Starting a new JV and need some advice

[cmcmorland]

Hello,

My long time friend and I are looking at getting involved in RE investing. Our long term goals are for the buy and hold market focusing on positive cash flow. After doing some research we are having some trouble between whether we want to set up a holding company right away or just do a JV deal between ourselves and then set-up some form of partnership or company in the future.

We are both looking to split everything 50/50. ie Research, finance, expenses, management, profits, ownership etc.

Does anybody have any suggestions on which route to take? Or past experience in a similar situation?

Also if there are any recommendations for a real estate investment lawyer in the Edmonton area that would be very helpful!

Thanks,

Chris

 

[Sherilynn]

Peter Semonick of Lovatt LLP is a fantastic real estate lawyer. Knowledgeable about creative financing (such as Lease Options and seller financing on Agreement for Sale) as well as more conventional deals.

Before you start a partnership with someone (and especially before you go to the expense of starting a corporation), you should ask what you both bring to the table. Partnerships usually work best when each partner brings something different and complementary to the other partner.

For instance: one partner may have negotiation and sales expertise while the other has renovation and project management expertise. Or one may have the expertise and the other has the cash.

If both partners have the same expertise, you may find yourselves butting heads later.

Either way, be sure all duties, responsibilities, and expectations are clearly outlined in a JV agreement.

 

[Thomas Beyer]

[quote user="cmcmorland"]
We are both looking to split everything 50/50. ie Research, finance, expenses, management, profits, ownership etc. [/quote]

While pooling money is a great idea to buy real estate together, some things are tough to split, for example management or research, as one person tends to do more work than the other.

Define upfront who does what for what $ or equity figure. For example, decide to pay the manager $2000/year and then allocate time spent along a 0/100 to 50/50 to 100/0 continuum. Separate management from ownership. Define how to exit, and also what happens if party A wishes to exit but party B does not, or what happens if you need $10,000 for a new roof and a bathroom reno but one party doesn't have the required 50%, for example.

 

[cmcmorland]

Thank you for the help I really appreciate the support, I will bring this up with my partner and try to pan-out our different strengths so that we can clearly define separate responsibilities.

 

[Neil1]

[quote user="cmcmorland"]
We are both looking to split everything 50/50. ie Research, finance, expenses, management, profits, ownership etc.

[/quote]
Why do you think buying 8-plex with a friend is better than each buying 4-plex separately?
Since each of you plans to do everything anyway, by buying a 4-plex you eliminate all the reporting to each other.
Meet as friends for coffees and discuss and improve your investments. but dont buy together - it does not sound like it'd be a good JV based on the info provided.

An example of a good JV:

Partner A has a lot of asset management experience and no money in the bank
Partner B has no RE experience, is a very busy Doctor with 1 Million Dollars in the bank.

Regards

 

[Rickson9]

[quote user="Neil1"]Partner A has a lot of asset management experience and no money in the bank

[/quote]

Sounds paradoxical.

Where did their $ go?

What kind of partner is this?

 

[Neil1]

[quote user="Rickson9"][quote user="Neil1"]Partner A has a lot of asset management experience and no money in the bank

[/quote]

Sounds paradoxical.

Where did their $ go?

What kind of partner is this?

[/quote]

Hi,

I actually know a few in this (I think good) situation with no money in the bank.
They simply put all their money say $250,000 in the first plexes they purchased.
That's how they started.
Then, thanks to positive experience doing it on their own, continued purchasing with partners.
They even refinanced a few on the way taking out equity from their properties. Why do they not have money in the bank then? because these amounts too were used to purchase more RE, implementing their (pretty proven by now) strategy.

Note they do have emergency reserve funds/LOCs. That's not money in the bank, just the option, in an emergency, to use funds and increase the debt in order to avoid bankruptcy for example.

Regards

 

[AnnaB]

Hi Chris,

We have some great posts around Joint Ventures on the blog that might be helpful - blog.reincanada.com.

They can be found by clicking on the JV or Joint Ventures tags on the right hand side of the page.

Thanks, Anna