Real Estate Partners – A Good Idea?

We were looking for real estate partners because we were new to the Tucson area. We found that two identical houses here can be $50,000 apart in price if they are three blocks apart. Also, the styles are different from anything we had in Michigan, so it would be good to have some help figuring value and what buyers want.

At the Arizona Real Estate Investors Association meeting I announced that we had money to invest in fixer upper real estate, and we were looking for partners. The host wrote our names and phone number down on the overhead projector along with the others. About three days later we got a call.

Sam and Nikki were nice people, and we got along well when we met. Their offer had been accepted on a house. Looking at the comparison sales they had found, it seemed like a good buy. They had done rough estimates of the rehab and remodeling costs, and it looked like we could make some money. There would be a third couple involved, so the expected $75,000 profit would be split three ways. Agreeing in principle to the deal, we arranged to meet the other partners at the house after closing.

Too Many Real Estate Partners

Six people with six opinions can be a problem. I never understood 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 the expense of tearing them out. Both my wife and I thought it was a crime to stucco and paint the beautiful brick exterior of the house, but were assured that buyers here would like that better. Raising the roof of one room seemed expensive and unpredictable, but the ceiling was a bit low.

There were plans and new plans, and weeks of stressful anticipation evolved into stressful worrying. We discovered 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 projection dropped from $25,000 each to $10,000, and we felt there might actually be a loss.

We dropped out of the deal. Fortunately the other partners had procrastinated for several weeks on the signing of the joint venture agreement. They also were decent people, and had 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. It ended amicably.

We learned a lot. I’ve had partners before, but I let the partner take my money and do his thing to make us a profit. This group decision-making, especially with so large a group, just doesn’t work, at least not for my wife and I. One day, 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.

We truly hope they make a lot of money on the project. If they do, we may even be willing to be partners with one or the other of the couples. If so, 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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