Partnership issues - suggestions please - Posted by Joseph Zimny

Posted by IB (NJ) on September 09, 2003 at 09:44:04:

IMHO, once you (as a RE investor) find out that your money partner is a pain in the a$$ and is unsophisticated (doesn’t know how to sit back and be a professional silent partner), he has violated his end of the bargain and should be cut loose. Go with the other money partner as long as you’re sure this new partner will know how to conduct himself/herself as a SILENT partner.

Partnership issues - suggestions please - Posted by Joseph Zimny

Posted by Joseph Zimny on September 08, 2003 at 21:59:22:

I have a client who is in a difficult situation, it seems. His money partner makes his life difficult by constantly insinuating that he will pull his financing if my client doesn’t jump through hoops, etc (surprising, huh?).
They have a formal written agreement and both sides are technically fulfilling thier ends of the agreement so there isn’t really a threat of legal action - yet.

My client has asked me to help him source other money partners and we have accomplished this task. With this new leverage the question is how best to deal with the current partner? Should the client use the new leverage to get him to stop making life difficult? Or should he give him his money back and walk away from the agreement?

The client has sound legal advice so this is really a question of business ethics and how to end this relationship on the best terms. Not a very clear ‘needs statement’, I know, but we would appreciate contrasting views on how to end a relationship cleanly.


Joe Zimny

Re: Partnership issues - suggestions please - Posted by Brent_IL

Posted by Brent_IL on September 09, 2003 at 13:01:29:

I’d look at two issues.

1 - Money-in-hand v. the promise of cash to come.

I?ve had experience where there was a delay in a money partner?s cash promised to be forthcoming. Some checks, I was told, were mailed twenty years ago. I guess I?ll wait just a little while longer for them to get here.

To remove the money guys from the RE activities, I’d try something like a limited partnership with a corporate or LLC 1% general partner. If cash-providing limited partners are locked in for a specific time, the only way they can get their money out is through the unlikely sale of their interest to a third-party. This won’t affect you because you still have the original investment. If you need them to qualify for loans, restrict the resale to those with similar borrowing power. This can get messy.

2 - Some folks like wielding power over others. Partners who are bothersome are a pain. Not only do they make day-to-day operations more difficult, but also, when you compromise to keep them happy, they distract you from the activities that will allow you to achieve your objective.

I don’t cope with threats or ultimatums very well, but even so, the first question I would want answered is, “Does your client have the right to walk away if his partner is not in default of their agreement”? The answer is contained in the written partnership contract.

I wonder about using the threat of new money to force your friend?s partner to be more accommodating. I don?t see much difference between that and what the partner is doing by threatening to withdraw his support.

I also wonder about the profitability of the partnership?s deals. In my experience, if the partner is making money far in excess of what he can do by himself, he will be reluctant to rock the boat. IMO, it would be a better solution all around to sever partnership ties cordially, if, and only if, you are certain that you have found a replacement.