I am wanting to start a partnership with a friend who has a great complementary skill set to mine (he is a people person/I am better with financials and have capital). The issue is I have all the capital and he essentially has none. How do you put it together when the parties are really not 50/50? Thanks for your help.
This tough and I look forward to hearing what others have to say - I don’t have the answer for you. My father was a lone wolf in business and life - and his allergic reaction to partnerships rubbed off on me. I know I need a partner to grow - for the psychological support in running a large portfolio if nothing else.
Yet trusting someone else to essentially “marry” them financially seems like such a headache.
In your particular case let’s play devil’s advocate - why do you need this friend in your business? Are you talking about simply running/owning one mobile home park? If so - how lacking are your people skills?
1 - Just kinda quiet
2 - A real introvert
3 - Have some kind of extreme social anxiety and you can’t even have a normal conversation with somebody without creeping them out?
The reason I ask is because if it is just #1 or #2 I would question your need for this friend to be your partner. If you have capital, can hold a conversation when you need to without it destroying you psychologically, and are good with numbers - I am not sure what your friend brings to the table that is so valuable you need him even though he has almost no capital.
This is the mobile home business - you’re not selling ice to Eskimos. If you are analytical, logical, organized and good with numbers and have capital - well I think you’re 90% of the way to finding buying and running a park successfully.
You don’t have to be a glad handing back slapping extrovert to get brokers to show you deals - you do have to show you have capital and are a serious buyer. You don’t need to have the people skills of Bill Clinton to do that.
Not trying to be negative here but real estate is full of dreamers without a dollar. They are literally a dime a dozen (no disrespect to anyone reading this who doesn’t have much capital - we all started there a long time ago).
Why do you need this person so badly? Have you considered hiring a good full or part-time administrative assistant instead?
Thanks for the reply. I am just an introvert and I have been having trouble finding opportunities. Brokers only show me deals that have already been shopped to the known buyers. At this point I think I need to start cold calling owners directly but I don’t want to do that. This potential partner will talk to anyone so I was thinking of instead of giving him an assignment fee he could roll what would have been the fee into the equity of the deal.
No worries. Well, here are some random thoughts and then questions in no particular order in response to your thoughts:
1 - Remember to define what a “good deal” is. Everyone’s definition is different and yes, many off market deals are likely to be better than on-market deals. However - on-market does not mean “money losing” by definition. How are you hunting for deals right now? Do you have a method? A formalized sorting process? Many on-market deals, once analyzed and negotiated to a decent price, may give you great ROI over the long run. The S&P 500 long term after-inflation rate of return is only 7%. If you can combine 10% cash on cash return (low by MHP standards) with principal pay-down and only a 2% annual rate of appreciation at a 4:1 leverage ratio (25% down) you will be at over 20% total annual return out the gate. Yes maybe with an off-market deal you could do significantly better. That does not imply that you shouldn’t still invest your money.
2 - How experienced are you in real estate investing? Do you have any track record at all that you can point out to show brokers you are serious? You say the brokers are only showing you deals that have already been shopped.
3 - Have you tried direct mail? It worked for my group in getting leads this year - several quite viable. We ended up closing and going into contract on a deal from a broker but the direct mail definitely got leads.
4 - Back to brokers - I was able to get at least one solid broker to give me a look at a decent off-market deal by taking the time to fly all the way across the country to have lunch with him. I flew around meeting several brokers because even though I was working with significant liquid capital and a long term track record in apartments I STILL could not seem to get the brokers to take me seriously. The main purpose of this dog and pony show was to set myself apart from other buyers - and it worked. I started getting my phone calls returned and access to deal flow.
5 - Don’t give up on calling brokers - I just closed a park this month of almost 100 lots, 65 occupied, lot rent over $300, city water/sewer, great area - at a 15 cap on current rents. I got the lead from a broker who didn’t know me from Adam. This is unusual yes but it was the result months of scanning online listing services every day systematically and putting deals through spreadsheets. I saw an attractive one and called the broker. Turned out not to be for me but I asked the broker if they had any more - sure enough they did have an off market deal that on the surface looked bad - other known buyers had dropped it. Being hungry we investigated further than the other buyers had and discovered the problems with the property were not nearly as bad as they looked - but it took a lot of research to figure this out.
6 - Finally on giving a guy equity who has no skin in the game. I wouldn’t, personally. Why don’t you just want to pay him a fee? Why give up part ownership of your new business - what’s the point?
You should look at finding another partner ?
Not sure if you got the answer you were looking for, but here’s my thoughts. A popular approach is to have equity partners receive some preferred dividend and a % of the balance split between equity and the operating company/LLC.
I’d recommend setting up an LLC with your friend, with some agreed to % split between the two of you, and then agree to what the returns to the equity holders. For example, have both of you contribute enough money to get the LLC set up and pay for any training/marketing/etc (2k-5k each) and then split the operating company income 50/50 or however you want. Then set the parameters on the equity returns. I also recommend that you set this rate at what you would likely provide to other investors which is something in the 8-10% range and the remaining split either 50/50 or 60/40, with 60 going to the operating company.
I don’t see where big people skills make the difference between success and failure in this business. In fact it is not a bad business for an introverted personality because most of the people problems (tenants) can be dumped onto the park manager and as an owner you can deal mostly with the numbers, business plan and arranging for things to get done like calling the asphalt contractors to get quotes for getting your roads patched.
Although, it is pretty obvious that Frank is talented when it comes to dealing with people, at the boot camp I attended, he recommend not even learning the names of your tenants, and told stories about pretending not to see tenants who wanted to talk to him and just driving past them. Sounds good to me.
When it comes to finding deals, I think the key ingredient is not the ability to schmooze but persistence.