JV investor returns

[Dnaiture]

I was hoping you guys might be able to help me in terms of what sort of returns would a JV partner(s) be looking for to interest them in a potential deal.

I had recently put together a proposal with a conservatively estimated ROI of 9%/yr with a guarenteed 4%/yr worst case scenario return, however, I was informed that 9% would definately not be a acceptable Rate of return. I was wondering if you guys might be able to give me some insight into what a acceptable ROI would be.

Thanks,
Dan

 

[MonteDobson]

QUOTE (Dnaiture @ Mar 9 2010, 11:21 AM) I was hoping you guys might be able to help me in terms of what sort of returns would a JV partner(s) be looking for to interest them in a potential deal.

I had recently put together a proposal with a conservatively estimated ROI of 9%/yr with a guarenteed 4%/yr worst case scenario return, however, I was informed that 9% would definately not be a acceptable Rate of return. I was wondering if you guys might be able to give me some insight into what a acceptable ROI would be.

Thanks,
Dan
In my experience, investors are currently seeking "secure" and "consistent" returns vs swinging for the fence with high double digit returns. I would suggest that 90% of average investors would be thrilled with a 9% return on their money, as long as it was safe, secure and predictable.

A prime example of this is GIC`s and money market funds. There are billions of dollars that have been sunk into these types of investment products over the past year, simply because they are SAFE. However, they are earning less than 3%. Until investor confidence resumes I would suggest a 9% return with a 4% worst case scenario is fully acceptable in this environment.

A great way to approach a JV is to ask the investor what he/she wants, and then do the math backwards to structure the JV to fit their needs.

PS. Be careful using the work "guaranteed" as you could get yourself into trouble!

 

[Thomas Beyer]

QUOTE (Dnaiture @ Mar 9 2010, 11:21 AM)
I was hoping you guys might be able to help me in terms of what sort of returns would a JV partner(s) be looking for to interest them in a potential deal.



I had recently put together a proposal with a conservatively estimated ROI of 9%/yr with a guarenteed 4%/yr worst case scenario return, however, I was informed that 9% would definately not be a acceptable Rate of return. I was wondering if you guys might be able to give me some insight into what a acceptable ROI would be.



Thanks,

Dan


9% is acceptable .. but it depends if it is a loan (i.e. debt) or an equity interest.



If 9% loan it could mean you lose money .. are you prepared for that ?



4% "guaranteed" is NOT possible .. unless you give him a personal guarantee as property values can drop. Even a personal guarantee might not be worth anything if you go bankrupt.



You may wish to give him a 9% 2nd mortgage .. but that is not the same as a guarantee !



Do not use the term "guarantee" in any contract. You might state "fixed rate" .. that is different .. or you might say "secured by a 2nd mortgage" .. or "secured by my house I live in" .. or "secured by a caveat on subject property" ..



Run some scenarios with different vacancy, rent and value assumptions and you will see at what point 9% could mean trouble for you .. or if a 50% (or 33% or 67%) ownership stake is the better solution for you and/or investor !





What is the value/asset backing the guarantee !



Related read: 50/50 in a JV ` is this fair ?

http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html

 

[Cargren]

QUOTE (Dnaiture @ Mar 9 2010, 10:21 AM) I was hoping you guys might be able to help me in terms of what sort of returns would a JV partner(s) be looking for to interest them in a potential deal.

I had recently put together a proposal with a conservatively estimated ROI of 9%/yr with a guarenteed 4%/yr worst case scenario return, however, I was informed that 9% would definately not be a acceptable Rate of return. I was wondering if you guys might be able to give me some insight into what a acceptable ROI would be.

Thanks,
Dan

Hi Dan,

My first question would be: who told you 9% was unacceptable? Your potential JV partner or someone else?

If it was your potential JV partner, then yes I guess it is definitely unacceptable! At least to him, but maybe not to someone else.
If it was someone else, but your JV hasn`t turned it down, then it is acceptable.

There is no right or wrong formula, only what`s acceptable to the JV parties involved.

 

[gwasser]

QUOTE (Cargren @ Mar 9 2010, 11:21 AM)
Hi Dan,



My first question would be: who told you 9% was unacceptable? Your potential JV partner or someone else?



If it was your potential JV partner, then yes I guess it is definitely unacceptable! At least to him, but maybe not to someone else.

If it was someone else, but your JV hasn't turned it down, then it is acceptable.



There is no right or wrong formula, only what's acceptable to the JV parties involved.




It all depends on what is being offered. If the operating JV partner sometimes called 'finder' has a track record or not. If this is your first JV don't expect to find anyone, other than relatives to give you money for 9%. If you were an experienced operator like Thomas Buyer, you may have a better change.



Personally, I have much easier and less risky ways to make 9% than any JV, even if it was with someone as experienced as Thomas. I guess, it is all in the eyes of the beholder.



We have discussed this topic before - here is the link: http://myreinspace.com/rein_members_only/Joint_Venture/88-14829-Finding_JV_investors.html?PageIndex=1

 

[Dnaiture]

Thanks for the advice guys, I guess guarenteed is a bad word to use given the nature of the business, prefered return or something of that nature would be more appropriate, I just want to make sure the potential partner is adequately compensated for the fact they will be taking the higher risk on the front end by taking on more of the risk back end myself.

I guess the next question, is where would be a good spot for potentially finding a JV partner?

 

[Thomas Beyer]

QUOTE (Dnaiture @ Mar 9 2010, 05:11 PM) ... I guess the next question, is where would be a good spot for potentially finding a JV partner?
Where do you go fishing ?







.. were the fish are !




Where do you find people with money ?

Were the people with money are: churches, golf clubs, Jaguar dealerships, first class business seats in airplanes, .. or in magazines or website they read ..

btw: where is your website ?

You are not a serious real estate JV partner with no website !!

do you have a track record of 2 to 4 deals that you can use to market yourself ?