Wednesday, February 2, 2011

Partnership Construction

The whole concept of a partnership is that each person brings different knowledge, skill and resources to the venture.

Given that everyone has different knowledge, skills and resources - each partnership should be crafted different to accommodate those differences.

The foundation. Without certain critical key foundation attributes, I don't think you can construct a viable partnership. Honesty, integrity, and competence are some of those foundational/critical qualities. Many of those qualities can't get assessed without spending time developing the relationship. So the first stage of constructing a partnership should be spending time, discussing and debating the venture and giving each other opportunities to do any necessary due diligence on each other.

The vision. The next critical attribute of a successful partnership is vision. There is no "right" vision. But if the vision for the venture isn't the same, there is definitely a wrong partnership. Our investment goal, for example, is very long term. We wouldn't make a very good partner for someone who was interested in quick flips.

Win/win. Finally the partnership should give each partner the feeling they are getting the "better deal" if it is constructed properly. If one party feels they are not getting a great deal, it is just a matter of time before the partnership is sabotaged.

An example of an amazing partnership...

Micky Stiles is a contractor. He has a crew of three guys that work for him. He is straight and honorable. He is a pro. He tried buying a home for "investment" purposes in the past and it didn't work out for a number of reasons - he bought the wrong house, in the wrong neighborhood and had no tenant management skills or experience. Yet his goal was to in some way develop a net worth and a mean to retire.

After spending time with Micky we found that he had significant extra resources. There were days that his crew had free time. There were leftover materials from other jobs. And there was plenty of excess knowledge. We constructed a partnership with him in which he contributed renovating and maintaining our properties at discounted prices in return for a piece of the ownership in the properties. For our part, we also helped him hold those pieces of ownership in a way that gave him tremendous tax advantages. We got amazing renovations done by a partner who had a vested interest in the appreciation of those properties, at very inexpensive prices. Micky got a percentage ownership in 8 single family homes over time and new knowledge and expertise on how to maximize his retirement savings using sophisticated tax strategies.