I recently had the pleasure of being on a panel for a discussion with RealEstateIQ about the state of the real estate market and real estate investing. Tom Berry, founder of Investor Loan Source and David Caballero of Real Impact HEB were the two other panelists I had the pleasure of talking with.
After the discussion we fielded some questions and one really jumped out at me and I thought it was worth expounding on here. The question was, How do I find a partner for real estate investing? Between Tom, David and myself, there was a great discussion, below are some of the high points.
Before we jump in to the answers, I wanted to pose another question. Why have a partner in the first place? Here are a few reasons that came to mind.
Reasons to Have a Real Estate Investing Partner
- You are able to accomplish more as a team than as an individual. It’s really that simple, as one person, you are going to have limitations based on your personal skill set, man power, bandwidth, expertise, etc. Finding a partner with offsetting skills drastically increases your output and ultimately your rate of return
- Mitigate risk and limit your personal exposure. Having two sets of eyes that are working together on the same set of common goals will not only increase output, it will help you divert some of your risk. Risk of making catastrophic mistakes as a result of inexperience or being spread too thin. Combined experience and insight translates to more projects completed quicker with less mistakes and higher returns.
- Share in the highs and lows. If you have been investing for any period of time, you know there are going to be big swings of both highs and lows. Having someone to share in those experiences and enjoy the highs and build you back up during the low points is a way to keep you sane and balanced.
- Maintain a work life balance. Without a partner, if you stop, so does your business and all of your momentum. It makes things that bring you happiness like family vacations or just breaks and time off seem impossible. Having a partner allows you to lean on them when it’s time to step back and decompress.
That covers the WHY, not let’s talk about WHAT you look for and HOW you might find them.
When evaluating what to look for with a real estate investing partner, first you need to be introspective and compile a list of what makes you a good partner. What are you bringing to the table? Here is a list of skills/traits that great investors possess.
- Lead Sourcing/Lead Generation
- Deal Analysis/Market Analysis (ability to accurately calculate current market value as well as after renovation value)
- Access to capital or the ability to obtain capital
- Contract analysis
- Rapport building, negotiation and deal closing skills
- Organizational skills
- Contracting or sourcing skilled trades
- Rehab oversight to stay on schedule and budget
- Design as well as choosing and sourcing materials
- Budgeting and accounting
I haven’t encapsulated every skill required on this list, but this is a good start. Now, time to get introspective. Out of this list, what are you bringing to the table? Which of these are your strengths, and which are your weaknesses? From that list, you can start to determine the offsetting skills you should be looking for in a partner. It’s not an exact science and it’s a good thing if you and your partner have overlapping skills, but at least you have an idea on what an ideal partner will look like.
In addition, here is a great article from lendinghome that not only spells out some of the pros of finding a partnership, but also sheds light on some of the cons.
So HOW do you find a partner?
This is very much a “chicken or the egg” exercise and there is no right or wrong answer. You can start by trying to find the partner and then together you go find the deals. Or YOU can be the one to find the deal and then from there, you find the partner. Personally, I like the idea of getting out there and finding the deal yourself first and then use that as your carrot to find your partner. When you hold the deal in your hands, you have much more leverage and value that you are bringing to the table. There is a saying in real estate investing, If you have found a great deal, finding the money is the easiest part of the equation.
So back to the question, how do you find a partner? Short answer is network. Everywhere possible. REIA groups either live or virtual during the pandemic. Facebook groups, email lists. referrals from friends. Hard money lenders with a huge list of clients looking to partner on something.
Once you have a found a great partner, how do you protect yourself?
- ALWAYS ALWAYS ALWAYS have a written partnership agreement
- Form an LLC with an operating or partnership agreement that makes things legal and official
- Make sure the structure leaves each of you with an equitable amount of upside, risk and exposure. It’s easy to think about what happens when the money is rolling in, but what you really should focus on is what happens in the event of catastrophic failure.
- Have an exit strategy and talk about it with your potential partner. Not all partnerships work out, so it’s best to plan for that together.
- Keep things fluid and open for change after your first few deals. Partnership arrangements don’t have to be set in stone forever. If someone is bringing more to the table than the other, be ready to re-negotiate how the partnership is structured.
- Never burn a bridge. Even if things don’t work out in the short run, you never know what will happen down the road.
- Do your research! Here is another great article outlining the steps of partnership formation.
I hope this has helped you if you are a new investor or someone who has been thinking about taking on a partner. As always, ListingSpark is here to be your resource for helping you sell your properties while reducing commissions and maximizing profits. Don’t hesitate to reach out with any questions.
Broker/Co-Founder and Chief Real Estate Officer
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