Who JVs with a Money Person?

Question

I don't want to do the leg-work flipping houses any longer, but I enjoy being in the game.

I would like to setup a system where I would Joint Venture with an active flipper for a few projects each year. I am sure there are plenty of flippers using HMLs or PMLs,  but do any of you actually partner on a project where you split the profits somehow?

Im trying to research the best way to structure the deal, and I am hoping that someone who has done a JV could chime in about how they structured the deal and how it worked out for both parties.

Dana LaBerge · Answer

About 75% of my flips are JV's.  I pay interest on the money while it's in use, secure it with a note and deed of trust on the property, and then split the profit's 50/50 or in proportion to the amount of the investment compared to the total cost.  I also use Google drive, so all of the property documents, rehab plan, invoices, etc. are accessible for the investors to view and a spreadsheet on google drive with the property financials and weekly updates.  I've managed over 200 flips this way and the investors usually either add more money, tell their friends, or both.  I'm in the Raleigh, NC area, but have investors all over the country.  They seem to like the system I have in place and love that their money is secured by the property.

Dana LaBerge · Answer

I started like many others, just with family members that were tired of the their retirement funds being so unpredictable in the stock market.  Once I did a couple of deals with one, they started talking and others jumped in too.  Every new investor was always tentative to start with and just did a small amount, but as the returns kept coming in, and they became comfortable with the process, they would gradually increase their investment over the next year or two.

My experience has been that new investors have 4 main concerns that have to be resolved before they will invest:

1. How is their money protected?  (security)

2. How do they know you are doing what you told them you would do?  (transparency)

3. What's your track record?  (experience)

4. Can they trust you?  (integrity)

Trust is the most important and hardest to earn which is why starting with family and friends seems to be the easiest.  They (hopefully) already trust you and your judgment.  The other three you can resolve with an experienced agent or partner, a deed of trust/mortgage, and a good system in place where they have access to everything related to the property (I use google drive).  I worked to create a system where they didn't have to trust me, they could see everything for themselves.

It only takes one investor to get started and then you do everything you can to make sure they have a great experience with you.  Usually after the second house closes and they get their profit back, then they start talking to others about it.  You can even offer to give an investor a portion of the profits from any money that they bring in from others as an incentive.

Hope this helps.

Dana LaBerge · Answer

@Tony Wooldridge,  I pay them interest, monthly, while their money is loaned on a property.  I will pay up to a 10% annual rate.  This allows those that have a HELOC, etc. to service their debt.  It also provides some consistency for the investor.  Each month when that interest payment hits their account they see that I am fulfilling my end of the deal...and they are getting a return on their money even before the profit payout.  Many investors get a little nervous when their money is in someone else's hands.  It seems that even when just a little of that money comes back to them each month it instills confidence in the system.  On your side though, you have to make sure you get enough money up front from them to cover these payments.  The interest is charged as an expense to the property like any other loan payment.  At closing they get their initial investment back from the closing attorney, and about 15 days later, after all of the final bills have come in, utility deposits back, etc., then the profit split is paid out.

Usually they are feeling the process out during the first one they invest on.  It's after the second house closes (assuming they both do well) that they start telling other people.

I was blessed to start working with a flipper that was doing this already, so I brought my own investors into his system and then began tweaking, refining, and growing it.   Now that I'm on my own, I continue to do it that way because I saw how the money grew quickly with mine and my partner's investors and how they brought other investors in as well.

Again, it was mostly family and friends to start, but it helped to be able to show them a spreadsheet of properties that had closed that year and what the investor returns were (and the previous 10 years).  Finding a mentor or agent that is involved with you whose track record you can piggyback on goes a long way.

Michael Ablan · Answer

I'm currently involved in one right now.  He invests 85% and I do 15%.  He is a passive partner and I handle the rehab and sale to compensate for money I'm not putting in.

My recommendation is to make sure you put everything in writing and really make sure you do your homework on the person you're getting in bed with.  Make sure they have actual verifiable experience and that your personalities mesh well.

Adrian Smude · Answer

@Rick S. you’ve gotten some great answers. I can’t say the way I’ve been doing this is the best but I’ve been on both sides of the deal. My IRA has funded rental projects and is getting a nice split in return. I have had other people’s IRAs fund my projects which they get a nice return.

Both cases the paperwork is set up the same. The money person has zero liability & zero ownership of the property. The money person does have a first position mortgage which can secure a JV agreement instead of a note. Money person is listed as on the insurance policy. Everything is negotiable.

Everyone I’ve been on either side of the deal I didn’t meet the week before. In my opinion the person you’re investing with is just as important or more than the property that’s securing it.

I’ll message you a friend of mine that does Flips in LA you could connect with.

Karen Margrave · Answer

Oh where were you when we were in southern CA @Rick S.?  Just kidding, we were doing new construction. We started out looking for fix/flips, but with HGTV, etc. everyone all the sudden was a flipper, and drove prices up so high, it was a fulltime job just trying to find anything, so we decided to do new construction. We'd love to get back down there though, there's still some great projects to build.

Good luck.

Jay Hinrichs · Answer

But basically I agree with only doing this local if your not in the business of funding out of area folks its hard enough and dangerous enough.. if your just looking to do a few projects a year I would only do them where you basically can drive to them.

Jay Hinrichs · Answer

vetting the ground partners is critical.

I find it, well, if not humerous, maybe strange..

but you have a landlord that bought a mid west 40k rental property and they want a full credit and criminal background on the tenant moving into their asset RIGHT ?

well you are about to launch into a financial deal with someone for usually hundreds of thousands and most wont' ask for any of this.. and just take whatever the person presents as fact.

So I would if I was looking for a new partner ( and most of mine are a decade or longer so pretty good track record but we all have to start somewhere)  I think you want those basic items.

In my day of HML when I used to lend to the general public and do 200 to 300 loans a year it was amazing what you turned up.

when we set out to put our network together it was also amazing what you found out about ground partners..

some things I over look like if they got busted for weed back in the day .. Eh I don't care its legal all over now.. but if they have a 550 fico and cant explain it ( like it happened because of 08 to 2010 that's a problem) also non payment of support for kids.. don't want to do business with any of those dead beats LOL.. you know what I am saying..

I know when I borrow money and granted its usually in the millions I have my financial package all ready to go on demand and it includes criminal and all my current licensed Mortgage banker RE broker etc.. just thinks its professional when you have those.. then if a potential investors wants to run their own.. that's fine.. but I won't give out my SS to just anyone it has to be worth it to me.. ( changing hats).

So that's maybe a little of subject but the amount of people that I talk to that invested with a known shyster really does boggle me sometimes.

Tony Wooldridge · Answer

@Rick S., GR8 forum question thanks for asking!

Tony Wooldridge · Answer

@Dana LaBerge, If you don't mind me asking, do you structure your deal such that you pay interest on the $ that your JV partner is loaning you as the project is going on or do you give them a back end payment after the property sells?  I am assuming based off of your comment "Usually after the second house closes and they get their profit back" that you don't make payments while doing the projects(?)  What % do you generally negotiate?

I am looking forward to eventually finding JV's that are interested in the same thing that you have established thus far.  How many Flip projects did you do before you enlisted the help of JV's, and how did you go about finding them or did they find out about you and how?  Thanks for any and all information you are willing to share!  Here is to wishing you nothing but success in your 2018 REI ventures!

Who JVs with a Money Person?

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