How to structure a JV on a Buy and Hold or Cash Flow property?

Question

Hello everyone! I am curious if someone can help me understand this better. I did a ton of training in fix and flip and understand that very well. I am wondering how you can do a JV on a buy and hold/cashflow property? Obviously when flipping, the JV is useful for funding the rehab and holding costs, then giving them an ROI on their money. But again, curious how you could partner with another investor on a buy and hold? How do both parties benefit, how do you structure that?

Gino Barbaro · Answer

@Colin Murphy

Hi Colin

Before you approach anyone for money, you need to have a solid business plan detailing your investing criteria and ability top generate a return.  I have something called a credibility book that I use to give to investors/bankers and it details my portfolio holdings as well as strategy.  If you are investing in the deal, I would always try to come up with some money just to show the partners that you have skin in the game.  In the beginning, you will need to take less equity, but as I said before, once you find a couple of great deals, the money will be easier to raise and you can carve a bigger piece for yourself.

You need to sit down for a few minutes and write down every friend/coworker/acquaintence/family member/business associate.  Reach out to them and tell them you have an opportunity to offer them. DO NOT ask them for money, offer them an opportunity to earn a return on their capital.

You will be amazed at how many people you come up with.  If they say no, then ask them to refer one person that they know.

PM me if you want to see my credibility book

Gino

Benjamin Pekarek · Answer

It depends on what you're using the JV for. For me, I use the JV for the downpayment, renovate (increasing the value), rent it, and refinance. The cash out from the refi pays me a "fee", pays back the JV partner, and we go do it again - the contract I use pays the JV partner cost + 20%-30%, so they're more than happy to come back again and again. In the meantime, I'm building my portfolio of cash flowing rental properties.

-Ben

Benjamin Pekarek · Answer

Colin,

I can't speak for a rookie, as the way I've gotten my equity partners is grom my track record. I personally wouldn't try to have a partner come up with more than what you need - convential lending is cheaper for me than what I pay my equity partners.

Jennifer King · Answer

@Ashley Abramson I think that's a great summary of the feedback, and I was JUST thinking about you and these discussions, so it's fun to receive this alert now. There is so much to learn about how this sort of partnership could work before jumping into one, but it's exciting to feel that we can make our own rules as long as it makes sense for both parties. I'm starting to feel the sense of control and creativity that makes real estate investing so appealing to many of us when compared with other traditional (and reasonable) investments like stocks. :)

Would of course love to hear any more advice, insights, or personal experiences from people who have formed such partnerships in the past. Such a great community here!

Ashley Abramson · Answer

@Cassie Sherie @Jennifer King @Gino Barbaro @Benjamin Pekarek @Ben Rutkevitz

Thank you all so much for your input! The general vibe I am getting is that you can be creative as you need to be to get a deal done, just make sure both parties feel comfortable, protected, and will make a profit before moving forward... which is the cool thing about RE Investing, and what I have learned thus far is that it is necessary to be creative.

I think the general idea @Jennifer King and I were thinking was similar to the downpayment. renovate, rent, and refinance strategy @Benjamin Pekarek suggested. LOVE IT! We were thinking a little more transactional where we can repeat the process with each other (and others), but not something where we are splitting the cashflow that comes from renting the property out and would be more long term partnership. Does that make sense? Thanks everyone!

Cassie Sherie · Answer

@Jennifer King thanks for the mention... I don't think you can truly find an answer in a book when it comes to this... or at least I wouldn't want to find it there...just be fair so more deals can be made in the future and you foster that relationship with that partner...keep it simple... move on make more deals...keep building your portfolio.

Colin Murphy · Answer

@Ashley Abramson Thank you for bringing up this question.  As a new investor, I am having a hard time seeing how i) I approach or find money partners, ii) convince them to invest with me, iii) to know how much to ask them for.

@Benjamin Pekarek and @Gino Barbaro would you have any advice to help out rookies?  If the deal was to get a money partner (passive) to cover the downpayment + titke + closing cost + 2 month mortgage reserve, then the management partner (active) finds the deal and acts as landlord / deals with tenant issues. Would you say there is a standard downpayment amount and amortization for the money partner?  Is 50/50 equity split, 25% down for 25 yrs a common practice?  I know you said deals come in all shapes and sizes.

Could you ask the investor to put 50% down in order to cashflow better?

Would a rookie like myself take less equity (ie. 60:40, 75:25), until you build a track record of managing properties?

Still the biggest question I have, is how do you find the Private investor (outside of family and friends)?

Ashley, I hope this can help your original post.

Cheers,

Colin

Gino Barbaro · Answer

@Ashley Abramson

Hi Ashley

You can be as creative as you can get.  You can partner with someone and each get a percent depending on however you structure it.  You can charge an acquisition fee to put the deal together.  You can also charge a management fee to manage the property once you have purchased it.  If you only have 10% of  down payment, raise the remaining money and give the equity to the partner,  As you experience and portfolio grows, you will find it easier to raise money and structure deals that are more beneficial to you.  But in the beginning, the important thing is to start

Gino

Cassie Sherie · Answer

@Ashley Abramson I'm sure there's a bunch of ways to go about it... you could find a partner you can trust, has the same goals as you and just do a 50/50 split and continue to do deals together. Or possibly refi after you rehab and give them a percentage after refi and pay them back...  @Gino Barbaro has formed a great partnership and does multi unit maybe he will chime in and give you some insight on ways to structure it

How to structure a JV on a Buy and Hold or Cash Flow property?

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