Advice about JV partners

[Kristen Daniel]

I'm doing a 1031 exchange in 2017 and I'm going to hold back some cash. I'm thinking about seeking a joint venture partner for flips. They oversee most of the work and I could bring 200k, maybe more, to the table. I was thinking about partnering with a wholesaler or experienced agent who wants to get into rehabbing. I'm pretty much priced out of my market in San Diego right now. I wouldn't be interested in slim deals or slow moving markets. Equity split would probably depend on their experience. What do you all think? How hard would it be to find a partner who is looking for this?

[Shaun Vembutty]

Kristen Daniel , here is my opinion. Look for someone that has a track record, check their lender references and see if they have paid off their prior rehab loans on time without any difficulties. Your best bet is probably someone that has quite a few projects going and is capped out in terms of capital but still has deal flow. You will need to lay very strict ground rules in terms of communication, how expenses are documented and timelines. Come up with some kind of profit split with a bonus clause that incentivizes them to finish within budget and on time. Also it would be prudent to not invest all cash but rather do a loan with you funding the down payment. That way the financing costs affect the profit amount and the partner does not get to 'free-roll' that aspect. This would also help because now you have a lender doing an additional layer of analysis of the deal especially since it is not in your local market.

Even if you end up giving up more, it makes sense to partner with someone that has a solid presence i.e they have several projects on the ground. Those people are not going to let one deal affect their overall reputation and credibility. So even if things go wrong they are going to do what they can to make it right so no one gets affected. Be careful with giving someone a chance to try this out with your money. If you finalize a deal, make it a condition that you will be hiring a realtor to sell the finished house and the realtor will be working on your behalf to monitor progress periodically and provide you with updates. A weekly conference call with all parties is probably good as well.