Five
Secrets to Successful Real Estate Investing
Partnerships
by Julie Broad
 "One good thing about
being young is that you are not experienced enough to know
you cannot possibly do the things you are
doing." - Gene Brown
The smartest
thing my husband and I did to build our multimillion dollar
real estate portfolio in under eight years was to find a couple
of great partners.
As
I reflect back on the things that my husband and I did in the
last eight years to become millionaires - I think that
finding good
properties in areas with promising economic futures, and buying
them with good partners was the key to our
success.
Partners can bring cash to the
table if you don’t have enough, they share the risk on a
venture and can also provide mentoring or advice. A good
partner, in our experience, brings something to the deal that
you don’t have. If you and your partner have experience but no
money, you will be stuck. If you both have money but no idea
what you’re doing, it will be messy. But if one partner has
experience and the other has money, it’s a foundation for a
solid partnership.
It’s not a guaranteed great match
just because you have the expertise and they have the money!
There are some other things to consider before you partner with
someone on a real estate investment.
Here’s what we’ve learned are the
secrets to successful real estate investing
partnerships:
1.
Common Objectives
Some people have the expectation
that buying investment
property is their ticket to overnight wealth. Or they think
that just a couple of deals will give them enough cashflow to
retire on, but the techniques that can create giant amounts of
cash flow or that are more instant in their wealth creation are
extremely high risk gambles that pay off for only a few. For
many others they can lead to a lot of problems, including
bankruptcy in extreme cases.
Before we decide to partner with
anyone, we make sure that they have similar
fundamental
objectives for their real estate
investing as we do.
When we buy real estate, we buy properties that will have
positive cash flow within 12 months of purchasing it, and
that we plan to hold it for a minimum of 5 years, but
more realistically, 10 - 15 years.
As long as our partner has a
similar mindset, and is comfortable investing their money for
the long term, then we can continue discussing our
partnership.
2. Begin with the End in
Minda
It’s a throw
back to Stephen Covey’s Seven Habits
of Highly Effective People, where he says “Begin with the End in
Mind”. It’s important to discuss with your partners how
either one of you can get out of the deal in the future if it’s
critical. For example, if you buy a duplex and each have 50%
ownership, but down the road, your partner comes on hard times
and needs the equity from the property. You have three
options:
1. Sell the property
2. Buy your partner
out
3. Find another partner to buy
out your partner.
You could also do nothing, or
give your partner a loan against their share in the property,
but realistically you’d probably consider one of the three
options.
What you need to discuss and have
written into a partnership agreement is how you will value the
property if you choose to buy your partner out or find another
partner to buy out your partner. You should also note that any
new partner must be 100% satisfactory to you. In other words,
your current partner should not go out and find a new partner
for you and sell their share without consulting you.
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