Partnerships - When it all goes wrong

Hi Guys
I just thought I would post a brief note on the dangers of partnerships.

I have been in an excellent partnership for about the last 10years and have done several flips and small developments. Each one getting larger and larger. We made good money from the business and everything worked out well. Or it used to.
About 3 years ago we decided to wrap things up as we both started in different directions - we only owned one property at the time, so it was a good opportunity to "cut and run". We just had to finish the final property off.
Anyway, delays started occuring, things didnt go right, and as a result I have had about $350k out on a property which has sat stagnant.
About 12 months ago (finally) I got the partner to agree to having me send in a team of tradies to finish the job off (at my cost) so that I could recoup any money I had invested.
The property went on the market at the start of this year. We sold the vacant block at the front of the house, however this never settled - for a number of reasons/excuses.

Recently partner advised me that he was in default and the banks were reposesing the house, unless we can sell it sooner.
The sale of the vacant block fell through becuase the loan was in arrears, and therefore the bank would not approve the title split application (news to me).

As a result I have lost $250k cash (actualy money I have invested) plus double that in paper equity.

I would love to sit hear and say its all the partners fault, but clearly I have made mistakes also.

I hope this serves as a bit of a warning to others (as Im often asked about partnerships). On the bright side I am lucky, as the structure sees me remain "clean" from a default perspective.
My partner gets away fairly well also, as this house is the only property financed by this particular bank.

While it is disapointing, I have made a lot more money than I have lost from this partnership, its just never nice losing though it does re-iterates to me several points
1) enter partnerships with care. always hold the controlling interest, control the cash and control the paperwork. It is the only way to be fully informed.
2) Be carefull with your structures. When things go bad, it often happens quicker than you can account for.
3) Things arent over till they are over. There is no money till the money is in the bank.
4) Always keep smiling. While it is going to be tough, I look forward to a beer with my partner when I return to oz!

All the best with the journey.

Blacky
 
Blacky

Very interesting and this is one of many reasons why I don't like partnerships, was your partner open to you about his state of affairs and what led to his downfall if you have done well( except for this loss) over the period

Jezza
 
Although there are advantages with partnerships, the risk of personal liability is far greater than any other structure.

I would recommend for anyone considering entering into a partnership to use EXTREME caution - I am an accountant.
 
Jezza
In short he went belly up due to having too much debt. He had purchased another property to do a flip on, and ran out of obtainable capital. It is very difficult to borrow money against a house which is in the process of being renovated :rolleyes:
No I was not fully aware of his position.

Donners - when I say it was a partnership - I meant is was a business partnership (not an accounting one). We had not structured the agreement as a partnership. Our structure has proven successful, as I am able to walk away from the transaction carrying only my loss. The bank can not get me for any further amounts, and my name is not tarnished due to default!
My accountant did his job brilliantly.

I would love to sit here and lump all the blame on him, but that is not the intention of this post. I take full responcibility for the money which I have lost. I should have been far more pro-active with the development, esspecially when things started to delay. I got lazy, as we have done so many of them. Lesson learnt (expensive lesson, but lesson none the less).

Cheers
 
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