Does starting a real estate business with a friend fascinate you? Yeah, it does.
Let’s suppose that I and my friend both are interested in investing in real estate around the same time. We both start attending local meetups together, discussing books, enjoying podcasts, evaluating the trends, and reaching out to different local real estate experts.
REAL ESTATE BUSINESS SETUP
Then, the time arrives where we are both are ready to invest in our real estate business. Now, the question is: should we go out, create an LLC and do real estate business together? As per my experience, the answer is an unequivocal no.
I shouldn’t go in with a friend. The reason behind it is the way people act in a casual relationship may be entirely different than the way they act in a professional relationship when their money is on the line.
However, this doesn’t indicate that the friends cannot do real estate business together. Rather than instantly creating an LLC together, the less risky approach is to create separate LLCs.My LLC will own some portion of the real estate business and my friend’s LLC will control the rest of the business. I shall continue to use this approach for a full year to make sure we can work together effectively.
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BUSINESS TESTING PERIOD EXPERIENCE
After the year-long test period, ask the following questions about how things went:
- What is my firend like as a business person?
- How do she handle any challenges that arose?
- What type of character do she have?
- How did she react to mistakes that were made by either her,me, or a member of my team?
- What did she prioritize more, herself or the real estate business?
- What is her communication style?
- Did she put forth more, less, or an equal amount of time and effort as me?
- Is this someone I can envision myrself creating a long-term real estate business with?
Again note, whether we are long-time friends or merely acquaintances, one cannot know how another person will handle critical business decisions, disagreements, or problems until we actually experience them first-hand. Instead of jumping into a business marriage, I should test the waters by dating for a year.
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FOOD OF THOUGHT FOR BUSINESS PARTNERSHIP
Forming a real estate business partnership is a quick way to quickly scale a business. But it needs to be the correct partnership. When planning to partner up with a friend, I will not immediately go all in. Instead, I’ll keep things separate by making individual entities or by doing real estate deals separately for at least a year. At the end of the working year, if this person still stays, answer the 8 questions outlined above to determine if it is worth officially partnering up or if we should both go our separate ways.
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