JV Partnerships

[rbrost]

I’m working with a new JV partner on an 18 suite building (asking price $1.6m) and we had initial conversation of a 50/50 partnership.

His commitment would require initial down payment, a reserve fund (3 months rent) closing costs and some minor repairs. We’re near closing on the building and I’m getting some resistance on the 50/50 agreement, he’s now suggesting I either come up with half the costs or reduce my position. Do you feel on a deal of this size 50/50 is fair or should I be taking a smaller position. I’ve had good success with JV partners on single family homes/condos and 50/50 has always worked well but I wondering if when dealing in a larger multi family transaction such as this is a smaller position (ie: 75/25) more acceptable.



Thanks in advance for your feedback.



Regards



Rick

 

[ChrisDavies]

Since it`s a large investment, I might go to 60/40, but you`re putting in 18 times the work managing it. Maybe if you go to 70/30 pull your liability for negative cashflow?

 

[REINteam]

Who is qualifying for the mortgage - are you putting up the personal guarantee? Who has covered the inspection costs and such so far?

I agree that 50/50 may not be the right cut for such a large sum of money, but what is the ROI your investor will receive?

The purpose of this JV is to create a win/win relationship leveraging your knowledge of real estate...without your knowledge and your team your potential JV partner probably wouldn`t be able to make this work on his/her own. If they could, if they had the knowledge, had the property, the team, etc then they wouldn`t need you.

What split are they looking for?

 

[Thomas Beyer]

QUOTE (rbrost @ Jul 14 2010, 08:40 AM)
.. I`ve had good success with JV partners on single family homes/condos and 50/50 has always worked well but I wondering if when dealing in a larger multi family transaction such as this is a smaller position (ie: 75/25) more acceptable.


I have done everything from 25/75 to 50/50 ..



how much cash is required ?



A building is a LOT OF WORK .. especially year 1 and 2 .. plus personal guarantees for the life of the ownership plus ongoing asset management issues (albeit less time consuming than in year 1 and 2)!



If he is only committing money and NO personal guarantee 50/50 (or 40/60) makes sense.



If he also co-signs a mortgage then 1/3 - 2/3 may work .. or 30/70 ..



Consider it a learning experience .. so you do not have the right yet to command a premium ownership % .. only when you have 4+ partners lined up and the 1st one bails and you can say "next.."



3 months rent is way too little in reserve fund especially in an older building, and if levered over 60%.





very critical: Ensure you have a partner that doesn't bail on the closing table with your 1st and 2nd deposit committed .. and after months of work to find the deal, get the mortgage, inspect asset, get the reports ...



He MUST have a signed agreement with you AND the money in place, accessible by you, by the time you waive conditions !!!!



How much cash are we talking here ? 25% down + reserve .. so about $500,000 ?



Where is this property ?



Feel free to send me some numbers if you feel like it. Run with 10% vacancies and $5000/year/suite in expenses (+ R&M) .. then you'll get some idea of cash flow [and you'll likely see that with less than 30% down there isn't any]



Related posts:



50/50 in a JV ` is this fair ?

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



Pro`s and Con`s of creating a company for real estate holding:

http://myreinspace.com/forums/p/10292/54272.aspx?#54272/a>





Items to consider when buying an apartment building: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-14548-Buy_vs_Build.html



Multi-Family Primer in May 2009 Issue of Canadian RE Magazine:

http://myreinspace.com/rein_members_only1/Members-Only_Discussion/81-10996-Multi-Family_Primer_-_May_2009_Issue.html

 

[housingrental]

Why did my posts on this topic get deleted?

 

[Thomas Beyer]

QUOTE (housingrental @ Jul 17 2010, 10:55 AM) Why did my posts on this topic get deleted?
it didn`t .. it exists twice now .. please delete one

 

[Nir]

QUOTE (ThomasBeyer @ Jul 16 2010, 09:16 PM) He MUST have a signed agreement with you AND the money in place, accessible by you, by the time you waive conditions !!!!

Now that`s a good important tip!

 

[Nir]

QUOTE (rbrost @ Jul 14 2010, 08:40 AM) I`m working with a new JV partner on an 18 suite building (asking price $1.6m) and we had initial conversation of a 50/50 partnership.

His commitment would require initial down payment, a reserve fund (3 months rent) closing costs and some minor repairs. We`re near closing on the building and I`m getting some resistance on the 50/50 agreement, he`s now suggesting I either come up with half the costs or reduce my position. Do you feel on a deal of this size 50/50 is fair or should I be taking a smaller position. I`ve had good success with JV partners on single family homes/condos and 50/50 has always worked well but I wondering if when dealing in a larger multi family transaction such as this is a smaller position (ie: 75/25) more acceptable.



Thanks in advance for your feedback.


Regards

Rick,

The answer depends on something not provided: who will manage the building and what will be your property/asset mgmt fee!?

Regards,
Neil

 

[GaryMcGowan]

QUOTE (ThomasBeyer @ Jul 17 2010, 12:16 AM) He MUST have a signed agreement with you AND the money in place, accessible by you, by the time you waive conditions !!!!

An absolute Must. Well said Thomas and great reminder to stick with a "procedure"

 

[housingrental]

That is odd as it doesn`t seem to exist when I wrote that or currently... You can see my post and its a double post?

QUOTE (ThomasBeyer @ Jul 18 2010, 12:35 PM) it didn`t .. it exists twice now .. please delete one

 

[Thomas Beyer]

QUOTE (housingrental @ Jul 19 2010, 10:21 AM)
That is odd as it doesn't seem to exist when I wrote that or currently... You can see my post and its a double post?


double post is here: http://myreinspace.com/search/rein_members_only/Members-Only_Discussion/81-17394-88721-JV_Partnerships.html#88721

 

[housingrental]

Thank you Thomas
To clarify:
My original post is not in that link either
The "Why did my posts on this topic get deleted?" was posted in both topics as it is applicable to both.
REIN ?