How To Escape A BAD PARTNERSHIP!

That's what I had to do. That's what I've told my friends to do when they're in this position, and they've won every single time. Bad partnerships and how to get out of them. We're talking about that today.

Super important. Unfortunately, if you partner a lot, this happens. So we're going to dive right in. I'm Christian, this is Cody, and here we go. So we've had several partnerships go south, and it's unfortunate. Now we have a lot of partners. Most of them go fantastically. Not every time that you get in a relationship with someone does that relationship pan out exactly as you planned. Now, one of the first things we're going to say is this— how you solve those problems should be very clearly lined out in your operating agreements. However, how do you deal with it personally, strategically? We're going to dive into that. So let's start with the first example. One of our earlier mentors, like one of the people just really early in our career path, partnered with Cody on a few deals, and I'd worked with them really closely. Uh, Cody, without, you know, naming too many names, we're not going to throw anyone—

I'm not naming any names.

Without naming— yeah, too many being one. Uh, without naming any names, um, what was the general situation and how was it remedied?

So that deal, I did not have control over the money, and the money was misallocated by my other partner. And unfortunately, that created a lot of stress in the partnership, as it should have, because the money was mishandled by the other party. What that ended up doing was leading to a somewhat amicable but not nice exit of the partnership. The other party was— it was somewhat amicable for a little bit, and then it got rather un-nice kind of quickly, which was a bummer. But I looked up to that person as a father, and that ended really quickly just because there was not an alignment of goals anymore. It was their money versus my money. And when people see things as this is not a unity, it's no longer a partnership. The problem was we were legally tied as a partnership. Now we had a few assets together. And so what ended up happening, I got all the real estate. It was wonderful. Not a bad deal, but there's no such thing as a free lunch. They had a lot of debt, a lot of business debt. And so this was not outlined in the operating agreement. I didn't know what I didn't know about business. I was— these are some of my first properties that I ever picked up. It was some of the first business ventures that I ever did. And so what happened with this person is I ended up inheriting a lot of their business debt. In exchange, I got the property. So I took on all the risk. And it took me quite a bit of time, took years to hammer down that debt. That's one reason I love debt and Christian loves equity, because I've been through that. But, um, that was very painful for quite a few years just getting out of it because I had to inherit debt that I didn't sign for in the beginning. But I got the benefits of owning the real estate for the long term.

And how did you actually— like, with the actual disposition of the real estate, what went into that? Like, how does that conversation happen?

Well, they brought up a very one-sided deal in the beginning, to which I said no, because the option was they could have kept taking the money and let the real estate not pay itself and then lose the real estate, and then they'd get nothing. They'd be left with their bad debt and then get left with no real estate. That's not ideal. I used that leverage to say, look, give me the real estate I'll take on a portion of your debt equal to just south of what your equity position is because there's sales costs in real estate if you have to sell. And we mapped it out and that's how much debt I took on from them at a very high interest rate. And but the main thing is if you're in a position where you have to exit a bad partnership, I've seen this with friends, family, not family, but people I treat as family. I've seen this happen where they're trying to get bulldozed by the other party. You have to just stand your ground and say, this is what is equitable and this is how we're going to make this happen. That's what I had to do. That's what I've told my friends to do when they're in this position. And they've won every single time because the other party knows if they don't do it, they're just going to lose the collateral.

Now, another example of a partnership that didn't work is we had a partner that came to us, said that they had— they were going to help us start our business. They're going to help us with licensing. They wanted to partner up on a bunch of projects.

They did none of that.

They did none of those things. What they did do is get us to sign a lease with them for 12 months for $1,000 a month, and unfortunately they didn't get more from us than that except for a lot of drive time, which was, um, just a waste. We wasted a lot of time, which is still really expensive. However, um, we were partnered on one venture— well, supposed to be two, but they never signed the paperwork— we were partnered on one venture with someone who said they could do a lot of things who appeared to be doing them and ended up doing absolutely nothing. We call that type of person a leech. They like to attach to other entrepreneurs and see what they can get without actually putting in any effort or any work.

If you're wondering where our Liars and Leeches segment of our principal videos came from, it was from that partnership.

Yep, that is, uh, that is number 1 and number 2 of the partners that didn't work out. So on that particular deal, there was a long phone call. There's actually an interesting story, but we called him out during a car ride. We're actually all in the car, separate cars on speakerphone, all connected on a conference call. We called and we said, hey, you haven't done anything that you said you did.

You've—

we've caught you lying about a few things and you've trapped us in a lease. We're paying you for a lease and you didn't do anything that you said you would do. This feels fairly one-sided. And then we were quiet for about 7 minutes and no one said anything. By the way, when you bring up conflict, once you have stated your point, do not talk again. Yes. The next person to speak loses. We have had multiple conversations with that first partner where there were multiple, multiple minutes of absolute silence. And thus far, we've been defeated.

Yeah.

It's not good if we have to do that with each other because that's going to be a long several weeks. The call will just keep going.

But we've never been defeated on that. Don't get defeated on that. But eventually they came back in and said, oh, sorry, did we get disconnected?

Ridiculous.

Immature. And there will be people that are like that. So since you're watching this, take a note. There are immature liars and leeches. People will lie to you, people will leech off of you, they will be super immature, and you just need to as amicably as possible exit the partnership. Get docs from your attorney that say you're going separate ways, you can split assets if there are any, you can split cash if there is any, and then make sure that everybody signs off that they're not going to contact each other because you don't want to hear from these people. You don't want to hear from emotionally charged weenies.

So what we ended up doing is we paid a very small nominal sum, uh, to them to dissolve the partnership, end all projects. Um, this is, this is a personal choice. We absolutely could have just stopped paying the lease and it would have been fine. They hadn't done anything that they had signed for. We could have got away with it. However, we put our name on something and we signed it. We left that office, we never came back. We paid the rest of our lease all the way through the term. If we sign our name on something, we will do it. That is a business ethics, a business ethics thing that we decided that we're not going to flex on.

Increase the weight of your signature. Do what you say you're going to do. There's another video that we've had on this channel multiple times, but if you say you're gonna do something, do it, and that'll make you a better partner. You have to be a good partner to receive a good partnership.

Yeah, but that was a total venture. That was a ton of time and $12,666 down the drain.

Now the last one we're going to talk about is one of our mentees. They had a splitting up of their partnership. One of the partners didn't do much, the other partner did a lot. They did about everything. If you see that, it's best to split early. Don't drag it on. This is what we had to tell them. You cannot drag it on, otherwise it's going to get really expensive and emotionally charged, and you don't want to do that. They split up and now both parties are happy. But had they kept going the same direction, it would've been a very poor decision.

Yeah, now we've talked a lot on this channel about partnerships. And so this is one of the big rules we have is you don't renegotiate anything until you hit your goal. That would be an actual exception. Cody and I have operated off the assumption that both parties are giving 100% and there's no such thing as an even partnership. There's gonna be times where one is more important than the other. There's gonna be one where it's gonna flip-flop. Sometimes one partner is just in fact stronger than the other partner, but whatever you negotiated, and in their case they are 50/50, Cody and I do a lot of stuff together at 50/50. If one partner is clearly not pulling the weight that they committed to and you guys are not going in the same direction, the Bible actually talks about this and not being evenly yoked with your oxen. One pulls too hard and the other one's not, it slows down the entire machine. You have to cut them off and replace them. That is just a rule. So in that case, they had a conversation early when they only had a few assets. They came up with an agreement that made total sense. I think the way that they divided their companies was a fantastic way to do it, or all their individual LLCs for the properties. Everyone got what they wanted. Clean break. That is a best-case scenario. That can go a lot worse, especially in business. You can end up in court pretty quick.

And it will go a lot worse if you drag it on.

Yes. If they had more assets, that would be a much more expensive breakup. Yeah, our breakup would suck. Oh God. Sorry, I was just imagining that logistically. Yeah, no, that is another thing that can make a strong partnership. If neither one can afford the breakup, you're stuck. That does help get through stuff. Your options are figure it out or get destroyed.

Oh no.

On either side of that, that would be horrendous. Yeah, too late for us. But if you're in that situation early on in your partnership, it's not too late for you. And fortunately for us, we've worked really well together. I see the things that everyone brings into the partnership. We are so much farther because of what we did over the last 2 years.

And we've gotten very upset with each other in the past.

Oh my gosh, yes we have. For those who think we are always best friends, This is a good, this is a good lesson too. This is a funny video, but this is, this is personal. We're gonna tear up. It's funny. We have been upset with each other. Cody is one of my closest friends. We are and always will be business partners first. Is that fair to say?

Yep.

We started as business partners. We became friends on the journey. I don't need Cody to be my best friend to do business with them, and he doesn't need to do that either. We've had that discussion after having an argument. Yeah, he's like, I don't— we don't need to be friends. I'm like, well, I guess I kind of like business better when we're friends. Yeah, but we don't need to be best friends, and that's okay. We're very close. We do almost everything together. We're financially tied more than almost anyone else will be unless you have a successful business with another partner. But when you're putting these things together, um, realizing who we are, what everyone brings, and what you can afford to do and not do is really important. Just know you can be friends, but you're going to be business partners first.

Yep.

And which is why we don't partner with friends.

Yes.

Um, we said we're gonna do 3. I'm gonna give you guys a bonus one.

We did 3.

We did 3. I'm gonna give bonus ones. Now we're at 4.

Now we're at 4. 3 plus 1. Understand math.

So here's the plus one. So I have partnered with a friend early on in our career, and it went actually very well for the first year. Fantastic deal. As far as the numbers and the actual, like, what we bought, fantastic deal. The problem is the lender had issues with how they wrote the note and we had a debate. Lawyers stepped in. It was unilaterally determined we were absolutely correct. However, that ticked off the other partner. They got really upset and it became super emotional and all of it was personal.

Not unilateral. It was unanimous.

Unanimous. That was the word I was looking for. Yes. Best guess that one too.

Wrong e-word.

It was a unanimous decision that we were victorious on how the note was written because we in fact read the note and not all parties had. The problem is one partner got really upset. All of their problems were with, well, I thought this was going to be a different way. I thought I'd make more money and it's your fault because you're my friend. It was all an emotional, uh, just quite honestly, garbage.

Very illogical garbage.

We'll still make a bunch of money on the deal. It was a mild inconvenience with a few thousand dollars of legal fees thrown in on a deal that's going to make, you know, $150,000 to $200,000 for us. One of our early, early deals. On something like that, do not partner with friends. You can become friends with your business partners.

That works.

Money's always in the mix. It does not work the other way around. I have seen— I've heard of examples where it's worked. I've personally seen no examples where it's worked outside of husband and wife. You're already connected. You can probably figure out business together. But when friends or family outside of a marriage go into business together, I have personally never seen it work for anyone in my sphere.

I've also heard leprechauns. I've yet to see those.

But, um, partnerships do work. I've heard people have been so burned on them that they just go all— uh, what was the, the phrase? Uh, the only ships that don't float are partnerships. Uh, I knew somebody used to say that all the time. Partnerships do work.

Turns out they're just a bad part.

Thank you. We have a lot of partners and a ton of successful partnerships. I love partnering. I love playing collaborative games. Like, the real estate is really fun to do in groups. That being said, if you play this game and you do partner, you will have bad partnerships. That is a fact. How you handle them quickly, fairly aggressively, very directly. Yeah, bring up the problems, bring them up as they come up. Do not wait to reposition. Do not wait, or maybe it will smooth over. It won't.

It won't.

Yeah, it won't. Fast, directly, and as non-through-the-court system as possible. There's a word for that, it's not coming to me. Non-judicially. Judicially. That's the way to say it.

English.

English. Avoid lawyers if you can avoid them.

That doesn't mean don't get representation. No. That means try not to go legal before you have to.

Yes. You can have conversations. If those don't work, you can bring in a neutral third party. Mediation, fantastic tool. We haven't had to use it yet, but there's a couple times I would have liked to. Um, if you follow those 3 rules, I think you're probably gonna be fine.

And the 4th rule: hit the subscribe button.

You have to do that, or your next partnership— no, I'm kidding. We'll see you guys next week.

Bye!