Transcript of Webinar:

All right. Good morning everyone. We're at the top of the hour. It's exactly 10 AM so we want to go ahead and get started. I appreciate the people that were able to hop on with us this morning. Hopefully, we can share some good information with you regarding partnerships. That's today's topic. We're going to be talking about partnerships, some of the dos, the don'ts, some of the things to look out for, some of the things to consider as you're going through your partnerships, you're working in current partnerships, or you're considering future partners and relationships in the business.

As always, if you have any questions, there's a question box on your right-hand side, please stick any questions in there. As I go through, I'll have periodic places where I'm able to stop and see if I can answer any questions. We're probably going to go about 45 minutes this morning depending upon how many questions we have, so this shouldn't take along. I'll try to get you off of here relatively quickly this morning.

Let's get right into it. First I'm going to, for those of you who I've not met or are not familiar with, or just joined in the group, first of all, welcome to Boston Wealth Builders if you're just joining. My name is Willie Mandrell. I'm one of the organizers of the group, and today I'm going to be the presenter as well.

A little bit about me, I've been a buy and hold real estate investor since 2006. I bought my first multifamily then, just been buying and holding properties since. That is my primary focus. I've done most of the things I've done on my own, but in recent years I've had to leverage myself out a little bit and start using partnerships. Learned a lot over the last few years working with other people and building relationships and learning, and we're going to talk a little bit about that today.

My primary focus is the Buy and Hold business. I do condo conversions here and there and dabble in a couple of different things. I also own a real estate brokerage, The Mandrell Company, our focus is the investment property business working with landlords, working with new developers, working with new people that are just looking to get into the multifamily space and learn a little bit, and then again, the founding member and one of the organizers of Boston Wealth Builders which you are a part of today.

So a little bit about me, and then like I say, we'll jump right into today's topic. If you have any questions ... I see a few more people have hopped on. If you have any questions, please throw them in the questions' box as we go along, and we'll stop periodically to see if we can answer those for you.

What are we going to talk about this morning? We're going to breeze through it pretty quickly. The 10, actually there's 8, excuse me, so 8 topics we're going to discuss this morning about business concerns or partnerships' concerns.

Number 1 is Your Team Value. What do you bring to the partnership? We're going to talk a little bit about kind of stepping back and evaluating, what do you bring to the table? What do your partners bring to the table? The reason that's a concern is that not every partnership if there are two people, not everything should be broken up necessarily into a 50/50 split. If you're bringing a lot more to the table or a lot less to the table, then maybe there's some negotiation there about dividing up that 70/30 or in another method.

So Roles and Responsibilities. One of the things that I've won't say struggled with, but one of the things that I didn't pay as much attention to as I should have in the beginning is breaking down roles and responsibilities. At the beginning of partnerships having those tough conversations right in the beginning.

Then your Business Goals. We're going to talk about business goals, and it seems silly. Most people would say, "Well, my business goal is to make money." There are so many other different goals and variations of that endgame, and I didn't realize that, again, until I got into it and started talking about a timeline and everything else. So we're going to talk a little bit about that as well.

Do you have a similar work ethic? I've had some great partnerships. I have some existing relationships that are just terrific. I've had some failed partnerships, and one of the reasons that the majority of them fail in my opinion is for two reasons. One is, like I said, I pride myself on my work ethic. I put in a lot of time, and when I commit to something, I really go after it, and that's not always the case for some people. So you have to look at yourself and look at your partners and say, "Do we have a similar work ethic and is this going to work out?"

There's a lot of excitement on the front end, a lot of, "Yeah, let's go ahead and do this. Let's build this house. Let's go into this thing and buy this piece of property and rent it out," but taking a step back and really evaluating where you fit in, and where your partner fits in is key.

Great Communication. You have to be a great communicator. One of the things that we're going to talk about is having those tough conversations. A lot of people hate controversy. They hate to poke and prod and ask the tough questions, but if you ask them on the front end, you won't have to have an attorney ask them on the back end.

The Best Legal Structure. I am not an attorney, but we're going to talk to you a little bit about how I set up my stuff and if you have any questions there, I can help you as much as I can. But again, some of those, I'm not an attorney so when we talk about specific legal structure, we'll have to refer to somebody with a law degree.

What do you do when trouble comes? And then planning for the future. As your partnership works out, it's a year, it's two years down the road, what happens? Are you still on the same path? What are the things that you run into five years down the road, 10 years down the road? And can you continue to get over those hurdles and continue to work together?

So those are the 8 topics that we're going to go to, excuse me, not 10.

We'll dive right into it, and we'll get into our first topic is, what do you bring to the table? I've had, in my experience several partnerships, quite a few partnerships. I tried to do things with friends. That's always the first case as we try to say, "I have a friend, he's in construction, or she's an electrician, and we're going to partner together, and we're going to ..." That's a great thought, but you really have to step back and think about what does that person bring to the table? What do you bring to the table? There's a lot of different aspects of it, right? We're talking about real estate partnerships here.

There's the financing aspect of it, and we talk about flips in general or buy and holds or whatever it may be. You have your primary banking financing. You might have some private financing in there. Do you have cash yourself that you're putting into the deal? Does your partner necessarily have that same cash to bring to the deal? Do you bring some type of construction knowledge to the table? Do they? Are they an electrician? A plumber? A general contractor? Or have they just run other jobs before, and they familiar with that?

Again, taking a step back and writing all those things down, and assessing what each partner brings. Are they a marketing professional? Are they out there finding the deals? There's a good value in that as well. Some of the partnerships that I have were 50/50 split, although I financed the deal and ran the construction, it was an excellent deal that was brought to the table or brought to the partnership. So finding the deal sometimes if you're excellent at going out there and marketing and talking to sellers and putting deals under contract, that could be a very valuable skill as well.

Are they in the real estate business? Do they have a good grasp on the market, and the knowledge that you need to end up selling these things, or renting these apartments out or whatever it is that you're doing? But are they in the sales business? Are they a realtor? Do they have that specific local knowledge that most people don't have?

And then stepping back and looking at all that, and saying, "Okay, I'm a realtor. I financed the deal." Maybe it's not a 50/50 split and those are the tough conversations that you have to have on the front end, because if not, what you run into is, "Wait, I did X, Y, and Z, and you participated just A, B, and C," or whatever it may be. Those are the reasons that most partnerships work out is because you're not having those conversations. Don't work out, excuse me, because you're not having those conversations on the front end. So taking a step back, looking at what each partner brings to the table, and assessing where you are and whether it should be a 50/50 split or a 70/30 or a 60/40 or whatever it may be, and hopefully, that makes sense to you guys.

Who does what and when? Who does what when? The next thing that I've run into trouble with over the years is not, again, having those tough conversations right from the beginning. There's a lot of excitement. We found a deal. We're ready to get into it and let's just go and let's just get it done.

It's very important in a real estate partnership, or in any business relationship, that you talk from the beginning about who's going to be responsible for what? What are your roles and responsibilities throughout this partnership? Is one person going to be doing the financing, and are they going to be talking to all the lenders? If it's construction project, meeting the lenders onsite, communicating with your private money people about the progress of the property, and when they're going to be getting their funding back, and everything else.

Who's going to be onsite? Who's going to be managing the property, managing the Manager. Even if you have a General Contractor, a lot of people fail to see that. A General Contractor, you can't just hand them a check and walk away, and six months later the property is rehabbed and ready to go. You really need to be onsite, paying attention and making sure that they are executing your vision on that site as well.

I'm in a partnership right now where my responsibility is more the back end. My responsibility is to make sure that our funding is secure, to make sure that I'm communicating where we are with the banks, while, as I said, I'm not the main person responsible to be onsite because I live a little bit further away, and that was one of the tough conversations or not tough conversations, we had it. But one of the things we had to talk about in the beginning. It's like, "I'm not going to be onsite all the time, but I can do our bookkeeping. I can do our accounting."

We're collectively making the design decisions. That's another thing. Do you have a good grasp on, is it high-end fixtures that you're going to be using? Is it some of the ... Was it Home Depot and Lowes and some of the more expensive or less expensive stuff? So having that tough conversation about who has an eye for that type of stuff? It might not be an eye, maybe it's just a certain standard that you want to go through and just having that conversation on the front end.

When it comes down to hard decisions, when it comes down to two people in a relationship that just don't agree, the hard decisions and the final decisions, it might make sense to have the conversation on the front end of your partnerships about who's going to make that final decision? If it's three people in a partnership, then maybe everyone has a 1/3 vote, and two people are going one way, and somebody goes somebody else, and they just get outvoted. But who makes that final decision when it's just those two people? That's probably something that you should talk to.

Maybe when it's a budgeting thing, it's whoever's handling the budget and the financing, and when it's a design choice, the cost is the same, but it's more or less the color, maybe it's the person that's onsite and spending more time. The hue doesn't really matter. 

There's no right or wrong answer, it's just you have to make those decisions on the front end before things get sticky. And that's, we're going to talk a little bit about what happens when trouble comes, but trouble tends to resolve itself when you've had those conversations on the front end. You worked out and, like I said, you really dive in and did your due diligence and kind of, before had the foresight to see all the problems that could come in on the front end. Things tend to be a lot smoother down the line.

What are your partnership goals? Most people would say, "Yeah, it's just, I want to make money. I want to buy and hold. And I want to become wealthy." That's very generic. When I say partnership goes, I mean specifics. You really have to ... And one of the ... I've been, for those of you who know me in or for those of you who don't, I'm 35 years old right now. Been in the business since I was 23. I've have it, like I said, there's been a lot of people I've bumped into and had to try to form relationships and do and had partnerships.

In my mid twenties or late twenties, good friend of mine, he's an older gentleman, he was at the time, I think late fifties, early sixties, we tried to get into a real estate partnership together. And one of the things that we failed to talk about right from the start was timeline. And what do I mean by that? I was in my late twenties. I was investing for the long haul. I was investing for 10, 20, 30 years down the line. There was no intention of me selling. When we went to go buy a property, I was, my intention was to go in there and we were going to own this property. Or do a ten thirty-one exchange and put that money ...

Whereas he was a little bit older. He was thinking, and we didn't have this conversation until it was too late, that hey, we were investing for two to five years down the road. He was planning on cashing out and using those debt funding for his retirement. So we were in this property or in this deal together where our timelines didn't really match up. So that's one of the things that you really have to talk to your partners about or your partner is, are we on the same page in terms of our goals, in terms of timeline?

Commitment. Do we have the same time commitment when we're putting into your partnerships? I guess the easiest way to kind of explain this is through an example. If I'm, again, 20, 25, 26, no kids at the time, I'm willing to put in 70 hours a week. Whereas my partner has three children at home, wife, a couple of mortgages. They're heavily involved in the church, heavily involved in the community. Whereas he's looking at putting in 10 hours, I'm looking at putting in 30 or 40. We didn't have that discussion on the front end. And those are the types of things where resentment starts to form. I'm primarily on the project, doing all these different things, running around. And while I respect the fact that you have a family and your involvement in the church and everything else, like I said, it's just not sitting well with me and it's just not fair. So those are the types of things you have to talk about on the front end as well.

You're also investing for different things. I mean, we, one of the other things that I've run into over the years, my partner, we buy a property together. Everything goes well and we get a little cash flow. And let's say we have twenty or thirty thousand dollars in a bank or whatever it may be. And we want to go and reinvest that money now. One partner may say, "Well, yeah, I want to go and reinvest in something for cashflow." Another partner's, "Hey, I want to go and reinvest in something that looks, has a little bit more appreciation opportunity." So when you get into partnerships, you really need to talk on the front end. What are we getting into this for? Are we getting into this to generate short term gains? Are we get into this for longterm gains? Is it cashflow? Is it appreciation? And really just understand your partnership's investment goals or your partner's investment goals right from the start. Those are one of the, definitely, one of the conversations that you really want you to have.

One of the things I've also run into over the years is you have that same scenario where you build up a little cash in the bank and you've got twenty, thirty thousand dollars. One partner wants to go out and leverage that money again and say, "Let's go buy the next property." Where one side of the equation is saying, "Well, no, let's go put a new roof on this property or improve and change the siding or improve our existing investment." So again, it's hard. It's very difficult. I know some of you are probably thinking, how are we going to possibly have all these conversations? You're probably going to scare your partner out of the relationship right from the start. But as your partnership evolves or you bring on new partners, these are the conversations, these are things that you have to consider as you're forward.

Do you share the same work ethic? And we just talked about that, briefly. Work ethic is important and, I mean, there's no really, there's no real way. It's not like you can say, "Hey, what's your work ethic? Is it a six? Is it a nine?" Or whatever, but I mean, I would encourage you to have or go into partnerships where you have some type of history with that person. If you're meeting somebody that's relatively new and you share a same, a similar passion, that's great, but you really want to have, in my opinion, some type of history with that person and understand the type of work ethic that they have. Have they been successful in other projects?

Have you seen them kind of ... One of the things I noticed that there are a lot of people out there that work hard, so in conjunction with work ethic is focus as well. I know a lot of people that work really hard and they have a really good work ethic, but they lack focus. They're involved in nine different projects. All of them are 25 percent complete. They never really seem to finish anything. They're always working. They're always working diligently, but nothing ever really gets done at the end of the day. So you want to make sure that your partner is someone who not only has a great work ethic, but also has the focus to actually, or a similar focus to you, to actually get things done at the end of the day.

Being a great communicator. This is, again, having those tough conversations and being able to articulate your gripes, your resentment, your whatever it may be or your worries or whatever, in a way that your partner can understand at the appropriate time. Anticipating problems before they come up. Seeing kind of having a little bit of a foresight, looking into the future and like, "This is going to be an issue. Let's talk about it now before it gets out of hand." Or, "Hey, I just realized I'm uncomfortable with the way that X, Y, and Z is going." Most people are, they steer away from tough conversations.

I read somewhere success is measured by the number of tough conversations or hard conversations that one is willing to have. And I find that to be true. It's, there are a lot of times where I'm put in a position where I have to terminate a relationship, I have to fire an employee, or I have to break away from a partnership. Or everything is going smoothly and some new information is introduced and I have to back away because the deal no longer makes sense. Those are really tough conversations to have.

But think about, I mean, think about the opposite side of it though. Think about the, "Hey, I keep that employee on for another six months and they don't want to be there." I mean, I don't want them there. They don't want to be there. It's just not a good situation for anyone. So I have to have that conversation. That tough conversation and let them go immediately. Or I'm in a partnership or relationship where I'm like, "This doesn't make sense financially." But I don't want to have the tough conversations, so I'm going to continue to go down the line and a lot of people do that. If you want your partnerships to work, often, I can tell you guys that very often the other person, or the person on the opposite end of the equation is also thinking the exact same thing. It just takes the courage of one of you to initiate that conversation. And just go ahead and dive in. And often it ends up being a much smoother conversation and there was a lot less worry than you thought.

And the second side of that is to document as much as you can. I try to do everything through email and then, I'm in several partnerships right now and when we're communicating about money or site work or whatever it may be, we're trying to do it through emails. So there's no he said, she said. There is, "Hey, this is exactly what we put in the email and this is exactly what we're going to go off."

I mean, if you're going to do things through text message, often if it's involving money ... Sometimes my contractors text, call me up and say, or text me and say, there was a change order and it's going to be $2,000 more than what our original bid is. I'm going to make sure that I screenshot that text message on my phone and I'm going to save it. I'm going to put it into a file somewhere. HR Ventures who you guys are probably familiar with. They do a lot of great stuff. They use a great system. I can't remember the ... Buildertrend. And Buildertrend keeps documentation of all of their communications with subcontractors and communications and change orders and everything else like that within that system. So document as much as possible, making sure that things are written down. That things are in an email communication where it can be captured.

The other side of it is not all partnerships work out. Sometimes people get angry, sometimes people you said this, you didn't do that or whatever it is. If you have as much documented as possible, it's a protection for you as well if things get ugly, if things go to court, if attorneys are involved. You want to make sure that you have as much as possible documented.

So one of the things I know that people like, "Well, what if I'm on site and I'm having ..." Anytime I'm on site and I have a conversation, a very detailed conversation with a contractor or a partner or whoever it is ... I also, I'm like, "Hey, when I get home can or when you get home, can you also summarize or give me a quick ten bullet points of today's meeting?" To make sure that they interpreted everything that we had talked about earlier in the same way that I did. So I'm saying, "We've had this conversation verbally. You're shaking your head. I'm shaking my head. It seems like we're in agreement, but I still, just to make sure, when you get home this evening or when I get home this evening, somebody's basically going to send a summary to the other person about the things that we discussed today." And then I want to hit reply, "Yes, this is exactly what we discussed. Let's go ahead and make it happen." Or vice versa. If that makes sense to you guys.

So just being ... One of the things that I've learned is you can, enthusiasm is great. Work Ethic is great. There are a lot of hard working people. I imagine that most of you are hardworking people since you're, like I said, you're waking up at 10:00 on a Saturday or you've been up already and you're hopping on this and trying to improve what you're doing. The work ethic is there. Communication is the one thing that most of us fail at or suffer with. And we're not necessarily good communicators or born as good communicators. So it's one of the things that I've tried to work on and I encourage you to work on it as well. I've read books, I watch YouTube videos, as much as I can. And just try it again. Have those hard conversations and things will work out and hopefully that makes sense.

Legal structure. Again, I'm sure there's gonna be some questions on this. I'm not an attorney. What I can tell you that is-

, what you want to do is have that conversation with your partners, have that conversation whoever you're going to be in a relationship with. Document as much as you can, talk about the details, hire an attorney, and then everything into a contract. I do the majority of my stuff in an LLC, a limited liability company, own quite a few of them now. I can tell you that the limited liability company it's actually structured, so it's exactly what it sounds like. It limits my liability and your liability from one entity to the next, so each of my limited liability company or LLC has its own tax ID, has its own entity, its own structure. If I have an issue with 123 Main Street, it does not affect 456 Main Street.

The reason we do that is I own ... I'm 50/50 partner on 123 Main Street with one individual, and I also own 456 Main Street as 70/30 partner with another individual. If I have issues at 123, I don't want to have them affect me over at 456, if that makes sense to you, right? So you're limiting your liability. They're separate entities all together, two separate people, you can almost look at them like. But in terms of our discussion with partnerships, you really just want to have as much documented in an agreement with an attorney, both parties sign.

The reason you want to have an attorney is if you're first getting into the business, you think attorneys are unnecessary, they're really expensive. I can tell you this, court fees are very expensive as well. If you hire an attorney on the front end to do your contract, let's even call it, 700, 800, let's call it a thousand bucks to put a contract together, ask you a series of questions, making sure that you're documenting everything, anticipating all the things that can go wrong, putting it into a contract. I can tell you that that a thousand bucks that you spend is minuscule compared to what you would spend in court defending yourself or when somebody attacks you on the other end or your partnership doesn't work out.

Like I said, I would do my ... Do your due diligence. Anticipate the things that can go wrong, have a little bit of foresight, really drill in and have those tough conversations with your partner, do a little bit more research about the business, talk to an attorney and then put everything under contract. And then again, whether it be corporation, an S corp, and LLC, you can decide that, and LLP, a limited partnership. You can decide that with your attorney based on the things that you discussed with your partnership and with your attorney and what they decide is best. But again, most of my stuff is very simple and held within a LLC.

What do you do when trouble comes? What do you do when you're talking to your partner and you guys just can't get on the same page? A lot of times we, as people, we take hard lines. We feel attacked. We're trying to defend ourselves. I mean, and this is just a basic thing, but I mean it's ... You would think that most people, this is kind of something you don't really have to tell people, but I put it in here because you often do have to tell people this.

If you're in a tough negotiation or if your partner is asking for more money and you don't feel like they deserve it or they're trying to ... I often try to take a step back and walk in my partner's shoes or walk in the other ... I mean, I do this through the real estate sales side as well. I'm in a tough negotiation with another broker. I'm trying to look at it from their point of view. I'm trying to look at it from, if I'm representing the buyer from the seller's point of view. This goes back to the communication, just being savvy and saying, "If I'm on the other side ..." Again, I'm trying to win for myself. I'm trying to win, win, win, and just continue to do what's best for me and my family.

While I understand that that's not always going to get you over the hump and it's not always going to smooth things over and it's not always the best way to look at things. Sometimes you have to take a step back and say, "If I was on the other side of the equation, how would I be viewing this? Well, yes. My partner does bring contracting experience and has been on the site more than I have, and has a lot more experience and has been able to beat up our contractors and get them to ... Maybe, though that I feel like I've been spending a lot of time on the books and everything else, maybe that person does deserve a little bit more equity split or whatever there is they're asking for.

But the point is, to always, when trouble comes, take a look at the other side, see what you can ... If you were in their side, would you still feel the same way? Would you still be asking you for the things that you're asking for? Would you agree to it? And hopefully that makes sense. It's a little tough to articulate, but always taking a step back, walking the other person's shoes, and I tend to ... You find that it tends to smooth things over a little bit. And if not, then that's what attorneys are for.

Last, but not least, you want to think about the long-term. And partnerships in business, I think, the statistics say the average business doesn't last more than five years or somewhere along there. I am pretty sure that that's probably just all businesses in general. I'm pretty sure when there's multiple cooks in the kitchen, they probably last even less than that. It's difficult when you have a lot of people making decisions and two people ... I don't know if you have any more partners than that. You do tend to have a lot of cooks in the kitchen and I'm pretty sure they feel more often.

But let's talk about when they succeed and you're three years into the business or you're 10 years into the business, these are the things that you probably didn't talk to your attorney about initially. You didn't know whether this was going to be successful. You didn't know how long you were going to be in the business. Now that things are moving and you're profitable and things are happening, you have your CEO and your CFO and things are kind of ... You understand. Now, there are some other things that start to pop up, right?

We're currently running this business in Boston right now, but one of our partners wants to move to California. Well, what happens now? They can't be on site from California. They don't really ... The things that they brought to the table initially, it doesn't necessarily hold now from the other side of the country, right? Life changes. That person was putting in 40 or 50 hours a week and it was great at the time, but now they're pregnant with their third child and now they're putting in 20 hours a week. Those are the things that we want to anticipate. The growth of the company.

When do we hire new employees? Or, right now we're both working 70 hours a week. How do we hire somebody else to take some of the load off of our plate? Or we're growing and it's kind of ... Do we take on additional partners? And what percentage of equity do they get? One of the most important things, or like I said, I hope I spelled that last word right. I know somebody is going to be on there like, "Yeah, no." But death and incapacitation or incapacitated, now I hope that I'm pronouncing it right. What happens if one partner dies? Is there a clause in your contract that where ... There are a couple of things that can happen.

Does the remaining partner or partners take over the entire business? Does the equity of the old partner move to the family? Or is that an inheritable asset or an inheritable part of the company? Is there a buyout opportunity for new partners to come in? One partner wants to move to California. Is there an opportunity for me and the existing partners to buy that partner out since they are no longer able to produce something for us? It gets a little bit more sticky. Just starting a partnership is one thing. Having a successful partnership and especially when it's in a business that's ongoing. If you're basically just flipping homes, that's one thing. It's like every six months you shut down the LLC or you shut down the business and move on. Or maybe you're flipping homes all within that one LLC, depending on how you structure it.

But if you have something that's ongoing, something that's building and something that's growing, it can get very difficult if one person is at a position, or a health position, where they can no longer make decisions on their own. In most families, there is somebody designated as what's called a healthcare proxy. They're making decisions for that individual or they have a power of attorney and they're making decisions for that individual [inaudible 00:33:31]. Does that spouse, or whoever that other person is, now also make decisions within your business? Are you now, if that part of your business is inheritable, are you now making business decisions with the child of your old partner or the POA of your old partner who doesn't necessarily know anything about your business?

Those are all the things that you have to think about, discuss, as things go on and if you have those hard conversations, I know death is morbid, most people don't want to talk about it, but it's a real part of life. We're all going to meet our end at some point, so you have to talk about those things. It could happen tomorrow, it could happen 20 years from now. It could happen 50 years from now, but at some point, like I said, if it's tragic and it does happen in a short time, or something leaves you incapable of making decisions, does the business fail at that point? Or does it continue in a successful manner?

That's my time. Hopefully, this was helpful. It was a very short one today, we're looking at 10:35. I'm available for another few minutes if you'd like to talk about some questions. I mean, if it's not partnerships, we could talk about anything real estate related, while I have you on here. I don't see any questions in the question box at the moment. But if you have something, I'll be around for a couple minutes. Again, hopefully this was helpful for you. It was really quick one today, and hopefully, like I said, we were able to explain some things to you that at least get you thinking about some things that you weren't already thinking about.