I currently have several rental properties and I am considering buying a rental property with a friend as a way of starting a partnership. There are pros and cons to every partnership but I was wondering if anyone has ever done or started a partnership with rentals. Part of the reason for doing this is to help him get started but also having someone share the cost and down payment of buying more properties. Like I said I currently have several rentals already and am capable of buying more alone, I was just wondering if a partnership would help get more properties at a faster pace. Thanks

Usually, each partner brings some strength to the table. One might have money, but not be able to use it efficiently. The other might have skill as a contractor, and management experience, but not have sufficient funds to grow as much as they'd like. In that case, there would be the money partner, and the other would be the brains/muscle partner.

One important thing is to make the partners unequal. One of you has to be the boss partner, and the lesser partner has to be comfortable with that-- comfortable with being told "no", in every possible way "no" may come up.

Was it Mike Butler who suggested that the money partner be the major partner? I think it was either him, or Jay DeCima. Basically, he wanted to encourage money to come to him, so he reasoned that he came out ahead in the end by giving that sliver of extra power to the money guy, even though he had all the brains and muscle. In reality, I would think the money partners were happy to trust the brains side of the team, as long as the brains had a proven track record of success and the money rolled in on time.

If you are wanting to actually partner with someone, either this guy needs to bring money, or... something.

Otherwise, you might consider mentoring him, rather than a partnership deal. Help him find a house, help him pin down the sale, help walk him through the renovation if necessary, give him advice on advertising and screening and lease agreements and troubleshooting problems as they arise... but do it over lunch or dinner, not with him having a hand in a shared bank account.

A group of my friends (about five couples) had looked into getting into a partnership of sorts back when we all lived in the Metroplex. We talked about it, but we realized quickly that we weren't on the same page. Some of us, from a business background, wanted to get into commercial property. Others of us, who had seen for-rent signs in vacant buildings for six years straight, preferred residential. Maybe somebody else might have wanted to do student rentals near one of the local universities-- like TCU or SMU or wherever. When we realized that we couldn't even agree on what kind of property to go shopping for, we dissolved pretty quickly.

I tried it twice and it did not work out. Most people are not born entrepreneurs but are 8 to 5 employees. You have to have the stupidity or drive to start your day at say 4 AM and work till 10 or 11 PM maybe 6 or 7 days a week to get a property ready for that new tenant.

If that tenant trashes the property you get to bite the bullet and do it again.

My best partners were honest family members. We all wanted the "best" for each other. The worst partners were my "friends".

Only a busy person can find the time to do chores. A friend with time on their hands has no sense of "time".

A few examples of bad partners.

I am a licensed building contractor. My partners day jobs was dealing with people. We'd find an investment property, buy it together. I would fix it up and make it rent ready. My partners (a couple) would advertise, screen calls, show the property, take applications, run credit and then "WE" would select the best applicant.

So we buy a property. I work up the numbers and time schedule. I was to be done with the remodeling and complete the work in 3 to 4 weeks. Then my partners would rent it out. AS SOON as I was done, my partners informed me they were going on a two week trip and would rent it out when they came back. The property sat empty with no showings for 3 (three) months. They never found the time to run an add and show the place. I then bought them out (via a law suit) and rented it within 3 days.

Anther partner made a "Special Trip" to Home Depot to pick up something for a rental. They were to have had a NOTEBOOK with a list of items needed. Instead they put the list on their cell phone that they lost, crashed and got stolen. I don't know which one. But they seemed to have no management skills.

Samuel, you can do it on your own. Slow is good. Keep control. I bought 6 properties in the 1st 10 yr period. I did it alone. I did it while working a full time job, with 2 daughters at home, while my husband in the military was gone for YEARS overseas. Did a lot of juggling--I was one deep.

I did research on each property, researched each finance structure(all different), each remodel, and learned as I went. When rates dropped, I re-financed down to 15 year mortgages and the tenants paid them off for me.

Financial coach Dave Ramsey quote I love: "The only ship that won't sail is a partnership."

That said...he admits to doing deals and hiring family. Partnerships can work if carefully, thoughtfully structured. That said: I've never done one...so I can't steer you the right direction except to say if you do it get an excellent attorney who specializes in partnerships to draw up all the legal docs. No spit-shakes or "my word is my bond; it's strong like oak"... remember Jerry McGuire.

People have a way of "forgetting" their word when big $$$ is on the line.

I'm a control freak, so I'd have to be the majority partner and the money partner would have to be silent.

Cover the 4 D's: Death, Disability, Dissolution, and Divorce. What happens in each scenario? Spell it out to the nth degree.

Samuel,

No.

Your motivation is wrong. If you want to help your friend give him coaching and encouragement. Invite him to a seminar.

You’re also breaking the rule of doing business with friends. Few relationships survive this. I see this daily with buddies “going into construction together” just because they think it will be fun and easier. 5hey don’t have a clue.

Be very careful of ego and pride. We can get confident and want to share our knowledge. Better for him to be the teacher rather than the partner.

This business is easy. And PLENTY of education is everywhere. If he has half a brain he does not need a partner and you don’t need to be burdened.

Maybe find a deal and wholesale it to him for a profit. Win win.

I’m not opposed to partnerships when each party is experienced, mature in the biz, and have clear expectations, all put in writing.

I have some financial partners who supplied the money and I supply the brains and skills. But I must admit it adds stress to be responsible to someone else.

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