Joint Venture vs. On My Own

[voicev13]

Here`s my situation and I hope anyone can help, there`s a lot of different factors at play here...
My husband and I are just starting out using the ACRE system and are submerged in researching. We have about 18-20K to use as down payment for a property, preferably a house or town in KWL or Guelph that holds one or two tenants (perhaps upstairs and another basement suite). My parents have proposed joint venturing with us. They have anywhere between 25K-40K to put in. They are both in their 60’s, are retired and have been working and living in the US for over 15 years so don’t have much credit established here in Canada and they need us as co-signers.
Here’s my question. Should I joint venture with my parents and put a bigger down payment on a property and increase the potential long term cash flow of the investment? OR should I just go in on my own, try to get a high ratio mortgage and probably have a lower cash flow (since my mortgage will be bigger)?
Here`s another factor to consider, if they pass away their assets are divided up 50/50 between my sister and I. This means that if they pass away, I will end up with ¾ of the property and my sister will get ¼ (for doing absolutely nothing). I’m wondering if I would be better off in the long run investing on my own and not having to worry about splitting anything in the future. Are there other things I should also be considering here?

 

[JaysonSidhu]

Personally, I`d look at the numbers and your corresponding R.O.I (rate of return). Remember, this is a business decision and at the end of the day its the bottom line you should be most concerned with.

Run the numbers. What will the cashflow numbers be like if you do the deal yourself, what they be like if your parents contribute their funds. My guess is the increase in cashflow with the addition of your parents funds will be marginal. And likely wont be worth sacrificing half of the gain.

Hope that helps.

Feel free to contact me directly if you have any questions.

 

[invst4profit]

I personally do not like the idea of partnering with family members. If you do not need there money I would avoid using it.
The business can be stressful and adding in the emotional ties of family can complicate matters if things should go bad.

As far as paying down the mortgage to increase cash flow this is a misconception. Throwing more money at a bad deal does not make it a good deal. If this were the case every property on the market would be a good deal simply by paying cash.

Using rough numbers for quick analysis I estimate expenses at 50% of monthly income and base my mortgage expenses on 100% financing so as to include a monthly return on my cash investment up front as opposed to at time of sale. Everyone has there own system to judge a deal.
Your target should be a minimum of $100/month/door positive cash flow.

 

[Thomas Beyer]

a JV can have many forms. The parents, for example, could lend you the money at 6% (or 8% or 34%) and you keep 100% of property and pay them off over time.

The parents could also gift you the money and amend their will such that they give a similar amount to your sibling (now or later).

Related post to read on JVs:

50/50 – is this fair ? http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html

 

[Noel]

The added funds might put you in a position to buy more than one property. This could lead to greater returns over the long run.

 

[Nir]

1. you should buy as many good properties as you can. when you involve your parents, although they own a portion you too own a portion meaning you own more property.
2. whether with your parents or not you should put the minimum down payment required (see #1)
bottom line, do both: use their money not to put more down but to buy more properties! good luck.

PS. regarding your sister - nonsense! it`s like saying no thanks to $100,000 because by saying yes you have to give $20,000 to your sister. well, by saying no you get nothing! common sense, right. cheers.