Joint venture, huh?

Question

Im unclear on what a good joint venture would look like in the world of flipping and multi unit rental. Does one person pay and the other oversees the work? Can you both go in half? Then who does what? What if I pay and the person who is supposed to oversee the work doesn’t do what they should? Or what if they do less then what I would? Or vise versa?

What does the structure of a good joint venture look like? Any examples would be helpful.

Btw I was the high school kid who was paid by the other group members to do the entire group project myself. So I’m having a hard time wrapping my head around how to make sure I, nor the partner, feel taken advantage of.

Allan Szlafrok · Answer

@Mandi Martinez A good partner for a JV brings something to the table that you don’t and vice versa. Sometimes one partner has the money and the other the experience and knowledge. Alternatively it may pay to do a JV if both partners are bringing in  money and doing so will allow you take down a larger deal. But I can tell you from experience that if one partner does all or more than their share of legwork the partnership will become strained and fall apart. Try to come to an agreement which delineates each partners contributions and responsibilities and hold each other accountable. I would do this before even looking at a deal with that partner.

Greg Dickerson · Answer

@Mandi Martinez You can structure a JV any way you choose. It all depends on who is bringing the money and who is doing the work and or a combo of both.

They key is to set up a legal entity like an LLC to do the JV and have an attorney draft the agreement spelling out each member or partners role, responsibilities and shares. This agreement will contemplate spell out solutions and procedures for for all of your questions above including how to split monies and profits.

The biggest thing to remember is a true partnership is like a marriage. It’s a relationship so you need to make sure you know who you’re dealing with and you like and trust the people you are going into business with.

Another thing to consider based on your last comment would be for you to be the deal sponsor and just have investors instead of partners if you’re comfortable taking the lead and have the know how to back it up.

Sofia Ruano · Answer

In California we have something called a Shared Appreciation Mortgage which allows the Lender to secure a % of the total net profit...

Greg Dickerson · Answer

You are very welcome and by the way I love what you do for a living. That's really awesome! I am happy to help you any way I can any time. Have a great rest of the day!

Wanda Wilkinson · Answer

Mandi, I have some things for you to consider. I have experience both as a house renovator and 30 years as an attorney preparing and reviewing contracts. I entered into a partnership with my brother to buy two dilapidated houses on one property. We got a crazy good deal...or did we, lol?  We are finished now and they both turned out very well, but it took two years of hard work and way more money than we anticipated.  Neither of us had the money to buy the properties on our own, so we pooled our resources To purchase the houses and renovate them. My recommendations are to talk, talk, and talk to your potential business partner to see what contributions, both work wise and financial, that each will make. Mine was mostly financial, and my brother’s was mostly expertise and work on the house. It became apparent from the outset that he and I were on different pages when it came to what to do to the houses, and whether we would hire people or do the work ourselves. What amenities to add, what finishes to use and who our target renters were. So I would talk about that first. How much to spend. We kind of found money as we went along, which I would NEVER do again. I would never start the project unless all the money was raised and in the bank, in cash (or a HELOC line of credit). More importantly, what will happen if the money runs out before the project is done?  Will the money person contribute more?  What happens if one person wants to exit the project?  You need to have a Plan B exit strategy.

All these things, and more, can be written on a napkin, or put into a formal contract drawn up by a lawyer.  The most important things are to define expectations and to anticipate what will happen when things don’t go according to plan, WHICH WILL HAPPEN!  Lol  Good luck, my brother and I are on good terms and looking for another project!

Mandi Martinez · Answer

@Greg Dickerson This is valuable advice. Thank you for taking the time to respond to me.

Mandi Martinez · Answer

@Alexander Hish thank you so much for your response and for giving me your advice. I agree that with flipping it doesn’t make a lot of sense which is why I asked because someone approached me about it. Having both sides put money in and both sides split profit sounds good but when I sit and think about it, I feel like the work would be mostly on me. Finding the property, contractors, paperwork, etc... which is fine but what would the other side do? And what if I find a great property and they don’t agree or they find one they like and I don’t think it will work... those little issues are where I’m finding it hard to see how any joint venture would work without chaos.

Greg Dickerson · Answer

@Mandi Martinez you will need to consult a real estate attorney once you're ready to get going but it sounds like you need get more educated overall.

First thing is to educate yourself on the business of wholesaling and fix and flip and your market. You really need to immerse yourself and learn all you can. Attend REI groups and meetups and network with other experienced investors.

I would not recommend using hard money to flip if you’re  just starting out. It’s very expensive. The interest carry will eat your profits fast especially if you struggle to get the project done and sold quickly.

The best way to get started is by wholesaling not flipping. Once you have done several deals and have at least $100k set aside then you could try a flip. For now focus on getting really good at sourcing deals and getting them sold.

Start with finding cash buyers. You will learn a ton from them and as you build a relationship they can potentially become a private lender or even partner with you on some deals down the road.

Best way to find cash buyers is networking at local REI meetups, masterminds, Facebook groups etc,

Also Realtors, title companies and closing attorneys, property management companies, auctions, Craigslist.

You can search real estate transactions in your tax database. Look for entities and individuals that have bought multiple properties. You may need to search by the address of the buyer as they may change their name or the name of the entity on each purchase.

You can also buy lists from companies like list source

Mandi Martinez · Answer

@Greg Dickerson thank you so much for your response Greg! I will definitely take your advice to heart.

It does raise more questions for me though. Like what specifically should be included in the contract with the attorney? What type of attorney do I need?

Please excuse my ignorance. I’m really new to this.

Alexander Hish · Answer

You write up your own terms. There is no set rules. I see no reason for joint venture on flip homes. You are already paying contractors or potentially a general contractor to manage the project. Its simply not worth it IMO to share profits on such a small dealFor multi unit rentals, this comes down to capital. More doors is always better, so the larger the property the better. In this case it can be beneficial to partner with someone to merge your own capital to buy a larger property. The rest should be bank and investor funded.

Joint ownership can get messy and you have to involve a lawyer to insure the agreement is written correctly.

Joint venture, huh?

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