How To Make A Partnership Work with Soli Cayetano

YouTube, welcome back. I'm Cody, this is Christian, and we are joined for the fourth and final time of this series with Sole Cayetano. Sole, welcome back to the channel.

I'm glad to be here today. It's a happy day.

It is a happy day. You just, you just closed on something like 8 seconds ago. What did you just close on?

What's actually crazy is we bought these properties off I forgot what website, they were just marketed on a weird website. And they were, it was a package of 3. And we basically just split them up and put them back on the market. So we whole-tailed them, I guess you would say. And we just sold 2 out of 3 of them. And I think we made about $13,000-$14,000 each for doing like legitimately nothing besides putting them back on the market.

Now that's great. You keep saying we. Which is the topic for today, talking about partnerships. How do you do your partnerships? Like, is we a lot of people? Is it a couple people? Is it you and a buddy?

Yeah, we is two people, two other people. And so it's great because I didn't actually have to physically go into the closing office today, even though we technically closed on those two houses today. So I have one person who lives locally in Augusta, Georgia, which is one of the primary markets I invest in. And he's sort of boots on the ground. So he owns a property management firm and he owns a construction firm. And it's been super valuable to have that sort of boots on the ground, bought-in experience from someone who is a partner as well as the vendor, because he has like a personal buy-in to our success. The other partner is head of acquisitions. And so whether it's direct mail or cold calling or developing relationships with agents, just specifically focused on finding deals for us. And then I'm very heavily on the capital raising part. So I think we talked a little bit about how we've done the BRRRR process with other people's money and we flip with other people's money. And so I do a lot of investor relations, raising money, and a little bit of asset management as well.

That's phenomenal. It's great to have your people in the right seats. We've been focused on that hardcore in our business.

Yes, we have. And we have different partnership structures for basically everything that we pick up. We play a lot with equity where you do a lot of the private money and 100% financed, which is how your BRRRR model got launched. For us, we bring in a lot of capital partners, which means we're going to be partnered for several years with a lot of these. We put a buyout in, but we have no lack of partnership structures.

How many partners do you have?

Oh God, not like that many.

Not a ton.

But no, I mean, we've Moses Lake XII has one other partner. We've got a partner, one partner on CPCC LLC. I mean, we've, we've probably partners on the Robinhood.

Yeah, 10 maybe.

No, where would the other ones be? Well, Pheasant has one. Yeah, we've probably got like 7.

Okay, we'll go with 7. We'll go with 7. We have 7 different partners over like 20 different—

and it's not that many because you have many units?

In proportion to the number of units, it's very low compared to— a lot of people would syndicate to get over 100 units in 2 years, which would mean they're taking on like 20 to 50 partners, sometimes even more depending on how they're structuring their syndication. We haven't done that. I can't remember.

It's— I have done a syndication, 64 units in Cleveland. I was a general partner and invested in the limited partner. Area as well. But I think what people define as partners is sometimes a little bit confusing. It's just like a word that people throw around a lot, like whether you're a debt partner, an equity partner, or passive partner, an active partner. And like, maybe that's a good place to start for people who don't know anything about partnerships, doing a little bit of definitions.

That is a good point. Let's call for this video, let's call partners your active core partners. Cody and I are partners on Multifamily Strategy and all of our real estate. We're even partners on—

we own equity in the company, equity in the company, and have operational control.

We'll call that our, uh, we'll call that our, our main variables because we have a few LLCs that have different people who are actually have some sort of legitimate stake in the longevity of that company or that deal. So you have two main partners. Are those your two main partners on everything that you do, just the stuff in Augusta? How does that work?

Um, just the stuff— I guess from now on, once we establish that partnership, we kind of went all in on that partnership. I do a little bit of flipping with someone in New Orleans, which I'm kind of on my own with her. But in terms of like buying, holding, and the majority of what I do, it's with these same two other partners. So everyone was very intentional with like, hey, we're going to scale down a lot of our other partnerships so that we can focus more on building this. Because we can do more together. So if we're going to buy in Cincinnati or Augusta or expand into some other markets, it's most likely going to be the three of us.

How do you set objectives that keep everybody on task within that partnership? Because you've got your core group, that's similar to how Christian and I operate. How do you set specific goals that keeps everybody motivated towards the target?

Well, everyone has something that they own, so they have their own territory that they know that they are responsible for. We set objectives for the company. So for example, we're going to flip 10 houses this quarter. And so everyone buys into the goals at large, like the company goals. And that means that I need to find capital for 10 deals. And that means the acquisitions person has to find 10 deals. And that means that the renovations person has to build the systems to be able to handle 10 renovations at once. And so I think that's kind of like segmenting people into where they sit best and what are you responsible for, and then letting them own that, that specific portion so that they're responsible for figuring out how to make it work within their bucket. But everyone's aligned on the core quarterly goals and the annual goals.

Have you had any experiences yet with partnerships where you set those targets and you have one or two partners that are not living up to their role? Because you start out with, hey, we're doing 33, 33, 33. What happens when one person puts in 10% and the other person puts in 90%?

And I think that's where, like, honest conversation comes into play. And so, like, yes, I have, for various reasons. Like, maybe it's someone's life situation has drastically changed, or, or whatever. Maybe they don't even know that they're slacking in their role. But if you can't have honest conversations like, dude, what's going on? You're holding up this whole process. You're not Like, these are our goals, we all agreed to them, and like, you're not pulling your weight. I think being able to have that very confrontational but respectful conversation is really key in partnerships. And a lot of people— like, I'm not a confrontational person, but like, if we need to have a conversation, we're going to have a conversation because that's like key to the success of everybody in the partnership. So I think setting up like goals that everybody can buy into and then setting up regular check-ins where things are tracked by metrics. And a lot of, you know, it's like metrics don't lie, numbers don't lie. How many offers have we put in? Did you meet your goal of 10 or not, you know? And so in those different scenarios, it's really hard for people to hide behind excuses because it's like the metrics are the metrics, the numbers don't lie.

When you're setting up those metrics, is that something that is, does that live in your operating agreement? Is that something that you guys put in writing? How do you actually set that up on the front end front end so you know what to hold people accountable to? This is something I know that we did not do a good job of when we first started. There was a lot of—

there's a lot of things we didn't do a good job of.

Yeah, but we did a lot of like, oh, we're going to figure it out. And there's been a lot of adjusting of roles really consistently of like, hey, I'll do this, or balls get dropped because no one signed up for that individual role. I know it's been a weak point for us. How did you handle that?

So I think the things that live in the operating agreement are more so like roles. So what is your role? What is my partner's role? What happens in the case that we need to contribute additional capital? What happens in the case that we lose money? Who's, who's responsible for bringing the capital? Like that type of stuff, but not necessarily like quarterly goals because they change so often. So we'll have like meetings where it's memorialized in writing. Um, but that's kind of as far as we go in terms of making sure everybody's on the same page.

Perfect. So you guys will basically keep meeting minutes?

Yes, meeting minutes.

Perfect. Where you, where you've discussed it and documented it. We need to get on that. But yeah, that is a great way to do it where you're right, things change so fast, especially as a small business. Cody and I have seen so much of that, uh, where it's like, hey, we wanted to do this, now this has changed, or someone wants to move, or there's all sorts of things that happen. I think the big thing that we have found consistent And I, I wonder what your opinion is on this, but we set a target and we just say you can't renegotiate anything until you hit that target. Like, for us, it was when we hit 100 units, we're gonna hit 100 units. We're 50/50. I don't care what happens until we hit that. Now, once we hit it, we looked at our goals and we went, okay, little pieces have shifted. Now my wife has left teaching, both of us are working in the company, uh, and what we ended up doing is Cody let me trade him my equity in a building for the property management company because our parts had changed. But we didn't, we didn't adjust anything at all until we hit the original target. And that's been helpful for us. Curious your thoughts on that. That was a strategy that it's worked for us. I don't know if it works for everyone, but it was—

I haven't heard that before, but I guess it builds like buy-in. And if anything really needed to change for some drastic reason, you probably are close enough to have that conversation before beforehand. I've never done that personally in a partnership, but I think it's an interesting way to go about it.

It worked.

Yeah, I found that when you go too long over time, people's life situation will change in a way where the partnerships have to change. So if you set specific benchmarks of this LLC is being designed to do this, and once we've hit that, we're going to get together as a team and figure out what our next benchmark is. Do we want to separate? Do we want to readjust? Do the equities need to be swapped? If I found out, you know, as we went through a project, luckily Cody and I both bring very unique things to the team, but if we had found out that I did 10% of the work and I got distracted with another project and Cody was carrying 90% of the load, there would probably be a conversation on if we want to continue partnering, we might need to just adjust the equities to be more, more in alignment.

Yeah, and I think that's, I think that's fair. It's like, you know, it's always a fluid conversation, and I think that everyone should have some sort of like annual meeting where you talk about like, what is the goal from this partnership? Like, do you— how much do we want to distribute out in terms of cash flow? Because if you don't have that conversation, then one partner is going to be like, no, let's reinvest it all. The other person is going to be like, no, I need to live on this money, you know? Or our decision to pivot into flipping, it was like, wow, do we, do we really want to do that? Or do we really want to just take the $150 and build up some passive income? And so I think there's a lot of alignment that has to happen in of like, what is your end goal? Is the goal to build a massive flipping organization where we're pumping out 100 a year, or is it a means to an end? Do we just need to build half a million dollars in capital and recycle that money, but it's our money? So I think having those really tough conversations of like, at the end of the day, how much time do you want to spend on this? Is it a main priority? Is it a side priority? And what are the actual like tangible things that you want to get out of this partnership?

I absolutely love that. I don't think enough people do that going in. That's the, that's the main thing is they just kind of— I think a lot of people get together with people around them and go, hey, I have a cool idea, let's just do this together. And that's, that's where it leads to disaster. Have you had any absolute disasters with partnerships yet?

I have not. I've only ever had like 3 partners ever. Um, 2 of them are the ones I still invest with in Augusta, and the other one was a person I flip with in New Orleans. That's been absolutely fantastic. And so I'm so picky though on who I partner with. I get asked probably every day if I will partner with like my followers. Um, I don't know them, like, you know, and so that's why I'm like, no, like I'm only looking for, for passive partners. And so if you want to passively invest in my deals and be a private money lender, then like, by all means, I'm, I'm open to that. But in terms of operating partners, people who make decisions, I need to be able to trust you 1000%. Thousand percent, to know that you're going to do the right thing every single time. And without an actual relationship with somebody, you can't really have that level of trust.

Without a doubt. Yeah.

What about partnering with friends and family? We have, we have thoughts on this. Yeah, we've just established rules and we've had a couple lessons learned along the way with existing friends and family. So we're talking about friends outside of, like, you haven't done business with them yet. Personal friends and then family members partnering, like active partners, like operating partners on an adventure with someone.

And the answer is no. No, I think is no, because I— again, like, you don't want to risk the relationship. The friendship is much more important than, you know, a couple bucks that they can make. But if they want to be passive, like passive investors, I'm fine with it. I would do anything in my power to pay someone back even if the deal went wrong. So I know that I can take care of their money, and if they want to build their wealth while I build my wealth, I'm like happy to make that arrangement if they understand that they are just a passive partner or not an active partner. But if they wanted to be like, hey, I want to actually invest with you and be like your main partner, I'd probably, probably shy away from that.

And you've built your business to a point where you can have a deal go not as expected and you can cover that for individual investors.

Yes, we talked about that in the, I guess, 2 videos ago, maybe about the 10-unit. You can go hear about my worst deal ever, which is actually okay. But yes, I mean, people always like to expect the best in partnerships. All they see is the upside, but they don't realize that there's an equal downside and you don't know how people are going to react in stressful situations.

Yeah, no, that's, that's been very consistent for us. We've partnered with one person who was one of my prior friends And the one thing that I know—

oh, I like how you said prior.

They were a friend before business. I want to specify, like, for example, okay, so Cody and I are friends, but money's always been a part of our relationship, so it didn't change our relationship when we have ups and downs financially.

Yeah, it doesn't matter.

It doesn't matter because we're business partners first and friends second, even though we're great friends. For a friend who was a friend before business, it damaged our friendship when the— it happened to be a family member who was financing the deal, disagreed with the terms.

His family member?

Yeah, his dad. Yeah, his dad was the financier of the deals, and he happened to just be wrong on some stuff. And so it, it caused conflict because then he got stuck between his business partners and his father, and his business partners were right.

That's like a rock and a hard place.

Yeah. And so then you're in a choice where you have to choose family or friends. I would say that that materially changed the relationship. We're still friends. Yeah, but it's not the same. And so money will change your friendships. It can make them better, it can make them worse, but it will always change them. I like that you're in a position where if you have a friend who invests, you can back them. If you're starting— so say you hadn't proven yourself in business yet, would you still start with a friend?

If I had no experience? No, I don't know. I mean, I think it depends. My mom was my first private money lender, but it was a small enough amount where I had the savings to know that I could pay her back anyways. And so I like, when you first start out with private lending, I think friends and family are a lot of the times the people that you go to, to learn, but like you have to have a backup plan, right? Like you have to pay them back if you're, if you're not experienced enough. Thankfully, that deal turned out fantastic. And I've been able to, you know, pay her interest on her money. But yeah, I just be cautious about it. I just, I think relationships are so important in life that it's more important to maintain them than to make an extra buck by working with them. I'm happy to also teach them how to do it themselves and like be that support for them if they really want to be a real estate investor. It's like, great, let's sit down and talk about it. And like, I'll walk you through how to analyze a deal and I'll be there if you need me. But I think it's a little bit less risky to do that than to have them be an active partner.

Absolutely agree. That is, I love teaching people how to play the game. And there's no real risk if I teach you how to play the game and your deal doesn't go right. You didn't give your money to me. It's not, it's not the same. So I do like that method a lot. And I know a lot of people do get started with parents. There's been a few friends who've had parents invest in deal and it's gone really well. I think you hit it right on the head. If you're going to do that, which isn't what I recommend, but if you're going to do it, you have a backup plan of if this goes sideways, I can make this relationship or the money whole so that it doesn't damage my relationship. And I think that is a fantastic principle to have in place around the friends and family.

Cool.

That's what I have for partnerships. Solely, any other words of wisdom on partnerships that you can share with the audience before we sign off?

I feel like I'm more curious about you guys. Like, what questions do you ask potential partners before you decide to partner with them? Since you have a lot more partners than me, you might have a better set of questions.

We've got rules where we don't partner with people that can afford to bury us. And that is a significant risk until you hit like the $10 million net worth mark, because when you've got $10 million invested, you've got enough money to hire the best attorneys if it's invested in earning 6%. So when we are looking at partnering with people, number one, we need to know what their balance sheet looks like after you've established goals and all that. The actual questions, the qualifying questions are what what the balance sheet looks like. You've got 3 resources: you've got your cash, which is liquidity, you've got cash flow, and you've got equity. We want an understanding of where their pieces are at because that determines how well they're going to work with us. If they only had equity and only had cash flow, that wouldn't be a good fit for us because that's all we have. We don't hold a lot of liquid money. So we need to figure out where their resources lie in the portfolio. And then how big they physically are. We won't always follow the rule of not partnering with people that can afford to bury us if they can get us to the $10 million mark. Yeah, a very reasonable period of time.

And the one other major thing, and this is with all deals, investors, partners, is we map out their goals. I want the, the original thing that I brought up here where we have a target with the partnership. I want to know what it is they're trying to accomplish. If I don't understand what they're trying to do I have absolutely no idea if we're going to be a good fit. That's the first thing that I always ask. One of the best meetings we've had, their specific goal is, I don't have any goals. I've just done everything I wanted to do in real estate, and I love the game, and you guys are very interesting.

And I have money.

Yeah, it was fun. We went from mildly amusing— what was your line earlier?

Yeah, we were mildly amusing as we were getting started. Dude, he's like, I'm now legitimately impressed because we're starting to beat him on deals that he would buy. And he's like, you guys have done something that not a lot of people do in a short time. And so now he's like, this would be fun. He's like, I have more money than you, you have more access to deals, and you're more interesting. That is my proposal on the partnership. I want to have fun while deploying my capital. I'm like, okay, I can get behind that.

Can't wait to get there.

I know that goal, right?

Yeah.

And when we close our, uh, 22-unit with him, then we'll buy him tequila because He likes that.

Which I will not drink.

Party pooper. Alright, that's it for partnerships, different roles. He doesn't take tequila shots, that is the other guy's role.

Yep. So if you guys want to learn more about Sole, it's @soleand.leases on Instagram. You can follow her adventures there, which she does a fantastic job of documenting. You are all over the internet, so congratulations there. And Sole, thank you so much for joining us on this series.

Yeah, it's been so much fun. Hope to be back.

You— I'm 100% sure you will be. Until then, uh, check out the other episodes in this series, and we'll see you guys all next week with our next guest.