are numerous ways to invest in real estate. Your ideal vision for the business must match your partners. This doesn’t mean you have to have the same ideas of how you will find deals but you need to have the same end goal. A partner who only wants buy and hold rental properties wouldn’t be a good match for one looking for flips and rehabs. You need to discuss not only your holding timeframe is but what markets are acceptable. You may only want properties that are a short drive from where you live and your partner may not care if they are 45 minutes away. It is also important that you discuss the number of units and what condition is acceptable. Your budget may not allow you to do a full gut rehab. This may cause you to look for properties that are in better condition or be ready to do a bulk of the work yourself to keep expenses down. Your goals can be flexible over time but this needs to be in place when you are just starting out.
- What is the work allocation? The agreement you make with your partner can be uniquely your own. There is no partnership template or blueprint you have to follow. There are many partners who simply want to provide capital and step out of the way. However you and your partner decide to divvy up the workload is entirely up to you. There is nothing more damaging to a new partnership than having one side feels they are doing too much work. If this was discussed beforehand there should be no problem but without prior discussion this will lead to finger pointing and ultimately discontent. You should have predetermined roles and an action plan for how you will handle things when they come up. You should discuss every possible scenario and leave no stone unturned. The odds are that most of these will never come up but the more you have on the table the easier they will be to deal with.
- How long is the partnership? How long do you intend the partnership to last? Are you looking to work together on one isolated property or do you want more of a long term commitment? There is really no right or wrong answer but this is something that should be established before you get too far. If you are thinking about a long term relationship you may make certain concessions you wouldn’t make if this is a onetime deal. You also need to talk about what happens if you find a new deal independently. If you are a long term partnership this needs to be thrown into the business pie but if it is a onetime deal you can feel working on this separately.
- How will you resolve disagreements? The best partners understand that things will not go smoothly all the time. There will be periods when you will disagree about some aspect of the deal or the property. When this happens you need to have a system in place to resolve these issues. You can’t simply have whoever yells the loudest get their way. Not only is this unproductive but it will surely end the partnership before very long. You should have a way to resolve agreements where both parties leave satisfied with the result. Maybe one side gets their way on this property and the other one can have their way on the next one. Whatever it is you need to be able to have these discussions before something comes up than after. Once emotions get involved even the most rational person can have a difficult time.
If you are not satisfied with the answers you can part as friends and go about your business separately. Eventually you will find a partner you are fully comfortable with. When you do it will open doors and completely change your business.