It has been said that investing in commercial real estate is analogous to trying to date someone out of your league. The object of your desires is intelligent, attractive, and lots of fun to be around. However, you don’t have everything you need to close the deal.
With the right partner, you can complete far more deals than you can complete on your own.
Partners can be easy to find, but good partners are not. The right partner will provide a wealth of experience and put your progress on the fast-track. Having the wrong partner can be a miserable experience. Choose wisely.
Use these strategies to find a good partner for your commercial real estate deals:
- Target those with the resources to make deals happen. Your best friend might be a great person and tons of fun to be around, but if he doesn’t have the necessary funds and can’t acquire them from another source, he’s not a viable partner.
- Make a list of everyone you know with a good
income or net worth. For smaller deals, almost anyone with good finances can be
a viable partner. For bigger deals, you’re going to have to reach out to the
heavy hitters.
- Mortgage bankers can be a great source of leads. The largest deals will often require institutional investors. Commercial bankers know the right people and companies to contact.
- Determine what you’re bringing to the
table. Your partner has the money, but what do you have? Beyond providing
the deal, there are other things you can offer. You can do all the legwork and
take care of the details. You might also provide your management skills for the
property.
- Determine what you want from a partner.
Are you just looking for someone that will help with the financing and then get
out of your way? Do you want a 50-50 partner that will spend just as much time
on the deal as you do? You can’t find what you’re looking for if
you don’t identify it first.
- Find a partner with the right experience.
Who is currently doing the types of deals that interest you? Good partners have
more to offer than just financing. They also have expertise. With
the correct partner, your risk decreases.
- Begin contacting potential partners. First, it’s important to know the deal inside and out. Present your opportunity and be prepared for any questions. You’re not likely to get a positive response immediately. Your potential partner will want to verify your numbers and other information.
- Keep going until you receive a “yes.” It could take a while.
- Negotiate the terms. There are several standard agreements in the industry. Equity partners often require in the neighborhood of a 20% annual return. That’s before you see a cent of profit yourself.
- Another common arrangement consists of the bank being paid first, then the equity partner, then yourself. With a great deal, you can make a lot of money. A marginal deal might leave you out in the cold.
- Make communication a priority. Partnerships quickly sour when the lines of communication aren’t maintained adequately. Stay in touch. Ask for advice when making big decisions. Partners are more relaxed and comfortable when they know what’s going on.
When you’re first starting out in commercial real estate investing, you may not have the funds or the expertise to complete a deal on your own. A partner can provide valuable expertise and financial resources. The right partner can also accelerate your success and introduce you to the relevant people in the industry. Take your time and make the best choice.
