JV Discussion for Greater Vancouver Area - Looking for feedback

[jonnyju29]

Hey everyone,



I'm a 28 yr. old yet-to-be investor. I've been wanting to get a start in real estate investment for the last 4 years but needed time to build up capital, knowledge, and a like minded network. I am now at a point where I may consider a JV to get started and this is what I'm considering:



This joint venture would consist of myself and 2 partners plus a money man/woman. A property will be purchased, likely stripped to the framing, and renovated to sell or tenant and hold until selling conditions are optimal. My thinking is a side by side town home would be best where we can create a mortgage helper per side and sell the each side individually. I am looking mostly in Surrey, Maple Ridge, or Coquitlam. The money man/woman will put up the down payment (20% or purchase price) and closing costs. Myself and two partners will carry out and fund the renovations. We will want 50% ownership.



I am a skilled painter with 4 years of experience painting everything from new 6 million dollar custom homes to commercial spaces.



I have a close friend who is a contractor and finishing carpenter by trade. He has experience doing a flip of his own and also purchased a distressed property, (only the foundation was poured) which he and 3 partners built into a custom home that sold for 5.5 million dollars.



I have another close friend who is an electrician and owns his own electrical company. He is also very interested in getting started with real estate investing and looks at this to be a good opportunity to build capital.



We three would perform the renovations, hiring sub-contractors where necessary and would carry the costs as part of our investment.



I will personally find the property. I have been working with a realtor for 3 years who understands what I am looking for in a property and has been excellent at sourcing quality listings to date. I will also personally manage it should we be holding the property for any length of time.



I'd love any insight!

Thanks in Advance

 

[Thomas Beyer]

4 partners is TOO MANY. It is very hard with 2. Try to be VERY SPECIFIC what each party does. For example, finding an asset takes time. What is that worth ? 10% of the deal ? 20% ? Getting a mortgage is not so easy either ! Who is on title ? A corporation ? You ? All 4 ? what is the mortgage qualification worth ? Maybe 15-25% of the deal.



Who does the renovations and how many hours ? Some guys can work weekends, some only 1-2 then say "too much work .. my GF needs me". Who pays for all the stuff you have to buy (drywall, pipes, lights, wires , ...) ? is a trip to HomeDepot buying stuff worth the say per hour as hanging drywall ? Who decides if cheap toilet or expensive one ? Who pays for Joe's subtrades if Joe decides to not do it himself ? Joe ? Or all 4 ?



The 20% down will not suffice. You need to pay: interest on mortgage, property taxes, insurance, utilities and for material while you renovate. That might be another 10-20%. I have seen huge cost overruns on my reno projects which all looked hugely profitable on paper, but 6 months in it was a different story !



Think it through more thoroughly. You're on the right track .. but details have to be worked out better !!

 

[jonnyju29]

Thanks for the feedback.



The details as to how the 50% would be split amongst myself and two partners is TBD as it would depend how much we are invested in regards to time and money. I would be the person finding the asset although I would not consider it any significant part of my investment as I have the time.



I have not yet decided the best way to hold the property (holding corp. vs individual(s), etc), maybe you can suggest some reading on the matter? I would think a corporation would be simplest as shares can be allotted based on level of investment. However there is obviously the matter of taxation, obtaining the mortgage etc.



The renovations would be performed by myself and the 2 partners. All materials costs and sub contractor expenses would be born by us as a group. We would each allocate a sum of money towards the renovations (I, for example, have ~40k set aside for this). Sub contractors would be limited as we can perform most tasks except plumbing.



I've picked these two people as potential partners specifically because we have worked together many times before over the last 4 years. I know and respect their work ethic, standards, abilities, ambition, and determination. We will be able to come to consensus on issues arising during construction.



In regards to the 20% down I had meant to include a sentence that 10% of the purchase price would be the downpayment and the other 10% would be for mortgage payments etc.



I would require the money man to obtain the mortgage.



Hope that clears some things up, I agree with you about the amount of partners but my 40K doesn't go far without partners to add further value.