Setting up JV for Real Estate Buy & Holds

[Robert Piller]

I am looking to create a JV for investment in rental singe family houses in a market. I plan to find the properties, actively manage the properties through our management group and use the fund to purchase and rehab the houses.

I plan to raise $1 million per JV. Goal is rental cash flow for 3 years, with the plan to sell the properties (either individually or as a parcel) after year 3 -depending on market conditions.

Since I am doing most of the work - any idea what would be a fair split of ownership management and other fees?

I might want to spin off the management portion, if I end up setting up a JV in a market in another state. How would that affect the ownership, management fees and other fees?

Any other issues I am overlookig or should consider?

Thanks.

[Don Konipol]

@Robert Piller , in years prior a $1 million syndication was usually worth the hassle. Now, I am not so sure. Used to be you were pretty save doing an intra state private offering, exempt from Federal regulation. These were in fact regarded by SEC and most states (not California) as just being a private deal between business associates - pretty informal.

Now my gut feel is that with our new overly regulated environment they are being regarded as securities offerings with an exemption status for private offerings - if all i's are dotted and t's are crossed. Big risk on these smaller offerings comes with the potential lawsuits if things go wrong. Juries have been known to render ridiculous verdicts and judgments based on small and rather technical violations of securities code.

The way to mitigate the risk is to have a private placement memorandum, partnership agreement and subscription agreement produced by an experienced law firm, compliant with all requisite Federal and state regulations and "safe harbor" statutes. However, these are quite costly to produce, time consuming to administer and restrictive to use.

My own experience was that a $3 million offering was worth the effort and expense as recently as 2 or 3 years ago. Now my own personal minimum is $10 million. Each individual must first evaluate costs, risks, time, return, etc. and calculate whether a private offering (syndication) is worth it and if so at what level. There are many moving parts to this analysis. There are also many attorneys specializing in this area as well as many turnkey consulting firms willing to do the heavy lifting for a price.

Hope this was helpful.