Thinking Of A Real Estate Investing Partnership? Read This First...

Posted by Chris Clothier on Wed, Feb 4, 2015

 

Is A Real Estate Partnership The Right Strategy?  

Are you considering entering into apartnership partnership?  Partnerships are very common, but how common and more importantly how easy are they to pull off in real estate investing?  Partnerships are those funny things that can be good and bad and both can happen in the same day!  

While there are many different ways to make money in real estate and structure partnerships around each, I am going to focus on partnerships within your business.  The business of being a professional in the real estate investment sales world.  

Partnership –  An arrangement by where parties agree to work together to advance their mutual interests.

That is a pretty formal way of saying I agree to do my part if you agree to do your part.  That is where the problems begin in most partnerships.  The word “IF” is involved! 

If is a funny little two letter word that is responsible for the down fall of more partnerships than any other cause .  Of course, I don’t have the scientific data to prove this, I am just making an educated guess from having been involved in a few!  I’ll never forget one piece of advice I received from my CPA of all people a few years back.  We were talking about the future and where I saw myself in 5, 10 and even 20 years and he made a statement of fact so concrete he didn’t even try to qualify it:

“All Partnerships End.  You Get To Choose If They End Good Or Bad!”

For a guy who is in a partnership with his brother and dad that was shock to hear.  Especially with how casually and matter-of-fact that he put it.  But he was no dummy and he had been through several business cycles including successful and failed business partnerships so he knew what he was talking about.  

What Makes A Great Partnership in Real Estate

First and foremost, any great partnership can thrive if the parties involved give each other the room they need to operate.  Partnerships exist so that each person is able to concentrate on their strengths and hopefully the partner is able to concentrate on your weakness.  A really well thought out partnership will come together because each party brings something to the relationship that their partner needs.  If that is the case, then the only way for a partnership to work is to get out of each other’s way and let everyone do what they do best.  

So partners have to be mindful of what they do well and what they do not do well and be willing to admit it.  Failing to admit weaknesses and then bringing in a partner only to tell them how to do their part will be a deal killer…quick!

Related Article: Smart Tactic - Build Relationships With Other Investors

Communication in a Partnership

What do You Bring to the Table?

The third component of a great partnership is to hold yourself accountable for your expertise or the talent that you bring to the partnership.  Going back to the definition, you have to remember that the point of the partnership is so that everyone thrives.  A mutually beneficial partnership means that everyone is acting in a manner that lifts the whole company up.  Each partner is working hard and doing their piece to be successful.  Again, it may sound almost basic, but too often, partnerships are formed as a crutch.  They are formed as a way for one partner to leverage the work of others so that they can do less!  I’m quite sure we have all seen this and know it to be true.

Nash Equilibrium

Lastly, when talking about partnerships, especially when formed to build or grow a company, I am always reminded of the movie “A Beautiful Mind” and the game theory called a Nash Equilibrium.  Simply put, it states that any two people are in a Nash Equilibrium when they are making the best possible decisions they can based on their belief that everyone else involved is also making the best decisions possible.  No one should enter into a partnership to go backwards.  

We only enter partnerships to improve our own position in life whether it be financial independence or to gain control over our time, etc.  

That is the key phrase to take away from this article.  Why else would we enter into a partnership?  

A Partnership Is Like Playing A Game  

A partnership is a game that each of us individually wants to win.  When we enter into a Nash Equilibrium, then we are all trying to win individually, but we only make decisions based on the belief that everyone else is trying to win as well.  When this is done in concert, no one makes a decision that is not good for the group.  In essence, we all win!  Is that not the purpose of forming a partnership in the first place?

So Is A Partnership Right For You?

To recap, great partnerships exist because we all have particular talents and we all have skills that need improvement   The quickest way to improve our talents is to focus on our strengths and surround ourselves with others who are stronger in the skills that we need to improve.  That is a great partnership.  After it is formed, we need to always be mindful of what we bring to the partnership and make sure we bring it full force every day!  

Then we need to have very clear and open communication including taking time to get away from the company and meet as partners to discuss issues in a different environment.  This allows for open and honest communication.  Finally, we need to remember that the partnership will work best if we are holding our selves accountable for doing our part and making decisions that are based on what’s best for the partnership. While it may all seem basic, there is a reason my mentor told me all partnerships end.  

Remembering that line, I remind you that we get to choose if they end good or bad and that choice starts with how we act each day.  If you are considering using a partnership, just make sure you are fully prepared with where partnerships lead us!

 

Topics: real estate partnerships