Originally posted by @Leighann Davis:
Hi all -
I see forum posts referencing JVs frequently as a good place to start for new note investors.
My question is this - At what point is it "worth it" for veteran note investors to JV with a newbie? How much of those JVs are actually worthwhile from a business standpoint versus the veteran taking on a JV to "give back"? Is it worthwhile for the experienced investor simply because they're getting "free" funding?
I'm fairly new to note investing (and real estate investing in general) and am not accredited, however I have worked in investments (stocks, bonds, mutual funds, etc) for 6 years and actively invest in those arenas and am a CPA, so I'm pretty comfortable with financials/investments/risk/etc. (though I know note investing is a different game). My preference would be to "learn the ropes" from someone for my first couple notes but I would still want to provide value in some way and would want the transaction to be worth it to them as well.
I would consider providing the capital for a couple notes and allowing the other investor to keep a chunk of the profit in exchange for being able to really learn the process. But is this something that experienced investors are actually interested in? Or would it probably not be worth their time from a business standpoint because of the time required to teach and relatively low volume involved? Or is it worth it to the experienced investor simply because they're getting "free" capital? What's the motivation for the experienced investor to JV?
(And yes, I've seen posts on the forums about the standard setup of the newbie providing the funding, the experienced investor finds/manages the deal, and then splitting profits 50/50.... but I've also read where some newbies were not very involved in the process and therefore didn't feel like they were prepared to do it on their own after that JV, which is what I would want to avoid. Learning/experience would be my priority.)
Sorry for the long post - just trying to understand the motivation from both sides.
Leighann
Good question. The simple answer is that it is almost impossible to buy notes without running out of your own money, even when you're somewhat successful.
Let's use an hypothetical scenario. You start with 100k. There are a few options but let's say you decide to buy 2 notes for 45k each, one in Florida and the other in South Carolina.
You get into a workout agreement where the people will pay you 5,000 upfront and then XYZ a month for 25 years. I would have to calculate the numbers but let's assume it gives a 20% just for argument's sake. So you're successful, but now you have $5,000 in your account plus whatever is left of your reserves. You spent a year working on this note, got a successful agreement, and yet you don't even have enough money to go buy another one. Now the only thing you can do is wait 6-12 months and then sell it to another investor. All in all you just spent 18 months+ on a single note.
This is how I started, using only our own money. It's good in some ways because there isn't as much pressure. But it is very slow.
On the other hand if you do JVs, you could keep buying for as long as you find partners. 5 deals at 50% is worth more than 1 deal at 100% ownership.
So.. this is why JVs exist and why experienced investors want to do them. Notes are a bit different from house flippers because there are no easy way to get loans.
