3 way JV on Flip

[Ben McMahon]

Ive done a lot of flips and JVs, but I wanted to get some feedback on others experience of structure in todays environment.  

I've got a designer who I have been doing work with, and she wants to do some high end house flipping.  In the past Ive done strait 50/50 partnerships with private investors, and also Preferred returns.  I am trying to figure out the best way to ad a 3rd party into the deal.

The designer and I are planning on putting together something for our potential capital partner.   What are terms that should make everyone happy?  

[Ben McMahon]

Forgot to mention, I am a general contractor.  So my team will be doing all the work.

[Mark Williams]

Quote from @Ben McMahon:

Ive done a lot of flips and JVs, but I wanted to get some feedback on others experience of structure in todays environment.  

I've got a designer who I have been doing work with, and she wants to do some high end house flipping.  In the past Ive done strait 50/50 partnerships with private investors, and also Preferred returns.  I am trying to figure out the best way to ad a 3rd party into the deal.

The designer and I are planning on putting together something for our potential capital partner.   What are terms that should make everyone happy?  

 Hi Ben, 

When it comes to structuring a high-end house flipping project involving a designer and a potential capital partner, it's essential to create terms that are mutually beneficial and align with everyone's contributions and expectations. You could consider a simplified approach by offering the capital partner a fixed return on their investment with no equity ownership. This way, they receive a predictable return on their capital, and you and the designer can retain full ownership and control of the project. It's a straightforward arrangement that allows your capital partner to earn a fixed return without being involved in the day-to-day operations of the project. However, consulting with a legal professional to formalize the agreement is still crucial to protect all parties involved.

-Mark 

[Ben McMahon]

@Mark Williams

Thanks Mark, that's helpful and kinda what I was thinking.  I know what hard money terms look like, but typically that will require me to put in anywhere from 20-30%.  Which on 3mil plus projected rehab is going to be pretty heavy.  Not to toot my own horn, but I am pretty good at convincing people to give me money, and I feel highly confident in getting it 100% financed.  So I guess I need to determine what is an attractive offering in todays environment.  

Secondarily, how I cut in the designer.  I think she was originally talking about 15%profit plus a designer fee.  Which in my opinion seems fair, maybe even a little low given what percentage I will get.  Of course, I have the experience, and am doing most of the work.  She found the deal.  

[Joan Peer]

following

[Gi'angelo Bautista]

That sounds fair to me because you are doing most of the work, raising the money, and you are doing literally all of the construction. Maybe play it safe and stick with it and raise it for the next deal if she provides more value.

[Nate Meeker]

Have you considered what the IRS will think?

The Tax Court against Luna developed an eight-factor framework to determine whether a business venture should be a partnership for tax purposes:

1. The agreement of the parties and their conduct in executing its terms;

2. The contributions, if any, that each party has made to the venture;

3. The parties’ control over income and capital and the right of each to make withdrawals;

4. Whether each party was a principal and co-proprietor, sharing a mutual proprietary interest in the net profits and having an obligation to share losses, or whether one party was the agent or employee of the other, receiving for its services contingent compensation in the form of a percentage of income; 

5. Whether business was conducted in the joint names of the parties;

6. Whether the parties filed federal partnership returns or otherwise represented to the IRS or to persons with whom they dealt that they were a joint venture;

7. Whether separate books of account were maintained for the venture; and

8. Whether the parties exercised mutual control over and assumed mutual responsibilities for the enterprise.

Something to keep in mind as you structure deals.