A general partner is a partner that manages the deal on behalf of the limited partners, who usually are the investors. This partnership can be a win win situation for everyone involved, but like any partnership there are certain things you need to look for to know if a certain general partner is the right partner for you.
Below are the five things you need to ask yourself when choosing a general partner.
Do Your Goals Align?
Goal alignment is critical for a successful partnership. What are your long-term goals, and are you in sync with the general partner?
Some GP’s want to buy and cash out when the market is hot. Others like MC Companies like the buy and hold for cashflow model. Either is okay, but your plan has to align with the GP you select.
How Much Experience Do They Have?
If you are going to give someone your money to invest you need to make sure they have proven experience. I mention “proven” because a lot of people say they are experienced, but I always trust, but verify. Ask to see deals they have in their portfolio and chat with other investors that have previously invested with them. Make sure you do your homework before making a selection.
How Do They Manage the Cash?
When you invest with someone, you are getting into business with them. You need to know you are okay with the way they manage the cash. How much do they carry in reserves? Do they have to cash call often? Are they straightforward with their numbers?
At MC Companies we carry a year of reserves on each property. This ensures we have a safety net in case it is ever needed.
Do They Invest in Their own Deals
If someone is telling you how great a deal is, why wouldn’t they want to invest in it? A great GP always has their own skin in the game on their deals.
You Can Trust Them
A business relationship is no different than a personal relationship in that you need to like and trust the people you are working with. You will have to be in this relationship a long time, so always keep that in mind when making a decision.