Now don’t misunderstand me here. I am not trying to say that having a partner(s) is a bad thing when investing in real estate, in fact, many times it is a great thing. Partners help to limit the risk of a particular real estate deal, and can provide alternate opinions, and bring needed capital to the deal. In fact, I am still using a partner today, even though my first experience with a partner was a disaster. The pitfall occurs when you pick the wrong person to do your real estate deal with. Here are a few things to remember when it comes to choosing the right person to partner up with:
- Ensure that one of you has stable income and/or a stash of cash.
You must be able to cover acquisition, rehab and holding costs if the real estate does not sell immediately.
- Don’t choose a person with the same or similar personality as you.
A real estate partnership is like a marriage – opposites attract. If you are a strong leader, pick a more passive partner. This works especially well if the leader has little or no money, and the passive partner has the money, because the leader can find and work the deals, while the passive partner can put up the cash.
- Have very defined roles.
Again, like marriage, a partnership cannot be 50/50, it just will not work (this is one reason why the divorce rate in America is so high, people think they can have a 50/50 relationship, WRONG!, but that is another subject). In my partnership, I am 51% owner, and he is 49% owner, and if there is ever a dispute over a real estate deal that just cannot be settled through discussion and compromise, I overrule him. He works the numbers on the rehab portion of a real estate investment, while I work the remainder of the cost of acquisition, holding, loan, and resell/rent value.
- Have the same long term goal.
If your strategy is to hold long term and acquire a monthly stream of income, don’t partner up with someone who wants to flip houses for quick cash, you’ll run into problems quickly.
- Have the same beliefs, morals and values.
This is the most important lesson in picking the right partner. They must share the same views on God, what is right and wrong, what is ethical and morally right. If your potential partner is in the grey area, and you want to do real estate deals only in the white area, you’re asking for big trouble.