The Benefits Of Investing With A Partner

Investing With A Partner
 

When I first got the idea of penning this post, I was so tempted to headline it, “Friends With Benefits.” After conducting a little research at Google with the exact same search terms, I decided that I didn’t want my post to be appearing in the same search result as the ones that I got when I did the search. My post is about the financial benefits and synergies that I received when I partnered with my friend to invest.

 

With my friendship/partnership, I only received the financial benefits and nothing else. I don’t want to give people the wrong idea or the perception of any “additional” benefits when partnering with someone to invest. That’s what I am going to share in this post, the “financial” benefits when you form an investment partnership.

 
Friendship Partnership

Friend First, Partner Second

I have a childhood friend that I’ve known since I was 10 years-old. We went to school together. He was the best man at my wedding and I was the best man at his. I know that I can trust him and he knows that I’ll have his back if he ever needed me. With such a close bond and a great deal of trust between us, it makes a perfect match when it comes to finding a partner to invest with. After all, if you can’t trust that person, then partnering up will be a bad idea.

 
Similar Investment Philosophy

Similar Investment Philosophy

Being friends for almost thirty years, I can definitely say that I know him very well. I have detailed knowledge of his personality, financial background, income and money philosophy. Suffice to say, he also has the same information on me because we have a lot of things in common and share very similar views on many things. Investment philosophy is no exception. We both are very disciplined savers. We take advantage of income tax rules and borrowing money to invest rather than for consumption.

 
Ground Rules

The Ground Rules

Before we partner up, we sat down for a beer and discussed a few ground rules. We agreed to be transparent with each other and to always have our communication line opened. Anything can be discussed without judgment. If we encounter any challenges or obstacles, we’ll put our intellectual and financial resources together to overcome any challenges that come our way. The decisions that we make will improve and strengthen our partnership emotionally and financially in the long term.

 
Lower Financial Risk

Lower Financial Risk

When you invest alone with your own money, more resources are required. You have to put a greater amount of your own money at risk. This leads to less flexibility with your own finance. You may be cash strapped if too much of your money is invested into one investment. On the other hand, if you invest with a partner, you’ll most likely have to fork out less cash comparing to investing alone. You’ll be able to share the financial risk with your partner, which in turn lowers the risk for both of you. There will also be more wiggle rooms for you to make mistakes in a partnership. Overall, the combined financial power of two people is far more superior than one individual alone.

 
Combined Expertise

Combined Expertise

Having a buddy to be by your side and in battle with you cannot be underestimated. One great example is Warren Buffett having his buddy, Charlie Munger investing by his side all these years. Even though Buffett has gotten all the glories throughout the years, I think Charlie Munger deserves just as much credit as Buffett for Berkshire Hathaway‘s success.

 

For my own partnership (I am in no way saying that it’s even close to Buffett and Munger’s partnership), I feel very fortunate to have someone investing by my side and to be able to brainstorm solutions with me when I am facing a challenge. Someone who is able to mask my weaknesses with his strengths. When we combined our skills, expertise, and resources, the combined result is much greater than our own individual results alone. The sum is greater than the combined individual parts. Just think of it as 1 + 1 = more than 2.

 
Increased Human Resources

Increased Human Resources

Another obvious benefit is the increased human resources and man power to do tasks. If you’ve ever invested in a rental property by yourself, then you’ll definitely appreciate having a partner. You can divide the administrative works such as reporting income taxes, collecting rent cheques, paying bills or handling tenant inquiries. Take turn handling tenant service calls and showing the property is much easier with two people. You’ll also have another person to help you take care and repair the property. After being a landlord for about four years now, I can say that owing an investment property with a partner is paramount.

 
Comraderie

Camaraderie

When you have a great partner to work with you, the camaraderie makes the work an enjoyable task rather than a choir. Both my friend and I don’t mind spending our free time working on the rental property. We are very satisfied and proud of the work that we completed at our property. Most of the time, our wives think that we had a guys’ day out rather than labouring our butts off to maintain our property (just a side note, we are pretty handy ourselves and can complete most property maintenance work around the house and we prefer not to hire overpriced contractors). The main factor for the success of our partnership is that we enjoy being around each other and we work well together.

 
Drawbacks Of Partnerships

Drawbacks Of Partnerships

Many people shy away from partnering with their family members or friends to invest due to the fear of an unsuccessful partnership will lead to a terrible end to their relationship. This fear definitely did materialize in many people’s unsuccessful partnership. From bad luck to incompetence to bad timing and to a lack of financial strength, these uncontrollable factors can cause any partnership to fail. However, I believe other controllable factors can be addressed and overcome to make any partnership successful.

 

The controllable factors that affect the success of a partnership are shared vision, shared power, shared profit, a difference in opinion, financial transparency, and expert knowledge. By addressing these controllable factors we are able to reap the benefits of our investment partnership. At the same time, the partnership will strengthen both partner’s financial positions.

 
Common Goals

We Share Everything

In order for our investment partnership to survive and thrive, the partners must share a single vision, goal, controlling power and profit. Our vision is to combine our finances to help each other build wealth in the long run. Our goal is to make money with our investments in the real estate market. We’ll put our ego aside and use our combined intellectual abilities to make the most informed decisions that will benefit us in the long run. The profit or losses will be shared equally between the partners.

 
Difference Of Opinions

Difference Of Opinions

Since the start of our investment partnership, I felt that we had been very fortunate not to have that many occasions where we have a difference of opinions. Whenever we are faced with a challenged or have new ideas, we always analyze the situation together and come up with alternatives to minimize our risks and maximize our benefits in the long run. The lack of an ego from both partners also makes settling our differences easier and more efficient. There is no need for tiebreakers. Oh yeah, when we make decisions, we always aim to have a win-win outcome rather than having a strict winner and a loser.

 
Transparency And Trust

Transparency Issues

One of the most common issues that I’ve heard about the failure of a partnership is the lack of transparency in finances. Often, there is one partner having control of the finance and others don’t have any visibility into the financial health of the partnership. When financial issues appear, partners started to be suspicious of each other which often result in conflicts or resentments among the partners.

 

For my investment partnership, we started by setting up a joined account where both partners have equal access to the account. When there are expenses, we’ll have to provide receipts. This arrangement works well in two ways. We can manage expenses transparently and have documentations when we report our income taxes. As a result, no partner will be able to claim expenses without proof. Another practice that works well for us is that we always consult each other before making a purchase. Both of us will try to outdo the other when it comes to saving money. We get to brag to the other for a while when we save the partnership money and we do take our bragging rights very seriously.

Let The Expert Lead

Other drawbacks that cause major breakdown of a partnership are control and expertise. Everyone wants to lead, but not everyone is an expert in all areas. For example, it’s very often that the partner with the most capital invested in the partnership leads and set the direction of the venture. However, not everyone is a good leader and the partnership suffers if the partner invested the most resources lacks leadership skills and vision.

 

We overcome the power and control issues by letting the individual with the expertise in that area lead. The other partner will provide his support. For example, my expertise is in the real estate and finance areas so I will be responsible for setting the budget for our operation and manage the revenue side of our operation such as setting rental rates. On the other hand, my partner’s expertise is in renovation and organization. He’ll be leading the property maintenance and expense side of our operation such as paying all the bills on time.

My Two Cents

In order to fully benefit from investing with a partner, there must be a common goal and vision between the partners. They need to trust each other to have the partnership’s best interest in everything they do. They must be transparent and leave their egos out of the equation. Lastly, working to overcome all the controllable factors that don’t provide benefits to the partnership is crucial to the partnership’s success. Invest together, benefit and succeed together.

 

Have you invested with a partner before? Who would you choose as your investment partner? If you have been in a partnership before, what made your partnership a success or a failure?

 

Leo T. Ly, Canadian Personal Finance Blogger/Enthusiast and a Realtor Living in the Markam, Ontario, CanadaAbout Leo
I am a Canadian personal finance blogger/enthusiast and a Realtor living in Markham, Ontario, Canada. I built a net worth of a million dollars over a ten year period. I did it by being a disciplined saver, taking advantage of income tax rules and borrowing money to invest rather than for consumption. I am often excited to take advantage of free money from employers and governments in addition to building more passive income sources. After accumulating my first million dollars, I am now embarking on a second journey towards achieving financial independence. On this journey, I will strive to increase my net worth to two million dollars and retire by the age of 48 - Freedom 48. Come along and follow my journey on Facebook, Twitter or Google Plus.



There are 82 opinions expressed on this post.

  1. I’m working with a few gentlemen on my website and brand The Mastermind Within. We are also going to venture into other businesses and look to build passive income utilizing the internet.

    I really enjoy the camaraderie. In addition, you flex muscles that you normally don’t flex in an office job: negotiation, problem solving, communication, EQ, etc.

    One downside is if there is a partner who doesn’t pull his weight. It’s sad but true – not everyone lives up to their promises.
    Erik @ The Mastermind Within recently posted… Dividend Growth or Dividend Yield? Growing Passive Income in the Stock MarketMy Profile

    1. @Erik, it does seem like you Jake and Henry are working well together and I can see that you guys are producing awesome posts.

      I definitely agree that a huge drawback in a partnership is that one of the partners is not contributing his share of the work. Hence know your partner’s work ethic will mitigate this issue a bit.

  2. Interesting angle for a post. I honestly have never partnered with someone financially, unless you consider marriage. In my case most of my friends just are not interested in hustling outside of w2 work. Still I’ve heard plenty of horror stories so it’s interesting to hear how you manage it. What type of results have you seen? How does it compare to on you own?
    FullTimeFinance recently posted… The Importance of Umbrella InsuranceMy Profile

    1. @FullTimeFinance, I have been friends with my partner for almost 30 years, so it’s not that difficult to manage our partnership as we knew each other very well. I did hear that in some partnership, the one with access to the partnership’s finance either mismanage the money or running off the money. For me to overcome that issue, we just share access to the partnership finance and make decisions together. Transparency is the key to our success.

  3. Nice post Leo. Sounds like you 2 make great partners. What if one of you want out though? Can the other instantly buyout the partner? I would consider real estate buys with my best friend but life can change and then either one of us may want out. Dave Ramsey says a partnership is the only ship that doesn’t float haha. Sounds like u got it figured out tho.
    Passivecanadianincome recently posted… What Is Your Mindset?My Profile

    1. @PassiveCanadianIncome, if one of us want to cash out, we have two choices. The other will buy out the one that wants to cash out at fair market value, or both cash out and split the money.

      When you invest in real estate together, just make sure that you at lease have a 5-year plan as real estate can be illiquid.

      As for Mr. Dave Ramsey, I don’t think he had ever heard of the Buffet and Munger partnership. It doesn’t float, but I think it’s a spaceship that can fly.

  4. Sounds like you have an awesome partner. I talked to a friend of mine about going into business and he rebuffed for the details you outlined above. He said he didn’t want to risk money and our friendship. So I’ve gone on my own to do some things and for me it was probably for the best as I struggled through some things but ultimately became successful 🙂
    Mustard Seed Money recently posted… Guest Post: Keeping Low Standards When It Comes to CarsMy Profile

    1. @MSM, it takes two to tangle. If your friend is not comfortable going into business together, it’s the right choice not to force it. You can lose more than just money when the venture goes south.

    1. @Zayani, if that person cheated on your dad, he’s definitely not your dad’s friend. For me, I will never do such a thing to my friend. I strongly believe in invest together, benefit and succeed together.

    1. @Emily, honesty is definitely a great quality to look for in a partner. It’s sad that some people jeopardize lifelong friend because of money. I hope that I will never have to face that issue.

  5. Great Information! I can only imagine what came up when you googled friends with benefits! Lol thanks for my morning laugh! As far as partnership its hard to trust people but also has some great benefits

    1. @Jenn, glad that you got the morning laugh out of my little joke. I want my post to do well on search engines by having catchy headlines, but I also want to make sure that I target the right audience.

      Trust is one of the cornerstones of a partnership. I would only recommend that you partner up with people that you can trust, have the same vision and goal, and similar work ethics.

    1. @Milton, having your wife as your partner can provide you with lots of benefits. I know many Realtors partner with their spouse in business. It can be a great combination if you can keep your personal and professional relationship separate.

  6. These are great tips! I have never thought about going into business with a partner before, but I will need to look into it! Seems like it could be very beneficial for everyone!

    1. @Jessica, there are quite a few benefits to being in business with a partner. What I mentioned in my post are what applied to me. I am sure there are more that I have not mentioned.

    1. @Miera, The key to starting a successful partnership is to set the ground rules and expectations for each partner. The more you do to prepare. The better off your partnership will be.

  7. I love the idea of having a partner in business, I mean the risk is equally shared also the profit but having to partner with my friend is something I will always avoid. Usually, money bring more unpleasant arguments that one can imagine, and thought of losing a friend over money or business decision is just scary to me!
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    1. @Muna, If you are not comfortable to partner with another person to invest, then it’s best to not start a partnership. I would only recommend this route if you are comfortable working with another person. A bad partnership can cause you to lose more than just money.

    1. @Ralin, To build a secured financial future for oneself, the sooner you learn how to save and invest, the sooner you’ll be on the road to financial independence.

    1. @Tengkubutang, If you have had a negative experience with a partnership before, then it’ll be quite difficult for you to start another partnership. In my opinion, when you invest, your success is determined by how much preparation you put into it. Regardless if you are in a partnership or not. Hopefully, you’ll have better luck with your investment the next time around.

    1. @JiaShin, sometimes, the partnership’s failure may not be caused by the partners. It may be the nature of the business or the business idea itself. However, most people take the failure of the investment personally and it ultimately affects the people that are involved. This is the unfortunate and ugly truth of the human nature.

    1. @Janice, trust and mindset definite are the two important factors that help my partnership to be more successful. A third success factor is communication. We talk on a regular basis so that both of us are aware of our investments,

  8. Good article Leo.

    Trust is a huge factor, as is ‘can both partners equally bring knowledge and value to grow the investment/business’.

    Would I invest and partner with Warren Buffet simply buying the shares of BRK.B, would that be different partnership without the emotion.

    As time goes by, the two life long friends may have an emotional roller coaster, personal life situations can affect the business relationships.

    I guess I’m a sceptic when it comes to ‘partnerships’, of course friends as well as family members can be the best partners ever, they can also be your own worst enemy.

    Trust only the person that can make or break any situation…

    Leo with all respect, I trust that your partnership with your life long friend brings you all the joy as well as the expected prosperity and financial reward.

    1. @John, our relationship is quite unique as we had a very similar life story. We know how difficult it is to build wealth by ourselves. We discovered that by combining our intellectual and financial resources, we can both benefit greatly. Any endeavor has a certain amount of controllable and uncontrollable risks. Since we are both certified PMP, we are very well versed with managing risks. The important thing is that we always try to be supportive of each other and be there for one another in a time of need.

  9. You are very lucky that you have found a financial partner on the same page with you. Being the control freak that I am, I don’t think I have the personality for it. I don’t even trust my own husband to pay the bills! LOL. Congratulations on your endeavor.

    1. @Melanie, the control, and power are definitely an issue when it comes to a partnership. If you are not able to share power and control, then a partnership will be a bad investment in the long run.

  10. I have done a flip with a partner that worked out well. It was 100% of my money, and a lot of my work, but he found the deal. We were both happy about the result, which was all that mattered.

    It can be a disaster though.

    1. @NoNonsenseLandlord, from what I see, that was a great investment and a win-win for both of you. As long as both partners are happy and benefited, that’s all it matters. Since you put up 100% of the money, I think you are definitely helping your partner out a bit and I commend you for being so generous.

    1. @Katriza, thank you for sharing my post. To overcome the drawback of partnerships, we put our friendship first before money. It’s easier said than done, but so far, we have not had any money issues ever since we partner up.

    1. @Sondra, every investment involves a level of risk. Before you invest, you’ll just have to investigate the possible risks to see if you can overcome, mitigate or accept the risks.

  11. Many people would obviously be very hesitant to enter into a financial partnership with a close friend for fear of losing that friendship. However you have certainly taken all of that into account very well in explaining all the points extremely clearly in your post. Obviously the friendship you have with your friend and partner respects differing points of view and seeks to achieve win-win – on top of the fact that you both laid the ground rules to start with. Well done and best of luck to you both.

    1. @Nicole, laying out the ground rules at the beginning and trying to resolve issues with a win-win outcome had definitely benefited our partnership. When we encounter an issue, we want to be on the same team. It’s us versus the issue, not me against my partner.

    1. @David, if you plan to be successful, you need to succeed in planning. For our partnership, we did a lot of planning and discussed many things to ensure that the partnership benefits both of us in the long run.

    1. @Ophelia, partnering with your friend for your blog is a great idea. I see many successful bloggers partner with others. Hopefully, the experience that I shared in this post can benefit you.

    1. @Joysofyz, this is a tragedy and I am sorry to hear that it happened to your dad. From what I heard, restaurants are mainly cash businesses and free access to cash can lead to dishonest actions. For my partnership, we circumvent this situation by being transparent and no one partner will have total access/control to the partnership’s cash.

  12. That’s so smart that you mentioned to have a close friend that you trust as an investment partner. I’d love to be able to have this but I don’t have a single friend I would trust with money HA!

  13. Partner in crime is always beneficial and is also to make sure everything is transparent and prepare when you started! Thanks for sharing the few benefits of having investing partner =)

    1. @Sharon, the more transparent and prepared that you are from the start, the fewer issues you’ll be dealing with in the future and the more trust you’ll build between the partners.

  14. Loved this post …. very interesting read and great tips… This blog gives a great reminder of many importance areas in working with people whether it is your partner in crime or just your team members at work… can definitely apply mentioned concepts presented here, thank you for sharing this blog, BTW love the analogy of Charlie M. and Warren B… I would give Charlie some credits as well !! Great stuff, motivates my day…

    1. @Minh, I am glad to share my experience with others and I hope that they can leverage my experience to help them improve their personal wealth.

    1. @Elizabeth, having a partner with intellectual and financial resources can greatly benefit you if you have someone that you can trust to partner with. There are many examples of people getting wealthy with a partnership.

  15. There are those who would find an expert in the field and try to gain partnership with that person instead of getting someone they’ve known for years. It’s like entering a relationship, you’re scared to ruin a good foundation.

    1. @Elizabeth O., At the end of the day, a partnership comes down to trust. The question is, “who would you rather trust, your friend or the expert?” For me, I’ll take my friend over any expert as I trust him a lot more than anyone that I don’t know.

  16. It’s good to have a business partner. I agree with the benefits that you have here. It’s better to have someone that you can invest with rather than be alone in all of this.

    1. @Amanada, my view is, “two heads are better than one.” We put our intellectual and financial resource together to help each other out. That’s what friends are for.

  17. You definitely had people’s attention with your first paragraph haha jk. Partnerships are great in business and can greatly decrease your stress if all parties contribute evenly. The only problem is the work is never really split down the middle. Someone always may be more passionate or do more work/ put in more hours. Then trying to figure out compensation if money is made on who deserves what portion. Ground rules are for sure needed in the beginning but could potentially get changed as time goes on or roles change. If it is anything like living with a good friend, don’t do it. It’s more important to keep the friendship just in case something goes wrong.
    Dividend Daze recently posted… How to Develop a Market Strategy and Choose an Online Trading Platform – Part 2My Profile

    1. @Dividend Daze, base on my experience, the work can never be divided evenly between the partners. Different partner has different skill sets. The key to maintaining a successful partnership is to give some and take some. As long as the partner don’t intentionally take advantage of the other partner, it’s okay for the work to be divided unevenly from time to time. The partner that did less work this time, will try to make it up the next time to balance things out.

    1. @Amy, Some people are just suited to work alone and has a better chance of succeeding as a proprietor rather than in a partnership. However, the benefits of having a partner cannot be underestimated as I’ve outlined in the post.

    1. @Ashlea, Understanding each other’s strengths and weaknesses can really help the partners to divide the responsibilities in a way that would maximize each individual’s strengths. The best synergy can be achieved when the partners have complementing skills and there is a level of trust between the partners to let the other manage independently.

  18. Love your post as it gives an indepth evaluation of what to expect if you are planning to invest with a partner. I am partnering with my husband in our venture, and it is easier for us in a way, but I may consider finding other partners who are just friends in the future – I think there are more advantages than disadvantages.

    1. @EH, I think that having a prior partnership experience will serve you very well when you go into a new partnership with another individual. In this case, most people will take the lessons that they’ve learned from the previous partnership and try to improve upon that and also correcting the mistakes that they’ve made in the previous partnership.

  19. Yes I totally agree with you that there must be a common goal and vision between the partners. You have a very good point. Thanks for sharing your two cents about this.

    1. @Angela, Common goals and vision are a must when it comes to a partnership. It keeps the “partner” ship on track and sailing in the right direction.

    1. @Peachy, based on my research and the stories that I’ve heard about other people’s partnership, many people’s relationship/partnership broke down because they do not have a clear expectation of what’s expected of each partner. Hence, when we form this partnership, we made sure that we have a common understanding between us.

      1. Leo, a partnership is a ‘business’, is only as good as the people & their relationship, trust is huge, but folks being folks anything can go off the rails.

        I’m sure that you’ve covered the bases with your partner that is not just based on a ‘handshake’, that you have a formal contractual ‘partnership agreement’ that includes the ‘financials’, ‘share capital’, ‘banking’, ‘responsibilities’, ‘separation clause’, ‘divorce clause’ , ‘survivor clause’, ‘buyout clause’ , ‘exit strategy’ to dissolving the partnership’? There’s more to it, that I think covers the basis.

        1. @John, it’s a very good point that any business is only as good as the people that are running it. Especially in partnership, trust between partners can either be your greatest advantage (if it’s working well) or your greatest disadvantage (if the partners don’t trust each other).

          For my partnership, I definitely don’t have all the angles covered like you’ve mentioned, but you’ve definitely given me a great list of things to prioritize and to discuss with my partner.

  20. Very nice sharing from you here, practical tips sharing too. Frankly not easy to enter s business/ partnership with friends, it may at times loose the friendship too. Cheers, SiennyLovesDrawing

    1. @SiennyLovesDrawing, partnering with family members or friends can add another element to your business. Most of the other readers’ fear are similar to yours when the partnership fails, they fear the personal relationship may fail too. However, we are confident that we can succeed in our business and strengthen our friendship too.

  21. Leo you already know this I’m sure – there are on-line ‘partnership agreement’ templates for free, a simple google will do it

  22. You did a great job, I also know some people who are best friends and also partners in their business and their business is going very successful. So it depends on us that can we trust that person who will be our partner in any field like business, game or any other. So thanks for sharing all details with us.

    1. @PIA, one of the keys for your successful partnership is trust. This is what our partnership foundation is built on. If there is trust between the partners, your chance to succeed will increase significantly and there will also be one less thing to worry about.

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