Partnership - Deal Analysis

[Mike Rash]

I am a currently discussing a deal with another investor and wanted to see if you guys see any potential pitfalls in the structure of this deal... My main concern is 'capital preservation' and to make sure that I am not dragged into unnecessary litigation... In the past I have done similar transactions by myself (without any partners)... Does this make sense? Is this fair? Am I setting myself for a trap? Anything you would change this 'structure'?...

Any advise is really appreciated!

This is in NYC area:

1. I purchase the land with the deed under my name for $400,000

2. I pay the Architect and the Approval Fees: $20,000

3. Once the PLANS are approved, I transfer the property into a JOINT LLC and my partner gives me 50% of incurred expenses ($210,000). The approval process will take about 12-18 month from the date I purchase the property…

4. We Start the construction - splitting the cost 50/50

5. Since he is handling the construction, he wants the development fee of $1000/wk for 30 weeks… If he does not deliver a fully completed house within 30 weeks, we start subtracting $1000/wk from that development fee… The fee will be PAID at the END after the house sells.

6. The construction cost is estimated to be: $430,000

7. If the market remains healthy, we plan to sell the house for about : $1,450,000

8. There is a provision in the contract, that once the plans are approved - he has 30 days to deliver 50% of the Cost - to join the partnership… If he does not, the house remains under my name and the JV agreement is cancelled.

9. There is a provision in the contract, that if we decide to SELL the property after the plans are approved, but before we start construction, that I will be compensated 5% PER ANNUM on the money that I invested, AND we will split the remaining PROFIT / LOSS - 50/50.

10. In the good case scenario, we expect the APPROVAL to take 12 month. The construction to take 7 month and selling will take 3 month (we expect to market the house as pre-construction and during construction process) - so hopefully we will have a buyer before we complete the construction...