Help with Joint Venture structure

[Audrey Ezeh]

Hello everyone,

I came across a piece of property that has been flagged as a nuisance by my city. It is a boarded up 3b/2ba but this thing is sitting on 2.2 acres of prime real estate. I have been exploring new home builds for a while since my excellent GC offered me a game changing price/sqft on construction. I reached out to the land owners and they said they still owe a lot on the land, cannot do owner financing but they are open to a JV. They are both out of state and have owned this land for 10yrs now. They are both busy and cannot take on the project. They have been really reluctant to let go of it because of the really good location. He said they are open to a JV and will even let me keep a majority of profits since I am local.

My question is how do you go about structuring a JV like this where every one wins? They have the land and the experience, I am local and will be supplying the builder who does high quality work but is hungry to grow his business so is willing to work at wholesale prices?

Any input will be appreciated.

[Scott Choppin]

Hi Audrey. We would be happy to help. A few questions to orient us in the facts of the deal:

1. What is the proposed land value the seller's are trying to achieve? What does your proforma indicate the land value should be given build costs and sales revenue? Do those two number coordinate, do they make sense?

2. How much do they owe on the existing loan?

3. Who are you proposing finances the construction of the new homes? Will the present owner finance the construction?

4. Will the existing lender subordinate to the new construction lender if it's a third party lender or bank?

5. What back end profits does the present owner propose to pay you?

Get me these answers and I can provide some guidance for you.

Thanks.