How to find the Right Business Partner: Good Deals and Bad Partners

Welcome to the Multifamily Strategy.

Hey YouTube, this is Cody. I'm here with Christian today for Real Estate Principles. Can't do a good deal with a bad partner. You just can't do it. Christian, what do we mean by that?

Well, there are a lot of good opportunities out there, and if the deal is the best deal you've ever seen— we're talking insane cash flow, perfect price, absolutely going to steal the property— but you have the wrong partner on it is going to cost you in the long run. It is never worth it in any instance. If you have the wrong partner, there is absolutely no way for the deal to be worth it, guaranteed. We've both experienced this in different aspects. We're both going to share some of this in this video, and we're not going to drop names, but we have had multiple instances where we've had the wrong partner in the wrong opportunity. And even when they did make money— Cody's have made a lot of money— The pain was just ridiculous to get there.

Equate it with a W-2. A lot of people don't really like their W-2. They're spending a bunch of time to get a little bit of money. Let's say you find a great real estate deal and let's say you buy that 12-plex. Like, I bought my very first 12-plex back in 2019, and I bought it with a partner because I did— I could have bought it by myself, but they offered, say, I'll help you avoid some of the pitfalls that I hit when I was younger. Like, okay, let's do it. I don't want to lose the real estate. It's not worth it. Well, he wasn't the right partner. And you can do good deals and you can keep buying good deals, but if you start buying good deals with the wrong partner that doesn't fit your long-term vision, it will cost you on the back end. And that can be very difficult. Now, what it cost me was, uh, it was closer to 7 figures than it was to 5 figures. You can do the math on that. It was a lot of money. It didn't cost me money day one. It got me an opportunity to get into real estate, and I was able to use that story to leverage, start buying more real estate. Christian and I met, we started buying the 38, and then all the other buildings. It was great. I wouldn't change it for anything. However, it did cost multiple six figures because I was with the wrong partner. I didn't do my due diligence. I didn't do any legal because I trusted his legal counsel. I He had all the bank accounts, and you know, that didn't go very well. You can't do a good deal with a bad partner because if you're not focused on the same vision, there's going to be a point where if you figure your boats are going in the same direction, eventually they're going to go the opposite way. And if you're partnered, that's going to start pulling on you in the wrong direction where you don't want to go. If they're further ahead than you, then they're going to drag you into the water, and that's not where you want to be.

And the other resource they take a lot of is time. When you have a bad partner, you lost a lot of time that you could have been just out buying real estate and expanding. Like, say you had a good partner, you guys could have just bought all that real estate together. Granted, it wouldn't have been with me and we wouldn't be on this particular adventure, but had you just kept buying and had no roadblocks, imagine how much more real estate you'd be able to hold today. You didn't have to do multiple six figures of buyout.

Yeah, I did have to sell a lot of real estate. I lost some real estate that, you know, I'm still at 105 units. I was able to rebuild, but I had to sell out of a lot of real estate. I don't like to sell stuff. I lost time, I lost real estate, I lost money, I lost hair. You know, just add it to the list of things that went wrong. Great deals, but I kept some of the deals. Granted, I didn't get rid of everything, but in that process, you know, there was a lot of time that was given up, and I had to get rid of that partner in order to maintain the deal. Because while it's a good deal, it's still a great deal, I just had to get rid of him. And so I had to buy him out I inherited some debt and lost some rent.

Yeah.

It happens.

And for myself, like, I actually started a nonprofit right when I got out of college and it was a church. And I built it with the wrong group of people. And they ended up taking all my money which fortunately was only $4,000. So, that didn't really matter. But what I really lost in that was I lost time and I lost trust in being an entrepreneur. I didn't just lose the year that I was working on that project. I lost the next 7 years because I went to the 9-to-5 and I gave up on all my entrepreneurial pursuits because it just, it hurt too bad. It took me, I mean, all in, that was an 8-year time span where I could have been building, and now here's Cody, exactly 8 years younger than me. So, that experience, yes, it cost me $4,000. Does that really matter? No. 8 years of time, that cost me— That matters a lot. A lot.

That cost you probably tens of millions of dollars. Yes.

Conservatively, that's, there's a lot of pain. That's why you can't do a good deal with a bad partner. One more example is, sometimes it's not even a bad partner. Sometimes it's just a wrong partner, and I do want to touch on that, because there's been a time where we have been the wrong partner for someone else. On the 38, and this person said that we can share this story, by the way. I'm not just, I'm not throwing anyone under the bus. But we had talked to them multiple times about what their goals were, what their objectives were. We talked about—

Cash flow, unit count, multiplying the equity. So what did we do? We put them in a deal that hit those goals.

Best deal we've ever done. We talked about the 38 being a difficult deal before. It was also the best deal we've ever done.

It's very hard. We've made more money on that, and it won't be the best deal forever, but it is the deal that catapulted us. It'll make us the most money compared to anything we've done, the most cash flow. It's allowing us to float our businesses. But that deal, we hit all those metrics that they wanted. Cash flow, we were going to multiply their money. It took a little bit to get the cash flow, but we projected that, and it added 38 units to unit count. But what did we miss?

We missed that there's always something beyond the money. In this case, they didn't communicate, and we didn't ask. It's not on them at all.

It's our fault.

Yeah, completely our fault. We did not figure out what is the money for? What do you actually want to do? Beyond all of the unit count and the cash flow and the renovation, you want to be part of the team. You want to be included. He wanted to be boots on the ground doing construction. We were not in a position to have more cooks in the kitchen on this deal. We were figuring out a lot of it on our own. We had our own teams already in place. That was the wrong deal to have that sort of investor who really wants to be an active member of the team. We've had other deals that would have been a great fit for him. This was not the one, and we misdiagnosed that. In that case, we would have been— not a bad partner, but the wrong partner. And he is to this date the only investor who's ever asked to have his capital back so he can reinvest it in a different deal with another group. We parted on great terms, we're still friends. He was actually over at my house recently. However, the investment journey ended there of what could have been a really fun and potentially very lucrative relationship.

Right, and so when you're going out and you're just taking this, right, take it with a grain of salt. Yes, you have to do deals with good partners, but you also have to be a good partner. You can't be the wrong partner for other people if they're bringing you opportunities. You have to be the right partner for that deal. Just because you can get in doesn't mean you're going to benefit that partnership, doesn't mean you're going to benefit that piece of real estate. So you have to look at it like that, because if you're the wrong partner for them, you could really cost them a lot of money, a lot of time, and vice versa. You need to be looking at your partners. I'm not partnering with a whole bunch of people. I've got Christian and his wife, and you know, we've got a handful of other people that we're with. Really, our partners are now very close friends. None of the people that we're doing business with are anything but friends. But, you know, at the end of the day, it is just a tight-knit group. We're not adding a whole bunch of people to the ship. People can put their ships next to us, we can go in the same direction, but we're not financially tied because we can go different directions and it's not going to pull someone underwater.

And this channel, I mean, this is always about real estate investing advice and building your own multifamily strategy. And we have our course, themultifamilystrategy.com. Which is more of the same. This particular week, this is just general life advice. You need to be the partner that you want others to be to you. I mean, that plays into dating, that plays into any other business, that plays into your friendships. If you're in relationship with other people, it costs you to be the wrong partner, and it really costs you to have the wrong friends in business, people who aren't moving you forward, people who aren't supporting you. Your family's your family, you're stuck with them either way, But everyone who you choose to surround yourself with, legally partnered or not, this same advice applies. Apply this to every aspect of your life. This is one of the few life advice pieces that we'll give on this channel.

And Christian's the right partner and I'm the left partner. But that's it for today's YouTube video. So real estate principles, keep checking these out. If you want to get your questions answered live, Whiteboard Wednesday, 2 days away. See you there.

3 PM. Welcome to the Multifamily Strategy.