First Joint Venture, No Surprises Please!

[Jon S.]

Could this blow up in my face? I bought an SFR that I haven't renovated yet. I own it free and clear. I have $100k in it. It needs a full renovation of $$40-60k depending on how extensive the rehab is. My capital is tied up in another project, so the renovation would have to wait until my other refinance completes.

Meanwhile, another investor who knows my situation has proposed that they renovate it at their expense as a joint venture partner. They have overseen a couple of my renovations before and now they want to be on the investor side with me. They were on the investor side long before I was so they are not new to REI and renovations and I n fact they have been a mentor to me in REI. They would be fully responsible for the renovation labor and expense.

I would like this JV to happen but I have no idea how to structure an agreement contract. How can I structure this deal so that all interests are protected? How do we determine a formula for profits.

What about alternate scenarios? If the flip doesn’t sell how would that scenario work out financially for all parties? If it doesn’t sell and becomes a rental, then what?

What if they go over the agreed renovation budget?

They are doing some of the work, how is their labor calculated?

What other problems or red flags should I be aware of?

[Scott Smith]

I would agree with Ashish, you definitely want to have an experienced attorney to write this up for you. I will also link a couple useful articles on this topic. Joint Ventures - Partnership Questions.