This article was posted on Tuesday, Oct 01, 2013

My personal investment strategy has constantly changed over the years as I’ve discovered what works, what don’t and how to “tighten up” my deals to maximize cash flow.  I’ve always felt that investing alone is better than splitting the pie and sharing my profits!  However, I’ve had several excellent partnership ventures over the years and I must tell you, when they work, you can achieve your financial goals many times faster than doing deals alone!  But remember, I said WHEN THEY WORK, that’s the tricky part – don’t ever forget it.

There is only one good reason I know of to take on an investment partner.  It’s when you don’t have enough financial horsepower to do the total deal by yourself.  In other words, you need some help!  Most often, it’s financial assistance you need.  However, there might be other legitimate reasons.  We’ll discuss a couple as we go along.  Equity sharing and time share contracts are two examples of partnership investing.  Both arrangements are specifically designed for investors who can’t purchase the whole “enchilada” themselves, or at least they don’t think they can!

Selecting a Partner for the Right Reasons

If you are fortunate enough to choose the right kind of partner and make it work – partnership investing can speed up your financial plans and help you reach goals much quicker than investing alone.  However, the downside of selecting someone who doesn’t work out can be a serious setback for even the best of plans.  You must not take the selection process lightly.

Partnerships are like marriages – there are some good ones that last a lifetime and many that don’t last till they’re paid for!  Like marriages, partnerships stand a much better chance of working and lasting if the partners are selected for the right reasons.  When I talk about partnership investing, I’m not necessarily meaning you should form a legal partnership.  I’m talking co-ownership or two investors owning real estate together for the purpose of making money.  One of the biggest reasons that small-time investors end up filthy rich is because they learn how to use the powerful law of leverage.  It is written that the Greek mathematician who discovered leverage once claimed he could lift the entire world all by himself with a long enough lever and a place to stand.  Real estate investors can do exactly the same thing with the assistance of other people’s money or physical skills.

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Many small investment partnerships are created almost entirely on the basis of friendships between people who work together, attend the same clubs and churches or perhaps enjoy the same social activities.  Regardless of what mutual involvement brings folks together initially, partnerships founded solely on the basis of friendships are most likely doomed to fail from the very start.  No matter how compatible people might seem to be as friends and social acquaintances, almost always they will change when their personal money becomes involved. The selection process is without doubt the most important consideration for developing a lasting and profitable partnership.  Individual needs, contributions and skills must be considered and balanced effectively, but the selection process deserves by far the most thought.  It’s much too important for quick decisions or snap judgments.  Get rich schemes with little thought are generally predictable failures from the very beginning.

Partners Needn’t Be Best Friends

Contrary to a popular myth shared by many, investment partners need not be good friends to be successful partners.  It might help getting started, but it’s simply not a requirement.  Obviously, enjoying the same social activities has nothing to do with a profitable real estate partnership.  My number one consideration for establishing a strong and lasting partnership has to do with my own SELF-INTEREST.  Do I really care if my investment partner gets rich?  I certainly do but only on the condition that I get rich too!  If it sounds like Greed Provides the Need, then so be it!  Let me caution you here, don’t let your mind wander or overact!  Just think about what I’m telling you.  Later on, I think you’ll understand why partnerships work best with this kind of thinking.

My “no compromise” business rule for finding an investor with money when I need financial help is the same rule I use for landlording.  I call it my 60/40 rule.  It means I’m willing to give more than I take!  Here’s the way I apply it to partnership investing.

I’ve always felt that broke investors should be willing to give up at least 60% of the partnership benefits in order to attract the money.  This means if I’m the broke partner, I’ll be content with taking 40% of the deal for myself.  Always ask yourself this question about the partnership.  Who could most likely make it on their own – THE PARTNER WITH THE MONEY OR THE ONE WITHOUT?  Don’t over-analyze my question!  I think it’s clear, considering all things equal – the party with the money will always have a much greater opportunity than the one who’s broke – wouldn’t you agree?

Partnerships Can Solve Your Money Problems

Developing partnerships to pool individual resources, knowledge and experience can provide an excellent vehicle for acquiring wealth at a much faster pace than would otherwise be possible.  I’ve discovered that in most successful partnerships, the partners themselves will often have very little in common with each other except their desire to make money together.  Sometimes an accountant will team up with a carpenter or handyman.  A doctor might select a contractor, or a school teacher with extra hours and mechanical skills might work very well with a real estate broker.  Sometimes the best way to find investment partners with the particular qualifications you need is by advertising with the HELP WANTED ADS of a local newspaper.

Many folks would like to create a profitable partnership, but don’t have any idea where to start!  The first thing you must determine is – what can you provide to the partnership!  Will it be INVESTMENT CAPITAL, YOUR TIME or the SPECIALIZED SKILLS you possess?  Write it down on paper and then advertise for a partner.  There are many people looking for what you have to offer, but they don’t know you exist so they can’t respond.  You must “speak up” and let them know!

The biggest problem I’ve observed about small investment partnerships is that almost always they’re engineered or thought up by the partner who doesn’t have any money!  This person has all sorts of wonderful ideas, but in order to make them work, he must find someone with a few bucks in his pocket.  The typical arrangement I see is where one partner is asked to put up hard cash and the other is supposed to contribute an equivalent share of personal service.

I don’t’ know how you think, but let me say this about myself – I’m very skeptical about anyone who proposes a joint venture using my money, while risking only personal services themselves.  My first question to anyone who proposes using my money goes like this.  If you’re so smart and if your ideas are so good, then why is it I’ve got the money and you don’t?  There are several good answers to this question, which I would consider reasonable and acceptable, but unless the question gets answered to my full satisfaction, I will not consider going forward and neither should you!

The Courting Period Requires Honesty

The biggest mistake no money partners make in trying to entice a money person is to over-sell and quite often, overstate the benefits the money partner is supposed to receive.  If I were to show you all the proposals offered to me, and if we added up all the profits I’ve been promised – as provided in several boxes of computer spread sheets I’ve been given, I would need to rent the Bank of America headquarters building to store my money.  Fortunately or unfortunately, whichever way you view it; I did not invest my money, so I’ll never really know for sure!  I will tell you this much however, a very high percentage of those deals went bust!

Since I have experience on both sides of the partnership investing team, i.e. the broke person and the one with money) – I feel qualified to pass on a few tips that will help you structure a partnership, which might just survive the high fatality rate.  Because there are so many more want-to-be investors without any money, I’ll concentrate on helping no money partners first.

In the beginning, the money partner is always the most important member of your investment team.  It’s called “The Golden Rule” of investing.  HE WHO HAS THE GOLD ALWAYS RULES.  Look at the situation like this and ask yourself.  Who do you think might be more successful acquiring real estate – a rich investor who’s a lousy painter and don’t know a toilet from a vacuum cleaner – or a self-taught handyman without any money who paints well and knows that toilets don’t need an electrical circuit to flush?  My question was not meant to be a quiz, but rather a pointed reminder that money always makes things happen faster – the opposite don’t.

Years ago, my fascination with retailing and entrepreneuring took me into the world of “Women’s Fashion”.  I incorrectly thought my sweet lady friends and the people I knew well would be the first ones through my door to support me.  How wrong I was!  The only time I saw my friends in the store was on “Super Sale” days or when they wanted me to order them something for wholesale.  People who made my store successful and kept the registers ringing were total strangers!  They wanted what I had to offer and were willing to pay me for it.

It works exactly the same way with real estate partnerships!  Your best bet is to find a partner who can give the partnership something you can’t provide – either the money or the skills and “know-how” to operate the property.  Also, you want a partner with a strong desire to make money for himself, because in doing so, he or she will automatically make money for you!  Perfect strangers are more apt to be better business partners than friends, I’ve found!

Partners Work Best with Separate Skills

Partnerships originating solely on the basis of friendships are seldom very well thought out and most always they lack the key ingredients absolutely essential for any kind of success!  You might be thinking right about now – what’s with Jay and all this ingredient baloney?  Does he think we’re learning to be “fry cooks”?  Okay friends, let me be as serious as a heart attack here — if you’re half asleep right now and somehow miss my message here and get yourself hooked up in a bum relationship with a shyster partner or street-wise deadbeat, “fry cooking” will seem quite heavenly by comparison.

Keep in mind here, we’re talking about small-time investment partnerships!  The kind typically associated with do-it-yourself investors, generally involving two or sometimes three investors pooling their resources together.  We’re not discussing formal partnerships requiring separate federal tax reporting (1065 forms) and the equivalent state tax forms – although much of my basic wisdom can be applied to all partnerships and joint ventures!

I often make the analogy that small partnerships or co-investors work something like an electrical circuit – that is, electrical current only flows when there’s a positive and negative side!  No current will flow when both sides are equal or have the same potential as they call it.  Small partnerships won’t flow when duties are alike or the partners do the same things!  What makes them work are different responsibilities for each of the partners.  Let me explain!

Likes May Attract But Seldom Make Money

Have you ever been around an amateur partnership or had the occasion to observe two investor buddies who both contribute $5,000 cash and agree to share all the painting and yard work on weekends?  Usually things go well for a month or so, then one weekend, partner A doesn’t show up to paint.  He informs partner B that he always takes the kids to Disneyland for two weeks in the summer.  At first B is only slightly disgruntled painting by himself, however; by the second week he’s downright mad.  He expects partner A to do some makeup painting when his vacation is over, but he only does one day of makeup and then misses the next weekend with the flu!

Both partners have $5,000 in the pot and they’re both supposed to paint on weekends!  They’re both equal, they both perform the same tasks and both share the same responsibilities.  Remember the electrical current — We don’t need likes with the same responsibilities – what we need is unlikes to make current flow.  Thus, Jay’s first rule for partnership investing is as follows:  Each partner must bring something different (contribution) to the partnership that the other partner needs but doesn’t have!  Partnerships seldom survive when all the partners are responsible for the same duties.

Like all my teachings, my rules and techniques for investing with other people have been developed from my personal experiences over many years of trial and error.  That means I’m actually doing this stuff and not simply passing along ideas that might work just fine on a clear day in a perfect world!  Friends, there ain’t no such thing as far as I know, but if there was; partnership investing would still require the extra precautions.

Attempting to convince others to trust you with their hard-earned dollars requires extra special skills.  I think you can understand why co-investing and partnership arrangements are almost always horrible failures for the naïve and inexperienced.  The following story will help you remember how easy it is to be deceived!

In the southwest plains, a young Indian boy climbed to the top of a very high mountain.  There he found a rattlesnake shivering in the cold.  The snake said to the boy, “Please put me under your shirt and take me down the mountain where I will be warm and comfortable.  I promise you no harm.”  The young boy protested:  “But you are a rattlesnake!  You will bite me and I will die.”  The snake promptly reassured the boy that he would not be harmed, so the boy then did as he was asked.  When they finally reached the valley below, the boy reached into his shirt to bring out the snake and as he did so, the snake bit him!  The young boy cried out “But you promised not to harm me!”  The snake calmly replied.  “You knew I was a rattlesnake when you put me under your shirt.  You, not I, chose to ignore the danger!

Jay P. DeCima, aka Fixer Jay, lives in Northern California where he operates multiple rental properties.  With nearly 50 years’ experience, he’s a street-wise landlord and best-selling real estate author.

Jay’s recession-proof, adding value techniques are ideally suited for small-time, Mom & Pop investors seeking faster paydays and financial security.  Jay’s self-help books have been voted #1 by both the Los Angeles Times and Chicago Sun during the past 12 years. readers are invited to download Fixer Jay’s latest free how-to eBook,


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