One is the loneliest number (or: investing in a group)

Thus I introduce Biff. You've heard his name before (obviously not his real name, but a pseudonym that he himself chose). I suppose that I could take this time to rant on about how we became friends and ended up starting this whole thing, but instead I want to talk in more general terms about owning property with someone other than your spouse.

When I was on a scuba diving trip (you meet people in the most unexpected places) I met a real estate agent/investor who asked me all sorts of questions about my business. When we got to the part where I had a partner he eventually gave me the best bit of advice I've ever received when it comes to investing. "I've been in all sorts of arrangements", he said, "two partners, ten partners, no partners. I've learned that the only good partnership is when each partner needs the others."

Biff and I are successful partners for many reasons, but one of the biggest is simply because we need each other. We're each capable of running the business by ourselves, but the presence of the other adds a tremendous amount of value.

By pure luck we've managed to divide our responsibilities according to our strengths. Biff, for example, is our property manager. His personality type makes him perfect for such a role. He loves tinkering with things and problem solving. I could manage properties (if for a moment we conveniently ignore the fact that I'm over 3 hours away), but it wouldn't be something I'd enjoy.

At the same time I love numbers. I can keep myself happily entertained for hours with some receipts and a spreadsheet. I love putting in all of the numbers and then figuring out what they mean and where we are. I love it so much that many our corporate accounting practices I've incorporated in my own life. Biff does not like this. He's smart enough to run the numbers (he has a Ph.D in an engineering discipline), but it would be a terribly boring chore to him.

In addition, having a partner lessened our original personal risk and increased our combined knowledge base which made a huge difference in even starting to invest. In addition, things that I might slack off in, if I were alone in this venture, (in accounting slacking is never a good thing), I do simply because I know that someone else is relying on me to get my job done.

Recently we've discussed adding a few more partners to our business. These new partners would own minority shares and Biff and I would retain over 60% of the company at all times. The infusion of fresh cash into our venture would be exciting, but we've been hesitant to go through with it. One of the reasons, I've discovered, is that subconsciously we've felt that new partners would have nothing to offer but cash. At some point the cash might be a good enough reason to sell a 10% stake in the business. But for now we're satisfied with the current direction and speed of the company.

So that's my belief on why you should invest with someone else. If you need that partner to be successful, then you have a good reason. Whereas investing with your brother-in-law because it'd make your sister happy is probably not a very strong basis.

Next time I think I'll talk about the next step in the partnership, the agreement. The binding document that defines the rules of the company. Biff and I signed one on the day we purchased our first property (but it was 3 months in the writing).