Sunny mentioned getting started and using a client that was willing to “invest” in him. Several people chimed in..mostly bad experiences. I’ve successfully had several partners and currently am involved with three right now and we are entering into another.
Lets discuss the pros and cons about partnerships, joint ventures etc.
You start.
blue
If you want to read a fancy personal signature… go read someone else’s post.
Replies
There was a strong thread here about 4 months back from someone who was considering an offer from a client to fund a spec house.... something like that. Good thread with lots of first hand info.
Other than my wife I have only one partnership and it is on 2 houses that my brother and I own together. I am the "managing" partner in that relationship. I needed help on a big rehab 10 years ago and brought him in because he would work for equity. It has worked well because he really doesn't care what happens as long as it makes money.
I think partnerships can be great but they are like a marriage. The right personalities are more crucial than anything. I have discussed a few partnerships through the years but rarely found the business oppurtunity timing/right personalities thing at the same time.
When I was younger capital was such a problem due to money being tighter, me being younger and less polished at my approach to bankers and my not having enough personal assets. Now I am past most of those hurdles and am able to roll along and do the projects I want, or at least the size I want on my own so I rarely consider partnerships an option today. DanT
My last (and only) experience with parterns was when a creditor of my partner showed up at the office with a judgment against the company for $350 000. Seems the guy had put the company up as collateral for a loan without telling me and then two months later...
Thems the breaks. I would never do that business partner thing again.
However, one of the things that we did not do was a written shareholders agreement that spelled out exactly what each partner could and could not do on their own. If you have a partner, you are giving that person a really large amount of control over your life. Get it ALL in writing. This will scare away the sneaky ones, protect you against the average ones, and won't make any difference to the truly trustworthy person. Also, just like in a marriage, make sure you talk about the business on a regular basis. My terrible experience probably could have been prevented if we had talked more.Last year I didn't know what any of this stuff meant.
i would add being extrasuperultracareful when it comes to choosing your partner. personally i don't think i'd ever have one again- with the sole exception of my wife- (just the numbers: about 3 yrs and $300,000+ in lost income and legal bills to rid my life of the last one) but i learned a heck of a lot about it.
my first rule would be never, ever have a 50/50 arrangement. better to have a very solid contract with a minority position than be stuck in the no man's land of no control- learned that one the hard way. if it hadn't been for the incredible stupidity of my ex-partner and his attorney, we might never have gotten out of it.
my second rule would be never, ever have a partner that hasn't run his own company before. and make sure he actually ran it and there's not another former partner out there pi$$ed off at him because he constantly bragged about having/running his own company but in reality didn't do jacksh!t (in other words- don't go into biz with my ex)
m
Partnerships are risky business (just like marriages). You can get burned by someone you thought was your best friend.
Always remember that in a partnership, ALL partners are liable for debts of the other partners (incurred in the name of the business). I would not recomend them.
Better solution- Sub Chapter S Corporation. You are taxed on an individual basis (like partnership), there is some hedging on Social Security taxes and your liability can be limited.
A must in either case - Buy/Sell agreement. You MUST plan in advance for exiting the business.You get out of life what you put into it......minus taxes.
Marv
15 yrs ago i would've agreed with you, but my ugly battle was over an s-corp and in some ways a partnership would have been easier to dissolve. also, we didn't have much in the way of a buy/sell agreement but in the long run that was probably best because we never would have anticipated what an INCREDIBLY GREEDY, WORTHLESS, ARROGANT, CONNIVING, LYING, INCOMPETENT WEASEL (my sincerest apologies to weasels everywhere) he turned out to be and therefore would have undoubtedly drafted some nice, evenhanded, oh-well-let's-just-part-ways blah, blah, blah, and i would have been extremely limited in my ability to bring him to account for all of his bs. as it turned out, he was therefore unable to force a pre-determined settlement on me and i was ultimately able to nail his a$$ to the wall.
m
Steven Covey's "Seven Habits of Highly Effective People" says that the first habit is Begin with the end in mind.
As it applies to partnerships (and many other business relationships), this means that unless you have a well defined and written exit strategy, you're just spinnin your wheels.
Unless you're the lead dog, the view just never changes.
I stated in the last thread I would not have a partner again
But for some people with the right people it works
you asked for an example
Ill tell you one in construction
my brother
started as a roofer, went into remodels, met someone while playing golf
formed a partnership doing comercial
he/they now own over 20 motels, building at least two a year, he owns 3 airplanes now
his partner is his best bud
his partner is the alpha dog, he put the $$ up, my bro put the constructin knowledge up
but for my bro, at this point , who cares, things fall apart , he could cash in his turbo-prop or one of his benz or his summer home or winter home
me , Im still driving a 93 cheby truck , as close as I get to a turbo prop is them battery operated ones on a beannie. what seperates my summer and winter home is how many windows I open and if the wood stove is goin( p.s, he offered me a job, but I would have to move over 2k miles, and my family , my church and life where we are is more important, his view is skyscrapers, mine, cant see a house for miles)
all this talk is about losing money thru a partner ...
the other thread was about a new guy just starting out ..
and a rich guy wanting to finance him.
I'm thinking the new guy might be making out best on this proposed deal. What's he got to lose?
The money man is the one taking the risk.
Jeff
Okay, Okay....Ive heard enough!
Heres what we are proposing.
My current partner and I are currently running a framing company. Were organized as an LLC. The partnerhip was formed because we both were going to be in the business, either as competitors or partners. YOu know the story...young ambitious guy....going to go on own....old boss watches him walk away.
Were doing fine...it started out 25/75 and evolved to 50/50 while I showed him the business ropes. He's young and ambitious and will do anything...I'm old and warn him about this and that. It works fine.
Anyways, we've decided that Carpentry will never deliver a high enough return on our efforts. We'd have to grow and do volume, but that doesn't make sense...too much risk, too little reward...too many sawzall blade bills....
So, we decided to spec houses. That's Frank's dream...not mine...but I'm easy...if it'll turn a few bucks...go for it. So the builder that were currently doing customs for likes us and likes Frank and asks us if we'd like to do something together. He's been specking houses and doing customs builds for 20 years. He's a calm, smart guy. So what does he need us for? Nothing really....except we know how to do rough carpentry. Were going to spec country homes (250k), this guys is trying to get away from the 500 and up market. Its a fit if we are willing to do it.
Heres his offer: we frame it (roughly 15k worth). He gc's it (I figure about ....15k worth). No one takes anything....split the gross profit 50/50.
His strengths....established 20 years....can finance anything at about 2% right now, just a phone call away....knows how to sell it....handles the books professionally ...nice friendly wife does all that....has well established trades that come and do good work because he pays well and on time!
Our strengths: carpentry...every one likes us...were friendly to all trades.....we do all change work happily.....we don't carry speed squares (sorry buck(k))!
this works for me...I don't want another job....like selling...gcing.....bookwork...etc.
So, finally we get to the "problem"....everything that you guys are talking about. But, I've done this before...partners. Heres the solution:
Joint Venture.
A joint venture is a single project. It has an opening and ending date, or time of disposition. It doesn't comingle our companies liabilities except to the extent of that one project. For instance, we sign the joint venture for that one house. His building company will have all the insurances...its already in place. We have our own insurances too. If one of our guys falls off the roof (on another job) and sues us, he still doesn't get to include all the assets of the builder. He might get everything from me, including the future profit on that one spec, but it doesn't open the doors to everything that the other partners do....and vice versa.
A joint venture can be a very simple document....two pages max.
blue
If you want to read a fancy personal signature... go read someone else's post.
A joint venture is a single project.
Sounds great on paper. But like everything else, if your partner goes bad, the whole project is a nightmare. Be sure to have a buy/sell agreement.You get out of life what you put into it......minus taxes.
Marv
pigs get fat.... hogs get slaughtered
there is no 50/50 anywhere in life sometimes you do 90% sometimes you do 10%... just like giving in any relationship.. it's never equal... and you don't keep score...
I do most things on my own... but i have longterm partnerships with my BIL, my brother, and 3 of my best friends...
for me there have been very few snags... I always try to put in more and take less than anyone else...
a little of something is better than all of nothing everytime
like everything it's more about who than what you do... these are all relationships and are treated with the respect & care they deserve...
if your life can get better by being in a relationship with someone... go for it... even when things have gone bad... i wouldn't trade the times i had... you don't learn a heck of a lot from perfect times and great deals... it's the cluster $@#ucks that you learn from
pony
I'm in a great partnership myself. My point is you should always have an exit strategy available in case something goes wrong.You get out of life what you put into it......minus taxes.
Marv
Marv, warning noted.
The joint venture contains an exit strategy. In our case, we are developing one parcel. It will have a house on it. When the house sells, we are done....the venture terminates. The "profits" are distributed.
If we like what happened, we might considering doing it again. We might not. We might expand. If were really enthusiastic, we probably would form an LLC and start doing business on a regular basis.
It's kinda like an engagement period before the wedding.
I'm suggesting this for guys like Sunny who don't know what they're getting into. It limits the pain to about three or four months....or opens a door that could last a lifetime.
blue FRAMING ADVICE ALERT!!!! DON'T TAKE ANY FRAMING ADVICE FROM ME. I DON'T KNOW ANYTHING ABOUT IT. IF YOU WANT GOOD FRAMING ADVICE, JUST ASK GABE. DON'T ASK ANYONE ELSE....JUST ASK GABE! REMEMBER, I DON'T KNOW ANYTHING ABOUT FRAMING...I JUST BS ABOUT IT.
END OF ALERT!
Ingenious idea there Blue. I only wish I'd read this a few months ago. Oh well, Hopefully I won't get burned.
My new partner and I just signed the papers last week. We set up an "s"corp. To start with, we intend to build spec homes. I actually just logged into this board to start a post about my new venture when I saw this one and started reading.
My partner is young, energetic, ambitious, full of viv and vigor, and as an extra benefit; he already owns another business which is doing well enough that he is able to turn most of the operations over to his top guy while he focuses his attention on this one. I am the old, experienced guy with scads of construction acumen and many contacts and professional relationships. He is going to rely on me for most of the actual "building of the houses " type stuff, while I am happy to let him juggle the balls on the business end.
I guess I'm about to jump off into a wild adventure. I just hope it doesn't end up with me holding a cardboard sign at the stoplight :-)
Congrats to you Mark.
A lot of tradesmen don't like partners...they're all too "independent"...for their own good!
You sound like you may have created a nice fit yourself. The s corp is a good choice too, I've never been part of one however. As long as you have someone paying attention to the corporate details, its a wise choice and one that insulates you from personal liability.
I've found the key to being a good partner is to put my ego on the back burner. In my younger days I tended to be a control freak...and it got me nowhere. Now, I'm willing to do some things that might not be the best idea, simply because it was their idea.
I too like the spec home business, as compared to building a home for someone. I don't want to get involved in the handholding that goes along with contract jobs. We intend to stand it up and if you like it..buy it or get the heck out of here.
What size/price are you speccing in?
blueWarning! Be cautious when taking any advice from me. Although I have a lifetime of framing experience, some of it is viewed as boogerin and not consistent with views of those who prefer to overbuild everything...including their own egos
Additionally, don't take any political advice from me. I'm just a parrot for the Republican talking points. I get all my news from Rush Limbaugh and Fox and Friends (they are funny...try them out)!
A family member and I have formed an LLC to build spec homes, and so far so good!
Since I have a full time job, and he does interior work (trim/tile/paint/etc...), we pay ourselves hourly for whatever physical work we do on the house, and whatever's left, we split it 50/50. The homes we build are $500K+ (Chicago area), and make good money doing it. As a matter of fact, I'm at a point where I might be able to quit my full time job (software engineer) and concentrate on building.
The LLC is an excellent choice despite it's relative lack of testing in the court system. It's easily set up, easy to administer, and has the liability protection of the corporation withoout the tax disadvantage.
If you start to make too much money, or have additional capital and assets to protect, consider some advanced asset protection strategies such as holding assets in trust, using family trusts to own the LLC, etc.
Good returns for you in your new endeavor.
blueWarning! Be cautious when taking any advice from me. Although I have a lifetime of framing experience, some of it is viewed as boogerin and not consistent with views of those who prefer to overbuild everything...including their own egos
Additionally, don't take any political advice from me. I'm just a parrot for the Republican talking points. I get all my news from Rush Limbaugh and Fox and Friends (they are funny...try them out)!
Some might say we went in way over our head, but the gamble may be (or should I say is) paying off. Our first move was to buy 9 lots in a new upscale subdivision (for a cool $1.2M+ :) ), and the properties have already gone up $40-50K each (in a matter of 4+ months). I see a nice Christmas gift coming toward the banker that gave us almost $1M w/o much track record :)
BTW, our attorney did advise us to put the lots into a trust.
Edited 11/4/2004 5:08 pm ET by StanG
Stan, putting the lots into a trust is actually very, very simple once you understand what the deal is.
Treat that banker well, you'll probably do a lot of business together.
what rate you using? Which Index?
blueWarning! Be cautious when taking any advice from me. Although I have a lifetime of framing experience, some of it is viewed as boogerin and not consistent with views of those who prefer to overbuild everything...including their own egos
Additionally, don't take any political advice from me. I'm just a parrot for the Republican talking points. I get all my news from Rush Limbaugh and Fox and Friends (they are funny...try them out)!
Blue,
We did put the lots in the trust from the very beginning...
I hear you about the banker - it's nice being able to talk to a VP, instead of some paper pusher ;)
On the land, we got 18 month, variable rate, Prime+1 and 1 point origination(goes toward his vacation fund :) ), 25% downpayment. For the construction loan, he went down a quarter on both rate and origination. In the future, he promised us even lower rates.
ALL:
I hope i am not hijacking the thread but it is related. Myself and my partner, who is great, have an s corp. He has a friend that had a licence, but got into tax trouble and bond trouble. He wants to work with us because he doesn't have a licence now ( see above mentioned trouble) I asked our accountant and she said that his tax problems would be ours if he was part of the corp. He says that he is settleing with the IRS now. If that is cleared up, does anyone know wheather his bonding problems would be ours too, and if there is a way around this? He is a good, talented guy and a very good friend of my partners but if it is going to compromise the corp in any way we can't do it. Thanks for all your knowledge and for sharing it so freely!
I would think that the bond people would be able to aswer your question. Call them direct...don't rely on our answers.
I personally think it would matter.
blueWarning! Be cautious when taking any advice from me. Although I have a lifetime of framing experience, some of it is viewed as boogerin and not consistent with views of those who prefer to overbuild everything...including their own egos
Additionally, don't take any political advice from me. I'm just a parrot for the Republican talking points. I get all my news from Rush Limbaugh and Fox and Friends (they are funny...try them out)!
Blue
Thank you Blue for your knowledge. I think i will talk to the Contractor state licence Board too. The direct approach sounds best.
Sorry it took me so long to get back to you Blue. Things have gotten sorta busy here lately. We got the permit for the first house last week, so that's off and running now. My wife and I are in the middle of selling our house and moving into a smaller cheaper one. (that's never as much fun as doing it the other way around) This is part of the business move. We want to be able to live on her income alone for however long it takes to get this thing up and profitable. We are also getting ready to leave for vacation in a week. (great timing there! couldn't help it though, this was scheduled and bought six months ago. Jamaica here we come!). I am also in the middle of tying up loose ends at my job that I am quitting. This is the first time I've been on the computer all week, it's kind of relaxing.
What was that I said about a wild ride?
Thanks for the encouragement, your comment about yourself being a control freak pretty much described me. I also have managed to relax enough to be able to let some things slide even if they aren't how I would have done it, simply to help bolster my partners self image. "Just because his way isn't the best way to do it, doesn't mean it won't work just fine."
We are going to build in the 250-275,000 range. First home is a 1900 sq ft ranch. Pretty typical of what's going up in the area.
Hey, what ever happened with you moving to Florida? Are you there now? Or did you choose to stay up north?
Mark
Mark, I've got everything in Michigan for sale, but I'm not pricing it to sell fast.
My grandkids are living in Jupiter, but two hurricanes was enough for my daughter who has always been paranoid about tornados! They've decided to head inland!
They are thinking Phoenix or Vegas. Wherever they land, we'll follow.
Those hurricanes put the hurting on them and my SIL is going to do a couple of months stint in North Carolina before they make their next "permanent" move. I'll be in North Carolina for turkey day and Christmas!
blue
PS You are very wise to protect your partners self image. Don't be afraid to let a few mistakes happen even if you can avoid them. Often, it's better to let the minor stuff slide.
PSS Pick your battles wisely.Warning! Be cautious when taking any advice from me. Although I have a lifetime of framing experience, some of it is viewed as boogerin and not consistent with views of those who prefer to overbuild everything...including their own egos
Additionally, don't take any political advice from me. I'm just a parrot for the Republican talking points. I get all my news from Rush Limbaugh and Fox and Friends (they are funny...try them out)!
Blue, if you want to buy cheap head to Vegas. They've recently seen home prices drop 15-30% - across the board. Have you been to both places? Personally I think Phoenix would be a much better place to live than Vegas. Better temps (relatively speaking), better scenery, less gambling, etc.
- Rob
Im not in control of my destiny Stroke, but thanks for the suggestions/tips...I'll pass them on.
I haven 't heard anything about prices dropping in vegas....that interests me.
blueWarning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!
>>I haven 't heard anything about prices dropping in vegas....that interests me.<<
Yeah, go to the library and check out the last several issues of BusinessWeek magazine. Somewhere in there is a great article about how all the big homebuilders are lowering their new home prices by 15-25%. A realtor down there (who's been a broker in the biz for 35 years in Vegas) said it's the worst glut he's ever seen - though he's confident they'll snap out of it in 12-18 months. The general consensus is that California speculators - that bought many Phoenix homes as investments or rentals over the last several years - are now seeing their 2 and 3 year ARM mortgages going up...and that means they want to dump their home on the market because they're now paying more in monthly mortgage payments than they're collecting in rent. However there are roughly 4000 people per month moving to Vegas, yet there are something like 15,000 homes for sale at present. That's what I'd call a glut.
- Rob
Blue
Who do you get to do all the paperwork correctly? THis sounds like a good idea.
RZ
Rob, I have probably a dozen various joint venture agreements lying around here pulled from a dozed diffrent real estate investment books. They are so simple and concise that I wouldn't hesistate to use any of them to get myself involved in a singletary project. I just photocopied several and gave them to Frank to let him and the builder decide which one to use.
They really are very simple. Check with your nearest major bookstore and leaf through some real estate investment books. Real Estate is one of those industries where lots of different partnerships and entities are constantly being used.
blueWarning! Be cautious when taking any advice from me. Although I have a lifetime of framing experience, some of it is viewed as boogerin and not consistent with views of those who prefer to overbuild everything...including their own egos
Additionally, don't take any political advice from me. I'm just a parrot for the Republican talking points. I get all my news from Rush Limbaugh and Fox and Friends (they are funny...try them out)!
Blue,
I thought i would clarify: I meant who not like a person, but who as in what profession? A tax lawyer? CPA? To set up the joint venture paperwork. THanks for sharing your extensive knowledge. PS I use a speed square all the time and i kick a$$ pretty good!
Partnerships are great. I get all the materials, supply all of the tools, do all the paper work, most of the estimates and all of the product research. He shows up late (consistently), leaves at exactly five oclock, never shows up with anything more than his hand tools (even though if I buy a tool he goes and buys the same thing), doesnt have time to submit drawings for approval and always complains about not making enough money. Change is coming soon.......
Edited 10/28/2004 8:26 pm ET by MSA1
Choose a business partner with as much care as you'd choose a wife.
No more on this topic for me, too painful. Nuff said.
Wally
a wise man once told me ...
ok .. it was Mike Smith ...
there's no such thing as 50-50 ...
always better to be 51-49 ... because that's what's gonna happen anyways ...
and always better to be the 51% guy.
made sense at the time.
Jeff
I have 2 partners:
That's enough.
Hehehehe you might be better off to dump Uncle Sam!
blueWarning! Be cautious when taking any framing advice from me. Although I have a lifetime of framing experience, all of it is considered bottom of the barrel by Gabe. I am not to be counted amongst the worst of the worst. If you want real framing information...don't listen to me..just ask Gabe!