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Real Estate Partners - Watch Out!

By - 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 and skills.

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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Houses Under Fifty Thousand | Real Estate Partners - Watch Out!