Real Estate Investors Checklist for Working with JV Partnersby
“I made a list of the happiest periods in my life, and I realized that none of them involved money. I realized that building stuff and being creative and inventive made me happy.”
~ Tony Hsieh (CEO of Zappos.com)
Money is a funny thing. It’s an object of much desire. It’s the number one marriage killer. And it doesn’t seem to matter how much money you have, you probably want more. At least you will want more unless you’ve come to realize that money is simply a tool not an end result.
I know – it’s a bit of a deep thought – especially for Wallstreet movie fans who are taught “Greed is Good!” but my point is simply that too many people believe money will make them happy instead of realizing that money can facilitate the time and space to do the things that make you happy but will not, by itself, fulfill you in anyway.
What’s this have to do with real estate investing?
Everyone has a different goal around money. And before you get out there and start talking to prospective JV partners, it’s a good idea for you to get a good understanding of what your thoughts around money are and why you’re investing in real estate (is it just for money or is for freedom or for comfort in retirement or some other purpose?).
I’ve met a lot of real estate investors in the past 24 months that are miserable. These are people who have bought 30 or more properties at a rapid pace. They achieved their cashflow goal or their goal to buy x number of properties by x date. They have, by the goals they set for themselves, achieved success. Yet, they are miserable. In speaking with some of them, I realized many failed to ask themselves a lot of these questions before they took the investing world by storm. And now they are cleaning up a mess or anxious to grow further because achieving their first goal still has them feeling empty.
It’s kind of the same thinking that was behind a comment made to me by a real estate author on a blog post I wrote. He said “if you did it the way I do it, you could be buying 4 or 5 houses a month instead of just the one per month you guys are doing.”
I disregarded the comment because more isn’t better.
More is just more.
And, in fact, more could just mean a lot more problems! A couple of guys I met at a conference earlier this year had some serious headaches because they had a different joint venture partner for each property, tenant troubles and quite a few properties that were worth 20% less than they had paid for them. More properties meant a lot more stress!
I share all this because it’s really important to think about what you’re doing and WHY.
If you’ve set a goal to buy 3 properties in the next year, make sure you understand WHY.
A clear and powerful WHY will help guide you when you make your decisions, will bring you confidence when you speak with joint venture partners and lenders, and it will enable you to align yourself with the folks with money (or with the deals) that fit perfectly with your REASONS for doing what you’re doing not just the numerical goals you’ve set for yourself.
If you have thought this through then you’ll find yourself working with the right people, creating the right deals and probably doing it with a smile on your face most of the time.
So – here’s the checklist. Here are the
7 Things to Ask Yourself Before You Work with a JV Partner on Any Deal
(and while we tend to take the viewpoint of a JV partner who is doing all the work looking for a JV partner who will bring the cash to the table – this checklist can apply no matter which side of the equation you are on.)
Do you need a Joint Venture partner?If you chose to grow your portfolio slower, could you do it on your own? Sometimes when you do the math it might be better to do fewer deals but do them on your own.
What value do you add to the partnership to exceed their expectation? What value do you need your partner to add to make the deal easy for you to do?
What are your core values? For us, we only want to work with people who share our core values.
What is your time horizon for the investment? You want to know this so you can align yourself with people who have the same or similar expectations.
How actively involved do you want to be in this investment? How actively involved do you want your investor partner to be?
Are you seeking anything beyond just a financial return from your investment? Is your investment partner? (sometimes our partners are looking to learn from us in addition to earning a return, sometimes we’re looking for some connections or a longer term relationship with that person).
How comfortable are you with changing strategies mid-deal or using creative strategies to acquire real estate? Do you expect that same level of comfort from your investment partner? For instance, are you okay if you change from a Buy N Hold strategy to a Rent To Own strategy mid-deal? Will your JV Partner also be comfortable with the change?
After one failed partnership years ago and a snafu with a partner last year that nearly cost us two deals, we’ve really spent some time asking ourselves these questions. And after Dave meets with any new joint venture partner we review these questions for ourselves and with respect to the new prospective partner.
We know not every person with money to invest is a good fit for us.
We’ve learned over the years that it’s more work to try and put a deal together with someone that isn’t in alignment with what we’re doing and why we’re doing it than it is to just keep looking for someone that is a good fit. And the beautiful thing we’ve discovered is that when you find someone that is in perfect alignment with what you are looking for and with what you can offer you’ll have a long term partner. We just closed on deal number three in 12 months with one such partner. What she’s looking for works perfectly with what we have to offer. And she has basically committed to doing at least a deal a year with us for the foreseeable future as a result.
Published October 11th, 2010