The symbiotic relationship that comes with real estate partnerships is a beautiful dynamic that attracts both novice and experienced investors. It has the power to create financial freedom for those who strategically research, plan and execute, not only the deals they choose to take on, but also the partnership itself.
One of the biggest deterrents from commercial real estate (cre) investing is the preconceived notion it requires a seasoned real estate vet with deep pockets to make a profitable return on investment. Creating strategic partnerships has historically been a great way to dive into the market and learn through mentorship and hands on experience while hedging against the threat of losing your shirt due to lack of expertise. However, sourcing a quality partner is easier said than done.
Here’s a few things to keep in mind when going through the selection process.
What is your partner offering to bring to the table?
When interviewing potential partners or going over a deal, ask them directly how much equity they have involved in the transaction and how your investment will be used. Bringing experience to the table is great for a potential partner, but without having funds in the pot, it makes it much easier for them to abandon the partnership, leaving you high and dry with little to no money or experience gained from your first deal.
Does he or she have an exit strategy?
Only partner with someone who:
- Has enough experience to close a deal
- Is qualified to refinance the property in order to buy you out.
Without one of these two options, you could potentially be left in a tough situation if faced with depleting funds or growing expenses.
Are there other investors, and what does his or her investment consist of?
Be sure to stay away from an investor looking to pool money from a large group if you are not familiar with them from past deals. This is often a bad sign that the manager or operator is desperate for funding and will not be the most responsive partner for your investment.
What is their experience and what assets do they currently have?
Only partner with someone who can add value to whatever deal you decide to pursue. If they’re experienced but are not offering to put up much money, make sure they have enough assets to put up for financing to ensure your investment is protected as much as possible.
Define the roles of the partnership.
Create a partnership with people who compliment your strengths, and outline each person’s role before diving into a project. If you’re a math-minded person, find someone with people skills. If you’re skilled at property management, maybe find a partner with a financial background.
What is their end goal?
Establish whether your partner is looking to rehab and flip, rent and hold, BRRR strategy or any number of other investment options. Being on the same page in this aspect will save you time, money and possibly your partnership.
Creating a mutually beneficial partnership will lead to a plethora of continuing benefits including experience, industry relevance, increased income and additional partners coming to you with deals rather than you having to source them and find investors. Once word gets out that you are serious about real estate investing and have proved your value to others, finding partners becomes much easier and you will be able to look for particular criteria in individuals moving forward.