How to Partner?

I have to start by saying I am learyof partners. I had one in a restaurant before and it turned out to be a nightmare. Ended up bankrupting the business, me and a third partner. Was a friend. Have to say no more dealings with a friend. Keeping business and friends seperate.

Now to my problem. I am a first time RE investor. I have found a deal. The problem is I having trouble getting it financed. I am currently unemployeed. I have ok credit. But I have nothing to put down. I can do a lot of work myself but have no formal experiance. I have even found a good property manager which comes highly recommended. I have been working on a plan for doing the job for about 5 weeks nowbut nothing I do seems to get the lenders to take a nibble.

I think the only way to make this deal happen is to get a partner. Being gun shy though I am not sure where to start. The realitor mentioned he might know someone to partner with. My question is what should I look for and watch out for? Should I try to get the property under contract before I try to get a partner? all I can say is any suggestions can only help.

Thanks
Talmadge

Also I ment to say it is a 23 unit appartment building...

If you have experience and they don't, make it Tenants In Common or give yourself full management control. There are many many ways to structure properties. Perhaps some of the more experienced commercial property owners will have more specific advice.

I posted this in response to a question on my story...

....

For a long time after the dissolution of our bad partnership, I was very cynical and bitter about working with others and basically figured that the only way to protect myself was to wrap up in a protective blanket and never again partner up.

After a while, however, I began to understand that what happened was just as much my doing as it was the partners.

I was naïve. I ignored warning signs. I didn’t lay out enough up front. I didn’t have an exit strategy.

I also began to understand the leverage of partnerships. I read somewhere – I don’t remember where that every deal requires four things: capital, credit, knowledge, and time. If you don’t have all four of these things, that is okay – find a partner that does. I also understand that every undertaking requires a different set of skills: a burning passion and vision about the future, a practical realist, a detail person, a sales person. I am a few of these things, but not all…. and so I need others if any of my ventures are to reach their full potential.

With these ah-ah moments in hand, I started to drop my shield against partners and develop some ideas about how to proceed. What I came up with is basically a checklist… of sorts. Questions that I need the answer to before I proceed.

Does this person operate from a win-win mentality? My ex partner used to have a saying, “You’ve got to watch out for numero uno”. And, he really operated that way. Unfortunately, I ignored my intuition when I heard him talking this way. I never do a deal if it isn’t win-win and I will never again have a partner that does not come from win-win

Does this person come from a mentality of scarcity or abundance? Scarcity mentality leads to greediness, seeking win-lose situations, and fear – which leads to irrationality.

Does this person possess strengths where I have weaknesses? Will we each benefit from the partnership?

The next thing is to understand that EVERY partnership ends – and so the exit strategy needs to be laid out UP FRONT – along with the rules of the game (operating agreement).

After my bad partnership experience, it took a few years before I decided to partner up again. I spent those few years learning to pay attention to people…. And analyze what the answers to the above questions were.

TNT, check your mailbox. I sent you a great posting about partnering.

Others: does anyone know if I can post a RD message here without the author's consent? If so, I'd like to post the message for everyone to read, since it's extremely informative and powerful.

Hey Talmadge,

Having money partners can really accelerate growth. The problem is finding someone that is willing to put their money down. Your challenge is showing them what you bring to the table.

It really helps if you have experience in the field. But, if that is not there, you need to highlight your other attributes.

I don't think you can bring over others posts (only your own) .... but you can link to it.

Thanks for the responses. I am trying to get out of this as you call it the blanket. I want to do this deal and I know it is a WIN-WIN situation. I am just going to have to take that leap of faith and get into the game.

Talmadge

Perhaps rather than partnering (which I dislike for a number of reasons - control, people getting higher % because of your hard work, access to cap gains, etc) simply use 'partners' money as debt financing rather than equity financing.
Now unless you are buying high cap gain properties or developing, investors will want a 'cashflow' return, and in my opinion a fixed return is easier to sell than a partnership agreement. It is also easier to end the relationship - just repay all the money back.

S928 I did not get anything in my mail box.

TNT check again.

If you click on the link, you might have to scroll up.

My personal rules for partnerships:

(1) Never bring in a partner who I could hire. (I'm giving up equity which will be worth way more than the cash flow, if the venture is succesful)

(2) Don't partner with someone who needs the money (Reverend Ike: Never let a hungry dog guard the smokehouse.) NOTE: In both (1) & (2) I would bring in a high level person for a percentage of profit, just not a percentage of equity.

(3) Do a trial venture with the potential partner first. Pick a small project that has an a finite end. That way if the trial partnership doesn't work out, you can graciously move on at the end of the project. (Go on a date before you get married!)

(4) Get the partnership agreement done in writing at the beginning of the relationship. I can not believe how many people do NOT do this and leave it to the end of the relationship to try to work out. Trust me, it's never pretty if you wait until the end!

(5) Consider the 5 D's. What happens in case of Death, Disssolution of the partnership, Disability, Divorce and Debt (ie...too much debt for one the partners leading to insolvency)?

Too often I see people go into business and put off the necessary legal steps because they don't have the money. One of two things happens: (1) Business fails and there is no good resolution on how to pay the expenses and debts or (2) Business succeeds and there is no good plan on how to handle the life changes that goes along with it.

Diane is 100% correct.

In every business venture that we get into, we have our attorney draft a member control agreement. This document details exactly how ownership is distributed, how dividends are distributed, who does what and when, recapitalization, etc. And the most important part (like Diane mentioned) if the business fails, how are all of the outstanding issues put to bed.

Most of our ventures or "businesses" are created for the sole purpose of acquiring and retaining real estate. Each person or entity "buys in" for $XX and we never let anyone perform work (ie- manage the property) in lieu of investing cash. When someone invests in the entity that is purchasing the property, you know exactly what you are getting. When you allow someone to manage the property for a % of ownership, you have no idea what the outcome will be.

For example, we have a property that is owned by an entity that has 4 shareholders. All four shareholders invested in the entity. In this case, not all 4 invested equally, so ownership and distribution was divided accordingly. We hired a management company to manage the property and we hired one shareholder to be the managing member. The management company is owned by one of the shareholders, but that is okay, because a management contract was put in place to outline all duties. The managing member (also under contract) oversee's all aspects of the property, which is not much due to the lease terms. The managing member also holds the check book, which requires 2 signatures and we have restricted check writing to $500 or less without a majority vote. The only checks that can be written for greater than $500 without vote are recurring expenses. ie- taxes, insurance, etc.

This method works great because we have limited the variables and have covered all of our bases to eliminate the "what if's" of having partners.

S928
Thanks for the link.

Diane
As all your post are, this one is fantastic and informative. I can tell I could learn a lot from you. I Thank you for every post you make and all the info that you share.

Adam
Your post too is great and informative. I am looking forward to reading more of your other post.

I want to thank everyone on this forum for all their postings. I have found great information on here and have learned a lot. I hope I can contribute hafe as much as I get from here. I really like the way everyone is supportive and trys to stay positive. This is a long way from other forums I have been on. Keep up the good work.

Thanks Again
Talmadge

Talmadge

Thank you for starting this thread. I hear about bad partnerships all the time and often hear from people how they never want to have a partner again.

In the past 6 months, I've bought a partner out of two businesses. He and I still talk almost weekly, although there is not much business stuff going on anymore. There were times that were tense and uncomfortable, but we got through them with mutual respect and no bridges got burned. Now that there is a little time past that, we're back to friends again.

My partner in Maui Mastermind, David Finkel, and I started a business this year (2007) and after a few months found that our method of working start-ups was so different they just weren't compatible. He bought me out of the new business before we really ever got rolling with it. I think he'll make a lot of money and, from a pure business perspective, I would have been smarter to stay in the deal. But, I think we would have ended up hating each other. We can work easily together through Maui Mastermind, but the business model is very familiar to both of us. The other company is different for both of us and so there was a big learning curve and that's where the stress was. The dissolution of that partnership was the easiest one I've ever been through. We were both committed to making the other person feel whole in the deal. For two weeks, we started every morning with a 1 hour meeting to discuss the deal points. We started every morning with a "red hat - how are you feeling" moment, just to keep all the emotions clear and upfront.

It's funny but that partnership dissolution has made me even more amenable to starting a partnership again. I know that the worst case doesn't have to be that bad!

Some more random thoughts on partnerships...

Partnerships can be an amazingly synergistic animal. Sometimes relationships bring opportunities to you that you would otherwise never have even known about.

We have just had this happen over the weekend. A realtor whom we have worked with told us that he has a buy-sell on a piece of property that is an AMAZING deal. He does not have all the requirements to put the deal together ... but if we partner up on the thing ... it is fun for all!

Had we not had a willingess to work with others and treat others with respect and integrity he would not have thought of us for this deal. It is easy for some to say "go it alone... why share the profit?"... but what this line of thinking is missing out on is the potential future deals that can come from a joint venture.


Every relationship has problems... husband/wife parent/child business partner/business partner. It is your ability to communicate and work through an issue that will allow you to either continue that relationship or end the relationship on a positive note. If you can get through it ... these tense situations will make the relationship stronger - and you will both reap the rewards in the future.

I love this saying... I can't remember where I read it...

a fight or disagreement is actually a "noisy relationship enhancement event"