Creating a Successful Real Estate Joint Venture

Creating a successful joint venture in real estate involves things you definitely want to avoid, and things which you should do because they are solid principles of real estate investing and business. First, the things you want to avoid.

Definitely avoid the following Partnership Killers:

Do not choose the wrong partner.

This is the greatest mistake partners make. It is the biggest killer of what would or could have been a great real estate partnership. Partnership Killer profiles include:

1. Someone who has a pattern of dishonesty, which may be subtle but could include little misrepresentations, small white lies about numerous aspects of business and life. Many good people do not do their due diligence on a prospective partner and are surprised later to find out that their partner lacks integrity and lies about many things. You have to dig here to find out if the person has integrity. A pretty big sign that they do not is when they don’t completely answer your probing questions into their own business affairs and financial history. A partner who is not transparent with you is dangerous and a Partnership Killer.
2. Someone who is dysfunctional in areas that are important in a successful real estate joint venture. You have to be a student of human behavior to some degree to be able to choose the right partner, or to avoid choosing the wrong partner. That is true of being able to recognize that someone is not what they seem, or that they have another personality you don’t want to have to deal with. But you cannot go by immature gut feeling. Gut feelings only are helpful if there is a level of maturity in understanding human behavior.
3. Someone who has nothing to contribute to the partnership.
4. Someone who is lazy and won’t contribute.
5. Someone who is too busy with a million other things and will never actually have the time to contribute to your partnership.
6. Someone with too much baggage, which could be far too much financial disaster that is dragging him into the pit of despair, or with too many problematic business relationships of his own, i.e. creditors and recorded judgments, and even serious relationship problems on the home front.

Now, let’s look at this from the other perspective, things you want to do. This starts with:Choosing the Right Partner.

1. You want someone who is honest and who has integrity. That is actually no small challenge in this day and age. A poll taken a couple of years ago indicated that 50% of all people in American society admit to regularly lying.
2. You don’t need someone who is perfect. There is no such person on this earth. You want honesty, not perfection.
3. Past failures are ok, provided this person brings valuable contributions to the partnership.
4. Your partners should be people you respect and admire.
5. Each partner should be someone with whom you have a kindred spirit. Obviously, you need to get to know someone before you jump into a partnership with them.

The Profile of a Powerful & Successful Joint Venture:

1. A powerful joint venture will generally consist of 4 to 6 people (could be more but the dynamics of selecting partners changes), with each of them bringing valuable knowledge and experience into the venture, and
2. That knowledge and experience involves an aspect of real estate or business that is important to the specific purposes of your venture, and
3. Each of the partners are pre-qualified by the above criteria.

The Purpose of the Joint Venture:The knowledge and experience of the individuals you will bring into the partnership will depend on the purpose of your venture. For example, if your partnership is to develop raw property for sale to builders or other buyers, you would want credentials like these, although this is not all-nclusive:

Developing Raw Property For Sale:

1. An excavator who has experience sufficient to do the dirt work;
2. An engineer/surveyor with sufficient experience to be able to do all the engineering and surveying required for the platting work;
3. Another engineer, if not the same one, who can do all of the plat drafting and submissions to the city or county;
4. A utilities man, if the excavator does not have the experience, who can install the utilities properly and to code (power, sewer, cable, phone);
5. An asphalt company that can pour beautiful roads throughout the project;
6. A real estate lawyer who knows real estate and all the contracts and negotiations involved;
7. A Realtor who can sell the lots to builders or individuals; and
8. A person or persons with financial resources, both cash and credit.

Buying Single Family Homes For Rental or Resale: Here you’ll want partners with different credentials, although still pre-qualifying with the above fundamentals.

1. An experienced inspector or builder who knows how to inspect;
2. An experienced contractor/builder who can do great rehab work;
3. A real estate lawyer who knows real estate and all the contracts and negotiations involved;
4. A Realtor who can buy and sell for the partnership;
5. A person or persons with financial resources, both cash and credit.

CONCLUSION:It is difficult to lay down these principles and rules and expect that a group of people could simply do it without years of experience in successful partnerships and real estate investing. It is critical that you draft a very good partnership agreement that clearly spells out all the rights and obligations of each partner and how each will share in the rewards. You’ve got to have an exit strategy, both for success and for failure. You need a good business plan in writing and
well planned spreadsheets (three, one for the best case scenario, one for the worst case scenario, and one for the most likely scenario). Someone has to be good at conducting partnership meetings, addressing conflicts among partners, and resolving challenges.

Do these things and you will have a Powerful & Successful Joint Venture in Real Estate, and you will make a lot of money in the next five years.

Chuck practiced real estate law for 20 years before coming back to his first love, real estate sales and transactions. He practices on the beautiful Olympic Peninsula in Washington.