We hear about real estate moguls like Warren Buffet, Sam Zell, and Herb Simon, but many of these acclaimed investors would not be where there are if it had not been for the successful partnerships that they made in their careers. It’s common to hear— when you first learn about the pros of real estate investing— of the great solo success stories, but partnerships can be an investor’s biggest advantage. This blog will help explain why; hopefully helping you understand that your next big deal should be finding a good partner.
Experts in the real estate world have a tendency to focus on their “rags to riches” stories, without much mention of anyone else that was with them along the way. Real estate investing, like many other things in life, is more meaningful when engaged with others. Partnerships allow an investor to share, not only the risks and the rewards but also the fun and the challenges. The immediate results of having a partner include the option to reduce risk, increased ease of investing, higher enjoyment, maximization of time, the benefit of other people’s time and expertise, and greater financial leverage.
I like to say: “If you want to build a small business; go alone. If you want to scale into a large company; go together.” This is such a fitting statement to apply to real estate investing. You won’t truly become a real estate great unless you partner up.
The Power Of A Partner
The big names have leveraged partnerships to help them find, and stay, in the spotlight. Buffett has used stocks and buying businesses to partner with others. Berkshire Hathaway recently teamed up with venture capitalists to approach even larger deals. It’s a plan of action that Buffett expects to use more in the future.
Billionaire and investor, Sam Zell, considers partnerships a consideration to investing safely and on a larger scale. He comments that “The definition of an ideal partner is someone who shares your risk.”
“The definition of an ideal partner is someone who shares your risk.” —Sam Zell
Simplifying The Start With A Partner
Despite the claims that you have heard, the initial launch into real estate without a partner, is a challenging undertaking. As a “solopreneur” you face everything alone, and you will discover how that is not easy. Jumping in alone as a real estate investor will probably be more exciting than flipping burgers in a greasy kitchen for 12 hours a day. Starting your business solo could bring you more happiness than packing a production line. You may bring in more profits than a medical doctor, but don’t believe anyone who tells you it’s going to be easy. There is a lot to real estate investing.
If you are an industry novice and have the finances to purchase a deal to flip, but lack the expertise to get the rehab done, then you could find a partnership beneficial. You are more than welcome to attempt a flip, deal, or opportunity on your own, but it will take a significant amount of time and will be riskier. You have the chance of losing ALL of the capital that you invested. By finding someone to work with on the first few real estate opportunities, you can learn from their process. Once you have mastered a particular part of real estate investing, you can “pay it forward”— helping others, reducing your risk, and sharing in the rewards.
Make Careful Choices
I think a lot of people advise against partnerships, as they can be hell and career damaging if they do go sour. It’s not only important to note but essential to mention that you MUST choose partners very carefully. Just like I’ve talked about in previous posts when it comes to investing in markets or choosing tenants, do your due diligence. Spend your time researching and developing relationships with other investors. Be clear on terms and expectations. Have your agreements in writing. Once again, choose partnerships carefully, because if you don’t, you will regret it in the end. Make it a point to find someone who shares your same drive and holds a similar set of goals.
Real estate partnerships are not a sign of being weak, nor do they need to dig into your profits. John Maxwell mentions in his book, 'The 21 Irrefutable Laws of Leadership,' to focus on your strengths and recruit others based on their areas of strength. The best get to— and stay— at the top by keeping influential people in their circle. It doesn’t matter so much who does what in a partnership, but that you have a person on your team. It will bring your investing game to a whole new level.