Partnerships

What it is

A partnership is the strategy I recommend if you can’t do FHA or you just need to move faster than your capital allows. It’s my favorite strategy. I still use them. I started using them when I was starting out and I haven’t stopped.

Here’s how it works. The partnership is about opposites, and not just any opposites. You’re looking for somebody who’s probably been through it, probably owns a lot of real estate, and is tired of doing all the stuff you’re willing to do. They’re tired of finding deals. Tired of chasing down contractors who don’t answer the phone. Tired of walking these houses, writing scopes of work, managing the project. They don’t want to do that. You’re going to bring work ethic — work ethic at a ten, baby, whatever it takes. They’re going to bring money. One partner brings capital, the other brings the knife.

It’s not your buddy who also wants to flip houses. That’s not a partnership, that’s a two-person team with the same gap.

Why it matters

When you’re starting out, you’re limited by personal capital, personal credit, and personal bandwidth. Every deal ties up cash for months. A partnership breaks that constraint.

Later on in my career, when I ran into this deal that was 10 houses and the sellers were willing to do some creative financing — subject to the mortgages — I didn’t have enough cash because it was all in other deals. So I partnered with somebody who had the cash. We took down those 10 properties together. That’s the move. Whatever it takes to acquire more real estate.

The thing about partnerships though is you’re really risking relationship capital more than money. It is a small community in real estate investing. You do not want to be known for not being trustworthy, for not having high value ethics and reputation. Your financial risk is low — your reputation risk is real.

And here’s the other side. When you start doing this well, what you bring to the table isn’t just work ethic anymore. You bring deal flow, scope expertise, sub relationships, PM systems. You can say: I’ve flipped a lot of houses. I know how to get great deals. I know how to get top dollar on the market. I have subs I work with all the time. That’s my knife. You bring the butter.

How it shows up

Go to local real estate meetups. There are Facebook groups. You have to network — I know that sucks because networking takes a lot of time and you want to go buy houses. But you’re building a foundation that keeps on giving.

On a single-deal JV: partner brings purchase and rehab cash, you find the deal, write the SOW, manage contractors, sell the house. Both sign on any debt. At sale, capital comes back first, then profit splits 50/50.

For ongoing portfolios it sits inside an LLC. Capital accounts track each partner’s contributions, distributions follow the operating agreement. Each property is usually its own LLC to segment liability with the partnership’s parent entity owning those property-level LLCs.

The legal structure matters. Get an operating agreement written. Have the conversation about what happens if one partner wants out before the first deal, not during it.

Related

wealth engines, holdco opco, entity structure, value stack, relationship capital, funding