Real Estate Partners - Watch Out!
By Steve Gillman - 2006
We wanted real estate partners because we were new to the
Tucson area. Two identical houses can be $50,000 apart in price
if they are three blocks apart. On top of that, the styles are
different from anything we had in Michigan. It would be good
to have some help with figuring value and what buyers want.
I stood up at the Arizona Real Estate Investors Association
meeting and announced that we had money to invest in fixer upper
real estate, and we were looking for partners. The host wrote
our phone number down on the overhead projector along with the
others. Three days later we got a call.
Sam and Nikki were a nice couple, and we got along well when
we met. They had their offer accepted on a house, and looking
at the comparison sales they had found, it seemed like a good
buy. They had rough estimates of the rehab and remodeling costs,
and it looked like we could make some money. There would be another
couple involved, so the expected $75,000 profit would be split
three ways. We agreed in principle to the deal, and arranged
to meet the other real estate partners at the house after closing.
Too Many Real Estate Partners
Six people, six opinions. This can be a problem. I never did
understand why the beautiful wood floors had to be torn up and
replaced with carpet. For that matter, I never understood why
they couldn't at least be carpeted over without tearing them
out. My wife and I thought it was a crime to stucco and paint
the beautiful brick exterior of the house, but we were assured
that buyers here would like that better. Raising the roof on
one room seemed too expensive and unpredictable, but the ceiling
was a bit low.
We began several weeks of stressful anticipation that evolved
into stressful worrying. We found that the houses in the area
were selling for less than we initially thought, that the rehab
cost would be more than we thought, and that all the other partners
expected to do much of the labor, rather than hire it out. The
profit picture dropped from $25,000 each to $10,000, and we were
feeling like there might actually be a loss.
In the end, we dropped out of the deal. Fortunately the other
partners had delayed for several weeks the signing of the joint
venture agreement. They also were all very decent people, and
noticed our anxiety. Nikki called to suggest we let them find
a way to finance it without us, about two minutes before I was
going to call to say we were out. At least it ended amicably.
We learned a lot from this. I have had partners before, but
I let the partner take my money and do his thing to make us a
profit. Group decision-making, especially with so large a group,
just doesn't work. Standing in a Home Depot hopelessly looking
at carpeting samples, I also realized that non-financial contributions
need to be clearly defined according to each persons knowledge
I truly hope they make a lot of money on the project. If they
do, I may even be willing to be partners with one or the other
of the couples. This time though, we'll just look at the plan,
put up the money, and let them do their thing. That's my idea
of real estate partners.
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