First JV deal - Wholesaler will put the property, I will put the Renovations - Advice

[Mija Aguilera]

Hello Appreciated community, this post is to seek some advice.

This will be my very first REI venture, I have found a deal online a couple of days ago, I went to see the property and met the wholesaler (he looks cool and genuine) and we had this option to buy for 650k or JV for 615k.

I decided to JV, so the deal will work like this: He will put the property and we will put 120k worth of renovations, after we finish all the renovations we will put the property on the market, the ARV will be around 810k (looking on some properties that have sold <60 days ago near by)

What would be the best practice to protect us and our investment? What tool would you recommend to run numbers properly? What should I do next?

I am planning to make an agreement for sale and register it on the county records but I would love to hear some wise experts!!! 

[Jay Hinrichs]

Quote from @Mija Aguilera:

Quote from @Jay Hinrichs:

your post is not very clear.. when you say you will put the property in.. does that mean your going to pay cash of 615k  and the wholesaler is going to put up 120k in cash for reno.. ???

this would be quite rare situation .. One that  a wholesaler would do this. And as Wayne noted there is little to no profit to be made with the numbers you ran..

ton of risk on your side since you just met this person..  Hard Pass all day long given skinny to no profit .. person you just met and large dollars involved.

Jay Thank you for your response, I have a GC license so we (me & my team) will put 120k for reno, and the wholesaler will put the property (he says that the property is from their family) Do you know any tool that I can use to run accurate numbers,This was supposed to be my first deal, still figuring things out!

OK this is way different than your first post..  wholesaler is really the owner and has no debt on the property sounds like and you have the 120k in cash to execute the rehab.

Just have to do simple napkin math.

ARV 800k you said it was around 810 so let use that.

selling commish  @ 5%  40k  but maybe you have an in with an agent and it can be less or it might be 6% so lets go with the 40k

615k  and if they are throwing it in with ZERO cost of capital  ( which would be great for you)
then you have no interest carry.

And if there is no closing IE your not buying it up front there is no escrow costs or title insurance although if I was U I would order a title report on it and make sure he owns it and there is no debt or other liens or encumbrances that would foul up a say.

Tax's utls  during the process depending on what state its in Tax's could be as high as 15 to 20k for the year. and utls say 200 a month..

Seller credits to buyer at sale ( very common today) 2%  = 16k

Seller closing costs   2500.00

soo 615k + 120k + 40k + 16K + 20k + 2K = 808K    So this was @Wayne Brooks  point there is no money in this with simple math. And if you paid 650k for it with cost of capital you would end up losing 50 to 75k on this flip at least.  So there ya go..