Here are some steps to form a great partnership:
– Know the skills needed. Identify skills you bring.
– Identify skills that are lacking. Identify structure.
– Approach someone with skills and offer yours.
– All partnerships end, and it is the responsibility of partners to know how it will end.
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Chris Clothier Real Estate Background:
– Partner of Memphis Invest, one of the largest passive turnkey real estate companies
– Memphis Invest does over $100 million in annual revenue
– They purchase over 600 single-family properties yearly in Memphis, Dallas, and Houston
– He and his family manage over $400 million in asset value for investors from around the country
– Founder of nine different companies in two industries billing over $10 million in annual revenue
– Based in Memphis, Tennessee
– Say hi to him at http://www.memphisinvest.com/ or chris@memphisinvest.com
Click here for a summary of Chris’s Best Ever advice: bit.ly/2nFyzii
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff. I hope you’re having a Best Ever weekend.
Because it’s Saturday, we’re doing a special segment called Situation Saturday where our best ever guest talks about a sticky situation they were in and how they overcame it. How are you doing, Chris Clothier?
Chris Clothier: I’m doing phenomenal, man. How are you?
Joe Fairless: I am doing phenomenal as well, and nice to have you on the show again. Best Ever listeners, if you recognize Chris, that’s because he’s been on the show before. Originally, he was on episode 58, titled Turning Smiles Into Profits, where he talked about his customer service program and how they call every single client of their with this turnkey company every month, and get feedback.
From that interview, I implemented a question that you talked about, Chris. You talked about how you always talk to potential partners about the mistakes that they’ve made, and if they say they haven’t made any, then they either are being dishonest or they haven’t been in the game long enough. I actually ask that on my normal format ever since then, for the last 900 episodes, because of you.
Chris Clothier: Wow! Are you kidding me? 900 episodes – that’s cool! I’m glad I could contribute to that.
Joe Fairless: Yeah, and there have been so many good answers as a result of that. There are so many lessons learned just from you mentioning that one thing. I guess it was 900 days ago, I guess that’s how it works. [laughs] Ain’t that crazy? 900 days ago, whenever we talked.
Well, a little bit about Chris. He is the co-owner of Memphis Invest. It’s one of the largest passive turnkey real estate companies. Memphis Invest does over 100 million in annual revenue. They purchase over 600 single-family homes yearly in Memphis, Dallas and Houston. He’s based in Memphis, Tennessee. With that being said, Chris, do you want to give the Best Ever listeners just a little bit more about your background? And then let’s dive into the tough situation you’re in.
Chris Clothier: Yeah, absolutely. As you said so eloquently, I am a partner in Memphis Invest, and I am partners with my father and my younger brother. My older brother Kent, while maybe not being a partner in the company, obviously had a huge influence on us. He’s got his own real estate company out in California, but what’s important is that my family, all of us have been raised in this very entrepreneurial environment. Ever since we were kids — I started working when I was 11, and everything that we’ve ever done has been really customer service centric, no matter what the industry was, no matter what the particular company was that we started. Each of us has started our own companies, and always based on customer service, no matter what the product was.
For that quick little background, we’re managing, as you said, 4,000 properties for passive investors from around the country. We love real estate, probably more than anything, just being in business in general. We love having clients and vendors and team members and building things… I guess it’s in our blood, it’s in our nature, from doing it for so long to this point.
Joe Fairless: From managing 4,000 properties to buying a whole bunch of properties on an annual basis, to building companies, I know you’ve come across many sticky situations, so you’ve got lots of different stories to choose from. Which one do you wanna talk about?
Chris Clothier: Let’s talk about one that may hit closer to home for many of your listeners. It’s just about doing a deal yourself, and I’m gonna talk about bravery… Being brave enough to go out there and try and take on a challenge on your own, rather than feeling like you have to go with a partnership. It really boils down to… Early on, several deals that I had done went really well, and one went South really fast. But the point of it was that all of it I did with a partner, because I wasn’t brave enough to go on my own.
It’s interesting for me, because I look back on it… I had all the tools, I had everything that I needed, I just didn’t have the confidence and the bravery to go on my own, so I chose a partnership instead [unintelligible [00:06:15].15] but that’s a partnership that no longer exists and it’s a friendship that got hurt because of it, so I’d love to share that.
Joe Fairless: Yes, please do. You’ve piqued my curiosity.
Chris Clothier: Well, I was in Denver, Colorado recently at the Best Ever conference event out there in Denver. It gave me a chance to kind of go back to some of my old stomping grounds, where I got started as a real estate investor. It’s also the place I founded my first company, which was a grocery arbitrage company. I was very successful thanks to having some really good mentors and my family around me that helped me to build my first company successfully. And I was taking my earnings from that company and I began to invest in real estate.
The biggest challenge that I had was the fact that I should have been smart enough to look around me and say, “I’m a smart person, I’ve got good people around me, I’ve paid attention, I’ve got good mentors…” I built a business at the time that was very successful, but I still felt like I needed a partner in order to invest in real estate, the fix and flip kind of stuff. And rather than pick the best partner, I picked — let me just be clear… Great guy, phenomenal person. He was a good friend of mine, but the problem was that neither one of us had any experience in real estate, and the funny thing was we both were scared of losing, and rather than lose alone, we chose to lose together.
That’s what happens so often in partnerships… We made the decision to be partners for all the wrong reasons. Not because he had strengths and I had strengths, but because we both had a weakness, which was lack of faith, lack of bravery, lack of courage to go do it on our own. To be fair to him, he was already a long-term buy and hold landlord that was doing okay, but we were going to do some fix and flip homes.
In the end, we picked a couple of deals and we were doing well. We had no idea that we were spending twice as much as we needed to spend and taking twice as long to do it, but we were selling the houses and making money. And we mistook making money for success, if you know what I mean. We were not doing a good job of anything, we were just spending money.
Joe Fairless: Well, selling houses and making money – on the surface that certainly appears to be asuccess from a business standpoint.
Chris Clothier: I’m glad you said that, because you’re right. But that was our problem… Anybody that is successful over the long term knows that you have to track your progress, you have to know how many dollars you spend in relation to how many dollars you make. You have to know how everything correlates, all the cause and effect of what it is you’re doing.
For us, we were moving so fast… We both had other successful companies that we were making money in. Neither one of us were holding each other accountable to anything. One of the tips I always share [unintelligible [00:09:11].26] is “Inspect what you expect”, which neither of us were doing. We basically were just kind of relying on the other to be the smart one. Looking back, it’s really funny – we were making some money; we could’ve done much better, and what did us in eventually was a home that we chose that… This is how fickle real estate is. It was right there in Denver, and it was a matter of 200 yards – that was the difference between us making money and losing a lot of money. We lost over six figures on this deal, and it broke apart our partnership certainly.
We were just not really friends anymore because of it. There was a lot of animosity towards each other, because neither one of us were holding ourselves accountable, much less the other. The problem is that we purchased a home that was literally two blocks away from where it needed – both school district, taxing district… The way that homes were gonna be appraised and what would be used as comparable sales – it literally was the difference between a home being worth 500,000 and a home being worth 300,000. We owned the home in the four hundreds.
We held the house for a very long time. I continue to write checks for it, and write checks for it, and write checks for it. I tell people on the backside when it’s all said and done that I went into a partnership with someone that I was comfortable with, someone who told me all the right things that I needed to hear, like I was a good businessperson and I was smart, and I was obviously successful; I had money together, we would be able to fix and flip homes.
I did not partner up with someone who had the ability to run good forecasts of as far as what we’re spending, how to budget that money and how to model that money. I didn’t partner with someone who could pull comparable sales and could analyze that 200-yard difference, that two blocks that really sunk us. I didn’t partner with a person that had the right skill set for me, because my skill set was absolutely at my business, and I had money. I had the ability to stay organized and stay on point, but I didn’t know real estate.
My partner, unfortunately, didn’t have money, but also didn’t have the real estate skills that were needed, so he was managing a project that he didn’t know how to do. It ended up being a disaster, and I go back to the very first thing I said… When we’re choosing a partner and we’re choosing a partnership, I did it out of fear, and that is never a good reason to go into any type of — whether it’s a real estate transaction or a business transaction, you should never enter one out of fear.
Like I said, we were fearful of losing money, so rather than losing money as individuals, we lost it together as a partnership.
Joe Fairless: Based on what you said, it sounds like you need someone who has the right skill set to complement you, or fill in the blank for whoever is the person who is looking for a partnership… But when do you know that you should have a partnership, versus going on your own and doing your own deal?
Chris Clothier: If your choice to go into a partnership is based on your own fear, whether it’s fear of unknowns, whether it’s fear of failure, whether it’s fear of taking on a really big project and being highly successful, which believe it or not, that’s a fear that a lot of people have. When they haven’t done a really big project – they’re perfectly capable of doing it, but the simple fact that they haven’t done it before is a fear that makes them bring on a partner instead.
So when you’re making a decision on whether to bring a partner in based on fear of what could happen, then you’re probably not ready to bring on a partner. It needs to be a partnership – and you nailed it perfectly, Joe… You need to take on a partner when you can look around the landscape and say, “I’m able to bring these particular skills to this project.” Maybe in my case I didn’t have the time or the experience to know how to do comparable sales, so I wasn’t sure how to comp a property properly at the time. I did not have enough experience negotiating with contractors to negotiate pricing. I had been basically a very passive investor up to that point.
If I was gonna partner, I needed to bring someone in that had the experience of negotiating with contractors, getting them hired, keeping them on track, because I knew all those things had to be done, I just hadn’t done them before. If I had just spent a little bit of time sitting down and thinking about it, I would have realized that even though I’d never done it, I negotiated with contractors daily. It was a different kind of contractor, but I’d been negotiating for years; I knew exactly how to negotiate a contract, I knew exactly how to negotiate work to be done… I could have easily contacted one of the top real estate agents in the area, because I knew the things to do, I just didn’t do them. I strictly chose a partner based on fear, rather than probably looking myself in the mirror and saying, “I know how to do this. I’ve been a successful businessperson, I’ve been in the local real estate investors association, I’m surrounded by smart mentors… I can do this.”
I chose to take the easy route, which was “I’ll get a partner instead and let him do these things. I’ll provide the money and make it on the backside.” And the worst part for us, Joe, was that we were successful for the first three or four deals we did. We made money.
Joe Fairless: Yeah, false sense of security.
Chris Clothier: Oh, yes… Absolutely.
Joe Fairless: One question I have… I’m a huge Tony Robbins student and he talks about how emotions like fear and being scared or being maybe depressed, they’re all action signals if we use them in an empowering way. I don’t remember what he said fear is and what that should lead us to, but I suspect it’s something like, “Get prepared.” If we’re fearful about something, then we need to either get educated or more prepared.
The question I have is along those lines… I have entered into partnerships with a good dose of fear, but then also it’s because I know some of the aspects that they’re good at that I’m not will help with the transaction, and it’s gone well. So I am fearful that “Hey, I really don’t wanna do this because I’m not gonna set up the project for success”, so how do you reconcile that with this approach?
Chris Clothier: You said something perfect right there… You are aware of your weaknesses. I’ve got a better way to put it – the things [unintelligible [00:15:49].26] on that particular deal, and it was that awareness that made you fearful to move forward without correcting that. What I’m talking about for me is I guess I had that same mentality, but I just didn’t recognize what I needed in a partner. Instead for me it strictly was “I like this person, I’m good at what I’ve been doing, he’s been good at what he’s doing… It will be fun to be in a partnership with this person. He and I can make some money together. We have done all this stuff together, so we can — whatever it might be… It might be playing softball on Thursday nights together, and we’re gonna meet for a happy hour…” Whatever.
These things that say “Hey, this is what makes us a good partnership, and he’s got time on his hands, he’s got some experience…” I was never asking the questions that you were asking right there – “Does this person bring to the table exactly what I need?” Forget anything else about it, and “Do they bring to the table the specific things that are gonna make me successful in this project?” Being fearful and not moving forward because you don’t have everything you need yet, that’s smart.
I love the way that you said Tony Robbins puts it, in the case of “Get educated, get yourself surrounded by the right pieces, don’t just stop.” But for me, I didn’t do that. I just chose a partner that I thought would be fun to hang out with and I can make some money with, and I thought if I do lose, we’ll both lose together so it’s no big deal, because we’re buddies.
Joe Fairless: Everyone loves losing over a hundred thousand dollars with a friend. You should experience that with all your best friends. I highly recommend it.
Based on listening to you and taking notes, I’ve condensed it into a five-step thought process, and I wanna run it by you to see if there’s anything else that you’d like to add. One is to know the skills that are needed to do what you wanna do. Two is to identify the skills that you bring, three is to identify the skills that are lacking, four is to know how you wanna structure it, and then the fifth would be when you approach someone saying, “Hey, I know skills are needed…” — and you don’t saying it exactly like this, but say, “I know the skills that are needed for this project X, Y, Z. I bring these skills, I think you can bring these other skills. I’d like to structure it as follows. What are your thoughts?” Is that the approach that you would take?
Chris Clothier: Yes. And I will add one asterisk for everybody to understand, and we’ll see if you agree with this. I was told by a very good mentor of mine that all partnerships end, and it’s the responsibility of those entering into the partnership to decide on the frontend how it will end. That includes — as he pointed out, he’s like “Look, at some point debt is chasing us all.” Man, I will not forget what you said up there on stage, that we’re all dying. I remember that when hearing you speak on stage, Joe, and that is true. So from the very beginning, set up how will this look, because it may look like one of you passes away at some point, and what happens next?
So he said, “If you will sit down and decide on the front end if this go good, if things go bad, should there be debt – whatever happens, this is how we’re gonna handle it”, then that partnership has the pieces it needs to get started up on the right foot. If you partner with people because you like hanging out with them, as I did, you very well may end up as I did, and that is no longer with a partnership, and possibly losing money.
Joe Fairless: Yeah, and I can tell you if you bring in investors in a partnership, they’re gonna ask the same question of “What happens if one or both of you die?” I’ve been asked that many times, and we have to make sure that it is written out in the agreement, because then we go, “Oh, good question. Let me show you point three sub. three, or whatever it is.
Chris Clothier: Yeah, “Let me show you exactly what will happen.” That’s good.
Joe Fairless: I love that. This has been great. It’s a very clear theme and story. Is there anything as it relates to identifying the right partners that you wanna mention that we haven’t talked about already?
Chris Clothier: I don’t know about exactly the things you need to look for, because everything is going to be different… But I love what you said earlier, I think clarity is really, really smart. When you recognize that you don’t need to move forward on something without having the right pieces in place – and that might be a partner – let that be a great starting point for you to start defining “What do I need?” I can’t say this is always gonna be the case, but I do believe that there’s no need to be in a hurry. There’s a need to get things done, and there’s a need to have timeframes, but there’s no need to be in a hurry.
When you know that you need to surround yourself with other pieces, get to defining it. Get to learning exactly what it is you need around you, and then go get it.
Joe Fairless: As far as partnerships go, we don’t necessarily have to have partners, we just need to identify the skills that are needed, and then perhaps we hire someone instead of bring on a partner, so maybe we hire a vendor to do that.
Chris Clothier: Well, like I said earlier, sometimes the skill is already in you, you just don’t know it. Maybe it’s just learning a different way to look at something, taking a different approach. Some of that happens when you surround yourself with mentors and you run your ideas past them and what it is you feel like you need to move forward on a project, and they’re able to educate you that you have these particular skills, you just need to hone in on it, you don’t know it yet. Or you don’t need to have a partnership to bring that skill, you’ve already got it. You need to bring it out of you.
Had I been told some of that back in the day, maybe I wouldn’t have moved forward on that partnership… Who knows? Maybe I still would have, because I would have had a different kind of fear, but hopefully you get the point there, that it’s all those steps: surround yourself with good people, know your strengths, know what you need, be clear, and see what happens.
Joe Fairless: Chris, where can the Best Ever listeners get in touch with you?
Chris Clothier: I am always at MemphisInvest.com. They can send me an e-mail, chris@memphisinvest.com, or they can go right there onto our website and take a look around. There’s tons of videos of me, I guess, and they can certainly register to get more information on our company. I’m more than happy to try and help people get educated.
Joe Fairless: I love this conversation. It is about when to find the right partner, or if to bring on a partner at all, and that is first know the skills that are needed for your venture, second, identify the skills you bring, third, identify the skills you need, and like you just said, make sure that you don’t have those skills and you just haven’t uncovered them yet. Lastly, look to structure it as follows for however you wanna structure it and, as you mentioned, having an idea of what the end looks like, because all partnerships end, we’re all gonna die, or it’s gonna go in opposite directions for whatever reason (who knows? life happens) so know how it will be dissolved when the time does come to be dissolved.
Thanks so much for being on the show, Chris. I hope you have a Best Ever weekend, and we’ll talk to you soon.
Chris Clothier: Talk to you soon, man.
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