JV - Question for Russel Wescott

[LizzieChua]

Hi Russel.



Would you please clarify something for us? You've taught us that we should request the money partners in a joint venture to not collect anything for the 1st year after a property purchase. How do we collect our share of the monthly cash flow? Do we also wait for a year to get paid? 'Would appreciate your educating us on this.



We have a quite a few people who are very interested in investing with us and we so excited.



Kind regards.

Lizzie

 

[RussellWestcott]

Howdy Lizzie, thanks for the question.

Congratulations on having people with great interest investing with you... make sure you treat your investors like gold.



Regarding your question, not exactly sure what you are referring to, but I'll try my best to answer your question based upon what I have found to work for me.



Regarding the splitting of the cash flow, you can agree to whatever you like, you can split the cash flow on a monthly basis, semi annual, yearly, at the end of 5 years... that's up to you and your partners to decide.



For me what has worked best, is to wait till the end of 12 months (or the end of the business year end), then myself and my money partners sit down and and decide how to split the cash flow. I am a big fan of building a big cash reserve for the 'what if's' of Real Estate investing. Now if you find the cash flow is very strong, then split the monies more frequently.



Now if the cash flow is not there... well that's another story.



Hope this helps, if not, please clarify more and I'll do my best.



Make sure you check out the 'ask an expert' (Joint Venture section). --> here There are over 238 JV discussions, and over 1,300 posts to review specifically on the subject.

 

[Thomas Beyer]

[quote user=RussellWestcott]I am a big fan of building a big cash reserve for the 'what if's' of Real Estate investing. Now if you find the cash flow is very strong, then split the monies more frequently.


This is very prudent advice !



Allow a healthy reserve for unexpected or expected expenditures like:

a) vacancies

b) new appliances

c) new carpets

d) new hot water tanks

e) new roof every 20 years {how old is yours, btw?]

etc. ..

 

[LizzieChua]

Thanks Russel and Thomas!



Okay, I understand then that ideally all partners should split earnings/cash flow at the same time in whatever periodic schedules are decided on by all. My dilemna is, my husband and I must have planted "seeds" in minds of quite a few friends and acquiaintances who are now realizing that it is really possible to build wealth in real estate. You should see when we talk to them - it's like they get enlightened and they look teary eyed! It's like we are providing a solution to whatever challenges they may be facing financially. It will take just another meeting and I'm sure they will sign up to be money partners with us. And all we do is to tell our story...



After the closing of a condo purchase from a new development in January, we made our first re-sale property purchase with 2 partners which closed Friday Feb 25th! It's a student rental with 5 doors which is a block away from McMaster U at Hamilton. We got the house at below market price about $40K. A turn key with 5 students leasing until 2012. The property has good structure, just need cleaning and sits in a big lot.



Thanks again! I am so happy and excited this year! Onwards and upwards!



Kind regards

Lizzie

 

[RussellWestcott]

Lizzie, love your actions and your enthusiasm, keep up the great work!



[quote user=LizzieChua]Thanks Russel and Thomas!

My dilemna is, my husband and I must have planted "seeds" in minds of quite a few friends and acquiaintances who are now realizing that it is really possible to build wealth in real estate. You should see when we talk to them - it's like they get enlightened and they look teary eyed! It's like we are providing a solution to whatever challenges they may be facing financially. It will take just another meeting and I'm sure they will sign up to be money partners with us. And all we do is to tell our story...





Couple of things, be very careful of the "seeds" you are planting, you have to be able to deliver upon them. A couple key things I have learned (the hard way) is: You MUST underpromise and overdeliver. Remember your investors are buying in to you first (the property second), and you if promise too much you are doomed from the beginning (and things do happen in Real Estate). You have to be able to deliver upon what you promise.



The second thing is, it is very easy to get an investor excited about an investment (especially in today's environment), it is much more difficult to deliver that excitement, because in my world an excited investor is a nervous investor they want results now, and they want out at the first bump in the road.



You have to ensure your partners are aware that 'things' do and will happen, and this is a long-term investment (5+ years or more). You need to manage their expectations. Because if you promise them the moon and only get them half way there, they will be disappointed even though you delivered more than they could have on their own.



Finally, I commend you for your actions, and I look forward to hearing all your success stories in the future.

 

[Thomas Beyer]

[quote user=RussellWestcott]You need to manage their expectations.


Indeed .. and therefore do not sell "cash-flow" which is VERY HARD to deliver on an asset with a mortgage of 75% LTV or even higher !



Work on a maximized 5+ year ROI .. and if cash-flow is available for distribution, say quarterly or semi-annually or annually: great !



If investor must have cash-flow, and some do, you cannot go 75%+ levered !!!!

 

[LizzieChua]

Very well taken!



Your valuable advise is very much appreciated gentlemen. We will keep them in mind.

For sure, we will keep you posted of our journey...



Lizzie