Both new and experienced investors alike will eventually find themselves in a position where they either seek out a partnership or are approached by someone looking to partner. Whether it’s partnering on a single deal, a bunch of deals, or an entire business, partnerships can provide immense benefits—but they can also pose substantial risk.
I’ve seen partnerships that have allowed the individual partners to garner greater success than either of them could have attained individually. And I’ve seen partnerships that have blossomed into successful long-term ventures that have lasted decades and made the partners both very wealthy. On the other hand, I’ve also seen partnerships tear apart friendships. I’ve seen partnerships lead to legal disputes. And I’ve seen partnerships that have led to family feuds and large sums of lost money.
So, what determines whether a partnership is the panacea that will bring success and riches—or the curse that will bring hurt feelings and financial ruin?
I’ve done a decent amount of partnering in my career, both within real estate and in other business ventures. My experience has helped me to develop an intuitiveness around whether potential partners will be good or not so good for my venture. Beneath that intuitiveness, there are some concrete questions that I like to ask myself before considering working with any partner, and it is the answers to those questions that will lead me towards or away from that partnership.
Here are the five big questions I like to ask myself before considering working with a new partner.
1. Do we have a history together?
While not all partners are the best of friends, a partnership does mean spending a ridiculous amount of time with another person. As I’m sure most of us agree, finding a person that we’re comfortable spending inordinate amounts of time with isn’t always easy. As my wife will tell you, even our closest friends can be difficult to be around sometimes.
Spending lots of time with someone requires that each party has respect for one another, that each party recognizes the other’s boundaries, and that each partner has an intuitive sense of when the other person is swimming along confidently or starting to drown. This type of relationship isn’t common and can’t generally be forced.
Related: Search partner 5 Serious Questions to Ask Yourself Before Partnering With Family Members
Not all of my partners are lifelong friends. Still, having a history with someone is a good barometer for whether we’ll be able to get along when tough decisions need to be debated and when tensions rise. If you haven’t seen someone at their worst—when they’ve been faced with a major setback, dealt with disappointment, or been frustrated at an uncontrollable event—you may find yourself regretting the partnership when things aren’t going so well.
2. Do we agree on the vision?
Let’s assume your partnership makes a million dollars in year one. What would you do with that money? Pay out the partners $500,000 each? Invest that money into income-producing assets and generate passive cash flow for the rest of your life? Put the money back into the business and attempt to make five million the following year?
While deciding what to do with the millions of dollars you’re generating is a good problem to have, if you and partner don’t have the same vision, it can actually be a very bad problem.
I can’t tell you the number of times I’ve seen partners achieve short-term…