Possible Partnership: Advice Sought

[Jason Merchey]

I have a little cash, and I came across a residential builder who says he has done fifty or so builds around town. He said he has a lot that he is looking for a partner on. So, he has the lot, he has the construction experience, and I have some money. A deal would seem to be possible, but I'm not quite sure about how it would be structured, and I don't know him from Adam, so I am wondering what kinds of things I should be considering when I meet with him tomorrow... My goals are to make at least 10% on my money and not get screwed.

[Glenn Espinosa]

I agree with Bryan A. in that you could probably do better to just loan the money as a trust deed investment with personal guarantee as opposed to structuring a JV or something similar. If he has done "fifty or so" builds around town like he says, he should be pretty well versed in the trust deed process.

Personally, and somewhat depending on how much you have to invest, I think you can do better than 10%...

If I were in your shoes and serious about moving forward I would want to know a few things first about this builder. For example:

1) Length of time to build
2) Exit Value, profit spread, recent sales supporting exit value
3) Construction draw process
4) Construction commission structure (how much will he charge as a GC fee, how does this affect me in the case that we were doing a profit split)
5) Can I walk thru previous and current deals? Can you provide HUDS from previous deals?
6) What recourse do I have if you stop building?
7) What recourse do I have if the house doesn't sell on time and for what we planned?
8) Who handles all the paperwork, if any?

Some of those questions you should already have a good understanding of what the answer should be but will help you uncover a person's underlying motives (if any) and overall experience depending on their answers.

Anyway, theres a ton more that I would want to know up front but the above items should get you started.