“Excuse me, but there is mouse poop in the silverware drawer. And the hot tub doesn’t work.”

Not the message you like reading in your short-term-rental inbox. Guest satisfaction is the number one most important element of running a successful short term rental business (at least our short term rental business). And a message like this tells me that this guest probably deserves a refund. 

This conundrum started months prior when we failed to establish a clear and comprehensive operating agreement with Rick, the owner of the property. The partnership was doomed from the start.

We knew that with our help, Rick make great returns on his property with a short-term rental. A dreamy log cabin, lofted bedroom, wood stove, all located at the base of a glaciated volcano in the Pacific Northwest’s Cascade Range. And we were right. The first few months were fully booked and we were all happy.

Then the complaints started to roll in.

In our basic agreement, Rick would handle all repairs and maintenance. He insisted upon this, so we went with it. We handled the listing management, guest communications and accounting. What wasn’t communicated properly was the quality level and the importance of having these repairs done quickly and effectively. 

After our third message about a failed hot tub (can you imagine arriving at this cabin with a cold hot tub? Yuck.), we knew that we were not on the same page with our expectations.

Those expectations were not clearly outlined in our agreement. We had moved forward thinking that Rick would be more comforting if we didn’t have a lengthy formal agreement in place. Wouldn’t that scare him away from working with us? 

Wrong. Our guests ended up getting scared away.

We learned that vetting partners and having a solid operating agreement would be essential to any real estate investing ventures we pursued. But we also knew that having the right partners could accelerate us toward our goals unlike any other element without our business.

When determining where to deploy your capital in real estate, finding the right partner can propel your wealth goals or it can drag you down.

First, it is important to remember why you should seek out partners at all.

Benefits of Real Estate Investing Partnerships

Most real estate investors understand (and love) leverage as a tool for wealth building. We mostly talk about leveraging capital.  Taking a small amount of money and using it to borrow a larger amount (that tenants will pay down).

However, we can also leverage the talents of a team.

When a single person, we’ll call him Marty, creates a business, Marty relies on his own talents to make the business a success. Perhaps he dives into professional development books to improve, or hires a coach. But Marty will always be limited by his own skills and time. 

By adding a second person, a partner we’ll call Sofia, suddenly the business can benefit from two creative minds. Marty and Sofia likely have different skill sets and different ways of approaching the same challenges. Now, the business can think from multiple perspectives and likely go farther with greater skill capacity.

The benefits goes beyond the tangible skills a partner brings to the team. 

When Marty and Sofia created a partnership, they seemed to be able to accomplish more than just two people. It feels like they are able to make even bigger leaps and grow the business more because they work together so well.

In this partnership, 1 + 1 = 3 (or more). 

Because Marty and Sofia compliment each other so perfectly for their business model, they help each other take the business even farther. This may be attributed to the positive mindset boosts from Sofia, or just having the new ideas and energy other than Marty’s that has made the business more fun and more profitable.

Either way, it is common that partnerships can accelerate progress.

Why Do You Need A Partner?

If you want to grow your capital in real estate, but don’t want to work with a partner, you could expect to take on the following tasks: 

• Learning which asset classes and business models will propel you toward your goals,
• Researching geographic market conditions,
• Sourcing deals
• Analyzing deals for desired goals (monthly cash flow? appreciation? recapitalization? velocity model?),
• Negotiating selling prices,
• Marketing the business for capital raising, finding deals, selling assets,
• Management of the assets (screening and placing tenants, maintenance, accounting, etc.),
• And on and on and on. 

That’s a lot of work.

However, as a capital partner, you can get the same returns without doing all this work. With the right partners, of course.

Our Flow State Partnership Story

Here at Flow State Investing, I (Susan), knew that I wanted to build a real estate investing business after my first successful duplex-conversion rental. I knew I could pick away at purchasing a property a year (even with a full time job and a growing family) and eventually have a nice little fleet of rentals. But I also knew I could do more.

I wanted to build a business that used real estate to build wealth while also making a big positive social impact. See, I spent many years advocating for clean, free-flowing rivers. I volunteered for non-profits, wrote a guide book for our nation’s Wild & Scenic Rivers, and still sit on the board of directors for a national stewardship organization. I even became an Engineer focused on designing healthier river systems.

But I was missing the connection to people.

Sure, people need clean rivers for their drinking water, for recreating, for their community and ecosystem health. But real estate investing had the potential to help people directly.

But I needed (and wanted) a partner.

I had known Jaime and Kevin for almost a decade. Kevin and I guided together on the White Salmon River outside of Portland, Oregon back then. We all followed different paths, but stayed in touch always thinking “I really like those two.” 

Then we ran into each other on a dreary Tuesday morning at a random cafe in a major city where neither of us lived. Coincidence? Who knows.

Adding Real Estate To The Relationship

Over the next year we grew closer and one day I asked Jaime if she wanted to attend an all-women’s real estate investing conference with me. At that event, we schemed our first projects together, both seeing the value in working together. We built a small short-term rental business, but were both attracted to the wealth-building potential of notes, as well as the incredible ability to help people keep their homes.

Luckily, all three of us wanted to get into the world of notes and we dove in. 

Overlay detailed knowledge of real estate with Jaime’s executive skills, Kevin’s operations background and my analysis and education experience and Flow State Investing was born.

The best part is, we prioritize having fun, getting outside together for business meetings and spending time with each other’s families. That is a long-term real estate investing partnership.

Today, we are excited to open the door to new capital partners who want to leverage a skilled team and get their money working in the non-performing note velocity model. We’ll be sure to follow our own tips for making each one of these separate partnerships a success, as I’ve outlined over on the Bigger Pockets blog.

Why Your Returns Are Still High

Teams that see the value in taking on capital partners think bigger. 

Doing bigger real estate investing deals or more deals allows teams to operate at a larger scale. This means that as the deals grow in size or number, often, the returns grow too. Capital partners come into the equation to make this possible.

Since adding additional partners means sharing the returns, those returns must be higher to bring in partners. The important thing to remember is that these teams could not access these opportunities or grow without capital partners. 

Operating at A Bigger Scale

For instance, at Flow State Investing, we could have continued investing our own capital into non-performing notes together. We are already leveraging a small team and could see some benefits from that.

However, we can not get the deep discounts available when a buyer purchases a larger number of notes. We simply don’t have the capital to purchase in bulk. 

When we invite capital partners into separate operating agreements, we can take those funds and purchase many notes for a lower cost. Thus, we can bring in partners and provide them the high returns they know are possible in the non-performing note velocity model while also maintaining our returns to grow our business. 

In our partnership model, we also keep returns higher by using a  joint venture model where all members are technically “active.” We’ve built  the systems to find deals, perform extensive due diligence, and manage the day-to-day tasks of each asset. As a technically “active” capital partner, you have the opportunity to provide input at key decision points, such as making an offer, pursuing a specific exit strategy and selling an asset. 

Thus, you may be active but you don’t have to spend a lot of your time in this partnership model.

We aren’t pooling multiple investor’s capital or using a fund which requires significant legal fees. Each of our partnerships are housed in separate LLC’s so they aren’t connected to each other and we can develop a more personal relationship with our partners.

We are here for the long-term. Investing in long-term relationships means taking the time to get to know our partners and growing the partnerships that work the best. 

Start Getting to Know Your Real Estate Investing Partners Today

It may sound like a lot of work to vet potential partners and their business plans. By doing this early in your real estate investing, you’ll find the right partners sooner. The ones that don’t create more work or stress for you and the ones that get your money working the hardest.

Imagine these two scenarios:

1. Jumping into deals only to have them produce mediocre returns, or worse yet, give you stress and anxiety that permeates into the rest of your life. Imagine having to vet new partners every time you wanted to invest.

Or…

2. Taking the time to get to know your partners and how they will grow your money. Imagine aligning with their long-term personal and wealth building goals. Imagine having fun on every partner call.

Which partnership scenario do you prefer?

Take the time to find a partner who can do the heavy lifting and still allow you to get your money working in real estate now. Your wealth grows faster and faster with less and less work. Not bad, right?

The key is in the partnership.