JV Deals - How are these structured?

[Parker Whiteway]

Hi All,

I've come across a couple of buildings I want to buy, but don't have enough money for both. I hear a lot about people partnering up with a money person to do these deals, but I'm completely in the dark about the details of how this works. For example, who's names go on the title? At what point does an LLC or other instrument get formed? Whose credit gets checked if there's a loan involved?

Can someone talk me through how this would work?  Let's say for instance I'm trying to structure like this: 

Scenario 1:  
Person A:  Provides 100% of cash.  Basically no other responsibilities.  Assigned 50% of any profit.

Person B:  Provides 0% of cash.  Responsible for managing rehab, listing, rental, or whatever.  Assigned 50% of any profit.  

*LLC used as the partnership instrument

*Cash purchase of property

Scenario 2:  Same as above but conventional financing will be used.  Cash contributions the same.  

Appreciate any insights, thanks!!

[Evan Wiesner]

In most scenarios I've seen on the open market you'll fall somewhere in between. Very few will take 100% of the financial risk and give you 50% of the profit straight up without some other kicker. And then allow you to be any part of the LLC would be a stretch. That's not to say it wouldn't happen, but that person has all the risk and is allowing you to partner for half the profit.

More likely is a split of the capital, and LLC agreement as the instrument, and then some split of the profit that is weighted by risk and responsibility.

If you throw in the financing variable, be prepared to put up some of the up front capital needed which may be a lot smaller but also comes with monthly payments. That has to be resolved as part of the deal and the hold time becomes more of an issue if it's a flip because of the effect those payments can have.

Good luck Parker!