I once made the mistake of taking on a partner for the sole reason that he was a friend. I wanted to do him a favor and teach him the business. I thought it would be fun to work together because our families always had a great time together socially. Unfortunately, none of these are rational reasons for having a partner. Anyone could have told me the relationship was doomed from the start, but no one opened their mouth. I learned the hard way. I lost a partner and a very dear friend. Do not fall victim to the same trap.
If you lack something that only a partner can supply, then you should find someone who can fill that gap for you. If the two or more of you can make something better than you can by yourselves, then by all means join forces. If you are just looking for a partnership for the sake of companionship, then things will probably fall apart fairly quickly. Typically, partners bring at least one of the following to the table:
We are not talking about bid rigging or insider trading here. The influence that you want a partner to provide is more a matter of credibility regarding a project. If you have no real estate reputation in the community, a partner can give you access to lenders who will actually listen to your proposal and read your analysis. He or she can make introductions to people who routinely buy or sell real estate for their own account.
Reputable and reasonably-priced contractors who might not otherwise take a project as small as yours might do so because of your partner and the desire to retain his or her good will. Never underestimate the power of influence. Remember the saying, "It's not what you know, it's who you know." There is a lot of truth in it.
As you become a more sophisticated investor, you may want to take on partners simply in order to spread out your risk, which is very common. People who specialize in small apartments might invest money with someone who specializes in retail space, and vice versa. Others who own fast-food locations, office buildings, and convenience stores might enter partnerships with each other.
Each person does what he or she does best, but each has diversified his or her investment portfolio into other areas without having to learn everything about the other areas. This way every partner minimizes his or her risk in case there is an economic downturn that affects only his or her specialty.
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