What might be the various options in building spec houses jointly with a partner? Both parties have tools and expect to do a lot of the work, hiring independent contractors to do the specialties. Joint ownership of the land and finished real estate? Joint checkbook? *Silent partner* option, with no joint ownership, just financial contribution?
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I was reminded of the answer that I got a long time ago from an old developer. The only places you need a partner is on the dance floor and in bed."
I've never heard from anyone who liked a partnership for long.
And the reality is that a silent partner, when he is the money source, is never silent..
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius
I have been in a partnership for 23 years. Currently three partners and we have had two previous buyouts. I think it is a great way to work and keeps the responsibility side of the business from eating you up. The key is that you have to trust your partners more than yourself. If you can't do that, don't join the partnership.
enlighten me, what is a buyout in a partnership?
I can see it working better with more partners like this..
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius
How about one owner, probably the one worth the most, and one really well paid employee. No worries when it comes time to break up, just pay up to current and say goodbye. Unless the two are so different that the division of labor is obvious, I got to believe that there will be hard feelings sooner or later. If the setup paperwork seems like to much trouble to do right, just think about how much trouble dividing it in the middle of a project will cause. Good luck either way.
Dan
Technically it is not a buyout, but when one of the partners wants to leave the business, the partnership has to disolve and the assets are distributed to the partners. This can cause the business to end as well if you don't have enough cash to pay the departing person for his share of the assets. Our partnership agreement uses the current book value as the basis of the split. In one situation we added extra money to partly compensate the partner for work that we had in the pipeline. We were not required to do it but felt it was fair. The guy leaving was very appreciative.
I've dissolved two partnerships. Both times going in we had a BUY/SELL agreement. One partner names a price and the other decides whether he wants to buy or sell at that figure.
Primary concern on partnerships according to my neighbor who as been in 3 selling cranes is "How to get out". Spend lots of time on that side of the contract. It gets ugly when the partners lose that rosey glow of the new relationship.
Amen to all of the replies. If you do strike an agreement, think of it as being there for the invetable divorce, not the marriage.
I tried it for a while, but I think you and your partner have to have some very sound similarities, like ...
What are you in it for? Is it to make money, or is it a labor of love and self-expression? Same for your partner (OK), or different (not OK)?
What's your work ethic? Workaholic or 8-4:30 w/ a coffee break and lunch? Both are OK, long as you both see it the same way.
Do you like to separate your work from private life, or so you want to share it all with your partner, and vice versa?
Does your partner (I know you don't) have any annoying little habits that are "funny" now, but will drive you buggy in a year?
Are you global or analytical, meaning are you into the "big picture" or the little details of the business and the work? Actually, one of each here can be a good thing ... the two of you cover the bases.
If you work hands-on together, are you really compatible? An example ... if my "ex" and I ran into a problem or made a mistake, my slant was to get it corrected with as little fuss and lost time as possible and move on. His was to ask how it happened and spend a (big) chunk of time ruminating over it, while the meter was running, before getting on with it.
Just remember that, just like with your high school girlfriend, everything is wonderful and perfect on a part-time basis. After you're married, you might find that the way she clears her throat, or squeezes the toothpaste tube, or whatever, puts you over the edge. Just be sure to sort it all out first.
BTW, it's me (alone) and the subs now.
I find that these deals work better if one person is in charge of construction and devotes his time to that; and a second person with money contributes that. Trying to apportion two people's time is impossible and one party is likely to consider any such arrangement unfair. E.g., I worked harder than you did, I should get more money.
If you must apportion time and work (e.g., both of the partners are contractors) then delegate specific functions to each partner, like grading, foundation, rough framining, plumbing, HVAC, finish carpentery, etc. You will have to anticpate if the time and work is going to be done by the partner or merely subbed out.
The deals I have done are in the form of an LLC. Land is jointly owned, or if one party owns the property in question, that party deeds it to the LLC, or gives the LLC a trust deed/mortgage on the PIQ.
See a lawyer who is familiar with LLC Operating Agreements and have it formed and drafted professionally. You will only need this if the deal really succeeds or really fails. The cost is probably only about $1,000 to form the LLC and another $500-800 for the LLC Operating Agreement.
Boris
"Sir, I may be drunk, but you're crazy, and I'll be sober tomorrow" -- WC Fields, "Its a Gift" 1927
Thanks for the information, "Boris." I like the parts about the apportioning of the work items according to talent and interest. Do I presume that this is delineated in the operating agreement part? What are some of the highlights of a typical agreement?
See your lawyer. The operating agreements I use are 36 page jobs. The include a construction budget, provisions as to member's capital accounts, provisions for capital calls and distributions upon sale, payment of bank loans and real estate taxes, administrative matters such as removal or addition of new members, devotion of time, accounting for expenses, banking and check writing, distribution of profits, tax treatment of capital contributions and disbursements, transfer of interests, disolution events and rights, accounting, insurance, default, and the like. You are apt to spend several thousand dollars doing the first one, and thereafter, it is cut and paste if the parties are the same and the only difference is the property.
You really need to see a good real estate transactional laywer and have this done.
Regards,
Boris
"Sir, I may be drunk, but you're crazy, and I'll be sober tomorrow" -- WC Fields, "Its a Gift" 1927
I've been in two partnerships, and the one idea I think is most important to consider is: Don't. Even though I hold both of my former partners in high regard, each time was was one of misery and stress for me.
That said, I've seen partnerships that worked very well. Just be sure you're compatible.Andy Engel, The Former Accidental Moderator
I've seen partnerships where the partners were compatable when they started out, but became less compatable as time passed.
While partnerships are not my cup of tea, just ask my wife ;-)
my best friend gets in them ,real estate related, and is happy and has made an obscene amount of money...I think it depends on how you personally operate, and maybe, how many precription drugs you can access...but, I'm thinkin' it's a personality thing. If I had one that fit it, I'd go for it. It's okay, I can fix it!
Andy
Me too. Two partnerships with good people. Dissolved within a year of each one. Costs money to dissolve it and lots of headaches. What my lawyer told me was that if you need to do that, dont be partners, be associates. Its a lot easier to walk away and you wont owe money to the suppiers if your associate over buys on his own under the partnerships name and walks, which happened to me once. He ran into real bad times and walked. I was stuck with his bills.ugh. This is why you see so many businesses that say "So and SO Associates".
Be well
Namaste'
AndyIt's not who's right, it's who's left ~ http://CLIFFORDRENOVATIONS.COM
So how is an associateship set up and how are taxes handled?.
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius
Piff
I never went into biz with anyone after those two breakups so I don't have accurate information for you as I never needed to know. It was just what my lawyer told me. YOu'll have to ask SHGLAW. My thoughts are that when your an associate its the same as having two separate legal businesses and yet you work together. One screw up on either side of your agreements and you can just walk away. I don't know the exact law regarding specifics. Sorry.
Be well
Namaste
AndyIt's not who's right, it's who's left ~ http://CLIFFORDRENOVATIONS.COM
Oh? Well, I've got lot's of associates then!.
Excellence is its own reward!
"The first rule is to keep an untroubled spirit. The second is to look things in the face and know them for what they are." --Marcus Aurelius
UOPM
Thats whats worked the best for me in the past. Use other peoples money!Investers.
If you think marriage can be a difficulty then try partners. Some may be lucky but mostly from my experiances and what I see others go through most arent lucky. I kind of think its just an excuse. Like having someones hand to hold. You certainly can make more money alone and subbing out the work. Why would a partner work for less then a good sub? In theory it makes sense but in reality from my own experiance I made a whole lot more dough doing it alone with far less sleepless nights.....using other peoples (investors)money.
. Either way I wish you the best of luck and keep us posted
PS....one other thing. If you do deciede to become partners I might suggest becoming "associates" instead. Sure is easier to get out of that contract then it is to get out of a partnership in a whole lotta ways. Been there, done that.
BE well
Namaste
Andy
It's not who's right, it's who's left ~ http://CLIFFORDRENOVATIONS.COM
Edited 11/8/2002 8:10:47 AM ET by Andy Clifford(Andybuildz)
Clarity in division of duties is another issue that you will want to have hammered out (other postings have touched on this). I'm in a partnership that is currently working quite well. We have complimentary abilities, there is a distinct clarification of duties and neither one of us gets too worked up when things don't go well. And they don't always, so this is a very very very important part of the arrangement.
And all the marriage allusions are extremely appropriate. If I could have kept the philosophical attitude I have in my business when I was married, I might still be married... Then again, maybe not. My partner and I worked for the same person for a while before starting our business, our "dating" period. We already knew each others carpentry abilities and work ethic. We knew we had compatible personalities. Just like a marriage, this isn't always enough, but so far for us it has worked out. We've been marr...er... in business for almost two years now.
Make sure you don't take the marriage thing too far, though. You don't want to be giving your partner a kiss at the end of the day and expressing your love. Then again, I guess I don't know you, maybe you do want that.
Good Luck. It's definitely an adventure.