BuildRRR- Can it work?

[Stephen Bruce]

Morning BPers!

As the title says, I am in the process of starting a BuildRRR. I am approximately 85% of my way through the prep and am about to buy the land to start the build. This will be a Joint Venture with the builder. I plan to consult with my lawyer but I also wanted to chat with yall. I am not experienced in JV's. It will be structured this way for the entire build and into the refinance portion. What should I be aware of for the JV process? Will all the details be spelled out in the Operating Agreement? When we refinance and put the deed in an LLC for asset protection, how do you protect both side of the JV under one LLC? Should we then form a partnerhsip LLC?

If anyone is interested in the numbers behind the deal, let me know and I will post them! Thanks in advance for the advise! 

[Brian Fung]

Aloha Stephen, 

I noticed no one responded to you here. Here's my take. 
1. Definitely consult with your lawyer. 

2. Make sure that your lender/loan officer is willing to get on a call with your lawyer to help out with any discussion/details to dial the agreement in as much as possible. All of your team members should be willing to get on 3 way calls to put you first. 

3. Keeping the structure the same for the purchase and the refinance is not a problem from a lending perspective unless one of you will actually hurt the qualifications of the loan. 

4. Speak to your attorney about the difference between an Operating Agreement and a JV agreement. The operating agreement is going to be required to be turned into your lender but the JV agreement does not always need to be turned in. There's potential value to separating the two from each other.

5. Protecting each sides is going to be another question for your attorney and potentially your estate planning attorney (if you have both). For the purposes of qualifying for the loan, you could consider the following structure: 

- JV Partner LLC is 50% owned by JV Partner 1's LLC and 50% JV Partner 2's LLC. You'll need to provide Entity Docs for each LLC that is a part of the transaction so that the underwriters can review them all the way down to the natural individuals/warm bodies.

Important Note: not all lenders like doing "layered entities". So consider how much asset protection means to you and be willing to potentially pay more because you'll have less lending options available to you, the more complicated you make your entity structure.

Hope this helps. Aloha.