Real Estate Investing Partnerships: Breaking Up Is Never Easy
The main reason my husband and I were able to build a multimillion-dollar real estate portfolio in less than eight years is because we found a few trustworthy partners.
After we made two purchases, one of our partners became preoccupied with a rapidly growing business he had recently started. It got to the point where it would take weeks to get in contact with him. After a few years of struggling to make the partnership work, we agreed to split up. We figured it would be an easy split. We owned two rental units, so we each could take one. Except we both wanted to own the same unit, and we couldn’t agree on how much more that unit was worth!
So we decided to use what is known as the “I Cut, You Choose” method. In other words, to break up the partnership as though it were a chocolate bar. One partner would cut the “chocolate bar” in half, and the other partner would get to choose which half they wanted.
This is a simple yet fair way to divide up just about anything. If you’re the one doing the cutting (in this case, figuring out how much it would be worth to get – or not get – the more desirable unit), you want to come up with two options that are as even as possible… because you get the one the other party doesn’t choose.
We let our partner establish the terms of the deal. Meanwhile, we set a range for what we would be willing to pay to get the more desirable unit. When his number came in higher, we selected the option of selling him the unit for that price.
We didn’t get the unit we wanted, but we did sell it to our partner for more than we had been willing to pay for it. Our partner bought the property he wanted for the price he’d determined to be fair. We were all happy.
Our other partnerships are strong, and we don’t expect to have to split up any properties in the near term. But if we do, we have a good system to use.
