Commercial real estate investing is like wanting to date someone who is way out of your league. She's smart, beautiful, and funny; she has everything you're looking for, but you just don't quite have what it takes to get her. You need help. Maybe you get a makeover, or your friend coaches you on how to talk to her. That friend brings you up to the level you need to be at so you can get what you want. In commercial real estate, that wingman is your equity partner.Working with a good equity partner is probably the most important decision you can make for your real estate project. This person or group is your business partner. Not only is his capital critical to the success of the property, but a good equity partner may provide additional capital to help your property “weather the storm” if things don't go as well as expected. On the other hand, the wrong equity partner can cause significant problems for you and your property. At best, you have an uncomfortable and unsatisfying work situation. At worst, your relationship with your equity partner could devolve into a legal dispute. Several years ago, our company encountered a situation in which one of our main equity partners had little understanding of the normal processes of property investment in development. This lack of understanding led him to believe that we were not working in the best interest of the property, and he became belligerent and unrealistic in his expectations. Ultimately, a lawsuit ensued, which caused a large drain on our time and resources. How to Find the Right Equity PartnerFinding the right equity partner isn't always easy, but it's always worth the trouble. Here are a few tips for finding the right equity partner for your real estate investment:

What to Look for in an Equity PartnerWhen finding an equity partner, you don't have to jump at the first person to offer you money. In fact, it's best to choose a partner with certain attributes. A good equity partner has:

You Found Your Partner… Now What?Once you've found your equity partner, you'll have to determine profit splitting. Most mortgage bankers and real estate investment firms will be able to clearly explain to you the current “market” for partnership profit splitting. You should speak with multiple firms, asking each one for their take on the market. Equity partners will want to make a good return on their investment, usually 15 to 25 percent annually, depending on the type of property. In addition, they will want much of their capital and return back before you earn a sponsor's profit. One option for profit splitting is the IRR waterfall technique. Under this option, the debt provider (i.e., the bank) has first priority for repayment and carries the lowest risk, followed by the equity investor, and, lastly, the developer. Under this arrangement, the risk for the equity investor is minimized, while the developer is positively compensated if the project does quite well. If returns are higher than expected, the developer gets a larger share, but if returns are lower, the equity investor gets more of the returns. Another option gives a specific preferred return percentage to the equity investor and ensures that cash distributions in excess of the preferred return are split between you, the developer, and your equity partner. This split “excess” cash flow is usually highly negotiated on each property. There are other options to be considered by you and your equity partner, and you'll need to come to an agreement — together.Finding the right equity partner is more than a simple matter of one successful real estate investment — just like a first date earned through a friend's help doesn't necessarily lead to another. If the first investment goes well, the success may convince your equity partner to invest in multiple projects in the future. At that point, you've created a real estate investment “marriage” by creating an efficient, effective, lasting partnership that is far more valuable than a one-time deal.