At Washington Capital Partners, it’s very common for us to see couples and friends partner up on deals. We’ve had many borrowers successfully partner with a spouse or sibling and achieve incredible results. Sometimes it’s a wonderful thing to see two individuals combine their skill sets and create a solid flipping business. However, sometimes things can go wrong and personal relationships can suffer over a failed house flipping deal.
Individuals make the decision to partner up for numerous reasons. People who are just getting started may seek to partner up with someone who knows the field. Whether you lack the time, knowledge, or money, there’s always someone out there that will complement the things you lack. Reaching out to friends and family is a great way to start your search for a partner.
When considering a friend or family member as a partner, evaluate your relationship and decide how close you want to be with the person. Determine what skills that person will be bringing to the partnership. Will your potential partner support you financially or bring enthusiasm, passion, and knowledge to the business? And will you be able to work with them through good and bad times during your projects? When structuring a good, fair partnership you need to go through the same processes that you would with a new partner that you just met through a friend or a Meetup.
After you choose your friend or family member to be your partner, begin with a written legal agreement that outlines everyone’s roles and expectations Keeping everything well documented is important so that you have a paper trail that either partners can refer to when questions are raised.
What should your document include?
- Partners’ Roles and Responsibilities
- How much time is each person dedicating?
- What are the consequences if a partner doesn’t pull their weight?
- Who has the final say on choosing a property, construction plan, budget, hiring contractors, etc.
- Professional Services
- If your sibling is going to be your contractor, create a real budget.
- How will he be paid for his contracting services?
- Repayment Plans
- If you borrow money from a family member do you have a repayment plan in case things go sideways?
- How are you splitting the profits?
- Partnership Termination
- How will your partnership end and how will it be managed?
- What happens when one partner wants out of a rental property?
After you sign off on your written agreement, have an attorney review it to make sure everything is legally binding and fully executed. Each partner should understand that the purpose of the document is for everyone to have a formal solid infrastructure for the project and not to encourage legal action in the future.
When partnering with friends/family be realistic with expectations. Whether your new partner is a veteran investor or a total newcomer, don’t exaggerate the numbers to get them to do a deal with you. Instead, make them feel comfortable by showing your confidence in the deal. The first deal is all about proving to your partner that you know what you’re doing. If all goes well, they’re going to want to do more deals with and your partnership will be stronger and more effective.