JV'ing existing co-owned RE, removing the co-owner

Passion4RE

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Jun 21, 2012
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#1
Context: I have rentals. Current LTV is approx 37%. Cashflow is high. I made the choice (i know...) years back to divorce the desk, leaving FT work and only do my rental portfolio which allowed me to spend crazy amount of time with family.

Now, in effort to keep my portfolio, or some portion of it, I am looking at JV.
I 100% self manage my properties including 99% of repairs, accounting, leases etc.
I have done one JV to date, so do have some experience, but not for this reason.

Questions:
Do I bring on a JV, taking property back up to 80% and use the funds to pay her out, start over?
Or in this case is there a better way to approach, like take out only what is needed, keeping as high an equity position as possible? The higher the equity taken, of course the costs go straight up with it and down goes the cashflow.
What might differ from my original purchase JV property below market value, reno it, rent it and ride it out?
If I maintain equity (my half) and simply remove her from title and mortgage AND my current A lender keeps existing mortgage in place (2-3% I'd hate to lose those rates), will I still pay LTT on full value and or get hit with cap gains?

I am open to advice, comments, your experiences and will clarify or add anything I can. Thank you in advance!!
 
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CorySperle

Senior Forum Member
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Sep 1, 2010
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#2
It is unclear of what the risk is to you losing your portfolio, and why you are looking to JV in the first place. Generally what you would do is treat it like a new purchase and get a new 80% LTV mortgage and appraisal as day 'zero' with a partner, then do a 50/50 split from that day forward. The main reason to do this is to pull equity to buy another property. I would question this strategy as it is a very large chunk of equity to give up, and you seem to have plenty of juice to just refinance at a higher LTV without an equity partner at all. You seem to have experience, so why not just find money partners and buy other properties?
 

ThomasBeyer

Senior Forum Member
REIN Member
#3
Estimate JV partners equity “as if sold” taking into account mortgage break fees, realtor costs and legal fees and offer this in cash to JV partner to exit her/him. The cash for this comes from your reserves and/or a refi on this asset, or any other asset you own.

Going forward: Define WHY very well ie WHY would you do more JVs.

List pro’s and con’s.

The pro’s may, or may not, outweigh the con’s !!

With such a low LTV today you have ample options to free up cash and buy more assets.

Ask yourself if you like to work more, or less, if you like to take on more responsibilities, or less, if you like to take more mgmt fees managing other people’s assets, or not.

There are FIVE ways to make money in real estate

A) as an owner
B) as a manager
C) as a lender
D) as a builder
E) as a person working in or around the asset while owned or while buying/selling ie painters, plumbers, window installers, realtors, drain de-cloggers, mortgage brokers, lawyers ..

In your case it’s A) and B). Ask yourself if you like to do more A or more B. Nothing wrong with either. Even huge chains like Marriott charge a hotel management fee but then sell the rooms off as timeshare or entire hotels owned by third parties.

Distinguish between ownership and management of an asset !!
 
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Passion4RE

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Jun 21, 2012
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#4
It is unclear of what the risk is to you losing your portfolio, and why you are looking to JV in the first place. Generally what you would do is treat it like a new purchase and get a new 80% LTV mortgage and appraisal as day 'zero' with a partner, then do a 50/50 split from that day forward. The main reason to do this is to pull equity to buy another property. I would question this strategy as it is a very large chunk of equity to give up, and you seem to have plenty of juice to just refinance at a higher LTV without an equity partner at all. You seem to have experience, so why not just find money partners and buy other properties?
Hi Corey, to clarify, the ex-spouse is forcing sale, so keeping any current LTV isnt possible.
My issue with current is that A lender under todays rules requires me to re-qualify for anything I want to keep which is not possible (no T4).
I am treating this essentially as the portfolio is gone, but I have inside knowledge on them so what do I want to try and keep.
Granted I could be totally wrong in my approach, hence why I have come seeking like minded people ;)
 

Passion4RE

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Jun 21, 2012
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#5
Estimate JV partners equity “as if sold” taking into account mortgage break fees, realtor costs and legal fees and offer this in cash to JV partner to exit her/him. The cash for this comes from your reserves and/or a refi on this asset, or any other asset you own.

Going forward: Define WHY very well ie WHY would you do more JVs.

List pro’s and con’s.

The pro’s may, or may not, outweigh the con’s !!

With such a low LTV today you have ample options to free up cash and buy more assets.

Ask yourself if you like to work more, or less, if you like to take on more responsibilities, or less, if you like to take more mgmt fees managing other people’s assets, or not.

There are FOUR ways to make money in real estate

A) as an owner
B) as a manager
C) as a lender
D) as a builder

In your case it’s A) and B). Ask yourself if you like to do more A or more B. Nothing wrong with either. Even huge chains like Marriott charge a hotel management fee but then sell the rooms off as timeshare or entire hotels owned by third parties.

Distinguish between ownership and management of an asset !!

Hi Thomas, I had hopes having been here int he past that you would chime in ;)

I LOVED being an owner. I also LOVED managing my properties. As such I have two things I am currently doing as I think I did them well. I am working to keep any of my own properties I can. Second, I am highly likely to take on the management of other peoples rentals (to date I have always declined requests as it took up time I was spending elsewhere).
So, I would like to maintain some ownership as it has done very well for me in the past. I will also start a management company to recreate my income history outside of rental income.
 

Matt Crowley

Senior Forum Member
Registered
Dec 14, 2013
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Calgary
#7
Depending on the portfolio size, you might be able to secure some form of a commercial mortgage. Debt to take out some part of the equity is the cleanest option. If you are at 37% LTV, then you owe your spouse 31.5% of value (less disposition costs, call it 30%), so you are at 67% LTV. My approach would be to consolidate the portfolio as a commercial security and then take to commercial lending community. You have a bit of a unique situation here.

Can you share a few details on size of portfolio, $, properties, location. I may be able to help you find debt on this.

A JV is probably not a great option...as SFH tend to have very low yields and low distribution rates. So it would be hard to find a good partner, and you would end up taking them at a discount. Other options are a partial financing from the bank + preferred equity structure. So you pay out a set % interest only and then that equity has no upside participation. That would be my #2 option.

Option #3 is to go back to work in some capacity. Doesn't need to be the long-term future. But showing the bank that you have the ability to go back to work as a full time employee with benefits changes attitudes and perspectives drastically. That would be my #3 option.

I wouldn't be willing to live with selling the properties unless I had to but that is option #4. Sell the dogs (less desirable properties), then adjust pricing for the rest based on the pricing feedback and pay off spouse.

@ThomasBeyer way #5 is service fees. There are like a million guys in real estate collecting fees of some kind or other... appraisers, insurers, lawyers, planners, property tax experts, debt brokers, real estate brokers & agents, development manager, construction manager, data subscription services. It is a very fee-fat business.
 

ThomasBeyer

Senior Forum Member
REIN Member
#8
Depending on the portfolio size, you might be able to secure some form of a commercial mortgage. Debt to take out some part of the equity is the cleanest option. If you are at 37% LTV, then you owe your spouse 31.5% of value (less disposition costs, call it 30%), so you are at 67% LTV. My approach would be to consolidate the portfolio as a commercial security and then take to commercial lending community. You have a bit of a unique situation here.

Can you share a few details on size of portfolio, $, properties, location. I may be able to help you find debt on this.

A JV is probably not a great option...as SFH tend to have very low yields and low distribution rates. So it would be hard to find a good partner, and you would end up taking them at a discount. Other options are a partial financing from the bank + preferred equity structure. So you pay out a set % interest only and then that equity has no upside participation. That would be my #2 option.

Option #3 is to go back to work in some capacity. Doesn't need to be the long-term future. But showing the bank that you have the ability to go back to work as a full time employee with benefits changes attitudes and perspectives drastically. That would be my #3 option.

I wouldn't be willing to live with selling the properties unless I had to but that is option #4. Sell the dogs (less desirable properties), then adjust pricing for the rest based on the pricing feedback and pay off spouse.

@ThomasBeyer way #5 is service fees. There are like a million guys in real estate collecting fees of some kind or other... appraisers, insurers, lawyers, planners, property tax experts, debt brokers, real estate brokers & agents, development manager, construction manager, data subscription services. It is a very fee-fat business.
Indeed

I get it now that the wife wants her share.

These option exist here then

1) bring on JV partners or
2) sell a portion of the assets
3) refi portfolio possibly using a commercial loan
4) a combination of 1-3

Look at option 3) ASAP with a capable mortgage broker given your low LTV that could go to 60-65% possibly. But you may need to sell a few assets and/or add a few JV partners.

Paying yourself from a management firm is a good idea too to show income stability to future lenders !!


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 

CorySperle

Senior Forum Member
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Sep 1, 2010
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Edmonton
#9
The problem here is all of these options include greasy hands in your pocket stealing the equity you have worked hard to build. It sounds like you wish to keep and she wishes to sell, but depending on what you are able to work out the best all around solution is to simply calculate the equity, then give her half of the properties, you keep yours, and continue on. Likely not that easy I'm sure, a tough situation all around.
 
Likes: ThomasBeyer

angelapeng

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Registered
Aug 19, 2011
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Vancouver
#12
If I were you, since I am not able to qualify at the A lender banks, I might want to take a look at alternative lenders, such as MIC or private lenders, then I will do one or two years loan with them, pay out the ex (It could be by instalments). Keep the 100% equity, then slowly working to (1-2 years) replace the high interest alternative lender with the A lender when the market starts to favour you.
 
Likes: ThomasBeyer

ThomasBeyer

Senior Forum Member
REIN Member
#13
If I were you, since I am not able to qualify at the A lender banks, I might want to take a look at alternative lenders, such as MIC or private lenders, then I will do one or two years loan with them, pay out the ex (It could be by instalments). Keep the 100% equity, then slowly working to (1-2 years) replace the high interest alternative lender with the A lender when the market starts to favour you.
A traditional res loan is tough to get with no T4 income. Look at a commercial 5-6% blanket mortgage instead as the assets qualify not you !! Also referred to a cross-collaterized mortgage.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
 
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angelapeng

Inspired Forum Member
Registered
Aug 19, 2011
177
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18
Vancouver
#14
A lenders tough to get with no T4 income. Look at a commercial 5-6% blanket mortgage instead !! Also referred to a cross-collaterized mortgage.


Thomas Beyer, Asset Manager, Investor, Community Improver, Author, Father, Mentor www.prestprop.com
Many private lenders even MIC has equity programs, meaning they only look at how much equity in the property, no income is not necessary a deal killer. They do check the credit score, as long as credit score is not too low, they will consider to lend the money. This is one option for consideration, worth the effort to talk to them.
 

Alvaro Sanchez

Ottawa-Gatineau Investor
Registered
Jun 5, 2009
948
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Ottawa
AlvaroSanchez.ca
#15
I only manage properties that I own and have a portfolio with own properties and JVs in place. If I were you, I would find out how much money she needs now and hoiw much later and work something out. 1) Negociate, 2) bring JVs to pay her out 3) sell 1-2 to pay her. Note that you would need to have 150-200 properties in order to make decent $ as PM. So I my opition, I would just do JVs where you share ownership. That is, you might not own 100% but 50%, 40% or 25% still make sense ( And make sure to pay yourself some $ for management)

Hi Thomas, I had hopes having been here int he past that you would chime in ;)

I LOVED being an owner. I also LOVED managing my properties. As such I have two things I am currently doing as I think I did them well. I am working to keep any of my own properties I can. Second, I am highly likely to take on the management of other peoples rentals (to date I have always declined requests as it took up time I was spending elsewhere).
So, I would like to maintain some ownership as it has done very well for me in the past. I will also start a management company to recreate my income history outside of rental income.