50% Ownership + Interest + Charges

[REInvestors888]

Hello all,

Inviting money partners/investors in a deal. However, they want the above subject matter. Is this norm? I thought giving out 50% ownership is good enough. How do you guys do it to make the deal more attractive to your prospective money partners/investors?

Thanks for sharing............

 

[Thomas Beyer]

Make it win/win. 50% very doable if you provide good cash-flowing deal and mortgage. Not good enough if you expect money partner to qualify for mortgage too.

More here incl JVs and red/green/blue money http://myreinspace.com/threads/educational-rein-posts-by-thomas-beyer.10663/

 

[REInvestors888]

Read the link. Thanks for sharing, Thomas.

However, what if the guy is putting only the equivalent 25% of purchase price and asking for 50% ownership of the JV which is not enough to finance the project say rezoning and land development costs? What would you do? What's the win-win solution for this scenario?

 

[Thomas Beyer]

Not every potential investor is a good fit.

BMW also does not give their cars away to everyone that wants one.

Many folks have champagne taste but only a beer budget.

Mutual fit is critical.

Win/win is a two way street.

 

[REInvestors888]

Win/win is a two way street.

IMO: Asking for 50% ownership with small money putting into the deal + interest + other charges is too much to swallow. Can you smell bad fish here? Eventually, this guy is probably planning to take over the JV 100%. What do you think?

It's better to get straight financing or investors money with reasonable % ownership but not both. Is a 35% ownership + interest + other charges look attractive enough to get this guy sign the JV agreement?

 

[Cory Sperle]

Generally the money partner should chose equity or interest but not both. It is usually better for the 'expert' to pay 10% interest for the use of their money in lieu of giving up 50% equity. Furthermore unless you have a very small or no mortgage this will be very challenging.

 

[Marnie]

Also have a read through this article that Thomas Beyer wrote as a guest on Don R Campbell's Blog. Thomas offers some excellent insights and questions you may want to consider for your Joint Venture deal. Click here

 

[REInvestors888]

Generally the money partner should chose equity or interest but not both.

Thanks Cory.

Yes, as far as I know, lending or investment money but not both.

Furthermore unless you have a very small or no mortgage this will be very challenging.

Very true because after closing costs, prepaid interest + 50% ownership nothing is left to fund the project. The expert would have to infuse more money to finance the project. With due respect for investors/lenders, I believe this scenario is a "Big Win" for them but a "Big Loss" for the expert.

 

[Thomas Beyer]

Lending money with a hurdle rate of 6-10% plus upside or profit share is quite common in construction projects.

 

[REInvestors888]

Thanks Thomas.

Are 12% prepaid interest for 1.5 yrs open + 50% on profit and ownership normal? Really curious. I thought its either loan or investment like what Cory had mentioned.

 

[REInvestors888]

Thanks Marnie. Very informational.

 

[Thomas Beyer]

Thanks Thomas.

Are 12% prepaid interest for 1.5 yrs open + 50% on profit and ownership normal? Really curious. I thought its either loan or investment like what Cory had mentioned.

Hybrids ( % of interest plus share of profit )are used in construction projects . 12% prepaid plus 50% can be OK. It is expensive money but ok for a short term construction or turn-around project, but not for a long term hold project.

 

[REInvestors888]

Thanks Thomas. Yes, I think it's fine interest + 50% ownership.

My concern however is the little money that this guy is putting into the JV. It's only about 32% of purchase price of the land good only to pay for closing costs roughly. Net money would not be sufficient to pay for project's initial operating costs eg. rezoning, grading, topographic survey, etc. The additional money would come from another investors who would ask for a cut in % ownership as well. At the end there is little % ownership left for the expert. How do you guys solve this situation?

 

[Thomas Beyer]

To build any business you have to be properly financed, have proven domain skills and be able to both make, market and sell the end product.

Part of financing is the ability to get cheap bank loans besides your own cash or more expensive venture money. As a rule of thumb you need about 10 interested JV parties for one to write a sizable cheque. Out of ten that say " I may be interested " only five will seriously look at your offering and 3-4 will then disappear for a variety of reasons.

As such you need to build a much wider net of interested parties ( assuming you have the skills to build the end product and it is sufficiently interesting monetarily to the investor).

Feel free to message me with details and I may invest myself or at least give you feedback where to improve.

 

[REInvestors888]

Feel free to message me with details and I may invest myself or at least give you feedback where to improve.

Will do soon. Really need help. Thanks Thomas.

 

[REInvestors888]

Just emailed details of the deal. It would be a great honor to have you on board===))) Thanks a lot Thomas.

 

[REInvestors888]

Just a word of advice: When doing a Joint Venture deal, make a good record or document everything as much as possible particularly Offer/s to/from prospective partners/investors. Sometimes it's difficult to recall what transpired during the discussion.