Real estate investing is exciting when you’re just getting started. Real estate is all you can think about and all you can talk about. Your enthusiasm rubs off on others and you instantly start attracting people that want to lend money on for deals, partner with you on properties, joint venture with you on aspects of your business, etc.
The problem is that when you’re so excited, it’s hard to imagine anything EVER going wrong. Why would you need anything more than a handshake and verbal agreement?
Sure, you may be laughing as you read this, but you’ll see… when it comes time to putting a joint venture together, you’ll be eager to get moving along and you just might make this critical real estate investing mistake… and it COULD wind up costing you tens of thousands of dollars, friendships, and worse.
I once heard an attorney approach real estate investing joint venture agreements in terms of marriage… He said, “Plan the divorce before you get married”! It sounds morbid, but the advice is sound (I know from PERSONAL experience… and not ONCE, but several times!). It’s really funny to see what happens to people when money and stress are involved!
In this article series, I’ve highlighted 17 mistakes that I made early on and share with you what you can do to avoid making the same real estate investing mistakes I made… (Get all 17 real estate investing mistakes)
Mistake #2: Not having joint venture agreements in place with partners
I remember reading a book in which the author talked about partnerships and recommended against them.
Shortly thereafter, a mentor, coach, and friend warned me against partnerships, one in particular with my best friend at the time.
However, I thought my circumstances were different and that I could handle my “partnership” in my first rehab project. I was so wrong! In a short time, my partner and I were at each other’s throats.
We ruined both our business and our friendship. We didn’t have the same expectations. We didn’t have the same thoughts on things. We didn’t handle finances the same way… We just really didn’t lay the groundwork properly and made every mistake you could imagine!
How to Avoid Real Estate Investing Mistake #7
What I learned later was that “partnerships” by nature rarely work.
The better your friendship or relationship is, the worse it will turn out in the end.
Instead, look at the alternative of building many joint ventures. This enables you to do projects on a deal-by-deal basis. You do a deal, if it works out, you do another and another and so on.
That way, you’re not bound by a “partnership” and you’re not obligated to each other’s personal finances. When you outgrow the relationship, you simply move on to new joint ventures.
Realize that there will never be true equality in a business partnership, so protect yourself and your “would-be” partner by setting up joint ventures instead.
It will save business relationships and friendships.
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