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Feeling around in the dark on first possible partnership
Hello all,
I am trying to determine what I can contribute to a potential joint venture involving myself, another investor, and a builder. I own the land outright and have $20k in cash to invest. Additionally, I am willing to live in one of the units for a year.
My long-term vision is to buy everyone out and eventually own the property entirely.
What are some common deal structures I can explore based on my contributions and end goal?
Thank you.
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In simple terms, everyone is paid for their time/effort up front. Once the project is complete, you determine market rate and buy out their share.
Let's say it cost $60,000 to build the house and it is appraised for $120,000 after you are done (not including the land, which you already own). You procure a cash-out loan from the bank and use that cash to pay off the partners. If each partner contributed $20,000 (1/3 of the build cost) then you would pay them 1/3 of the home value ($40,000). Everyone doubles their money and the house is yours.
You have to do the math on contributions and payouts. If the builder doesn't add any cash, but puts in his labor, you need to agree up front what his labor is worth, how much he puts in, any limits to what he charges, etc.
Love the response, thank you! I was not familiar with a cash-out loan, but will have to look into it.
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