A renovator investor and a "family" related investor look at doing a new house flip. They sign the joint paperwork together obtaining the lot and then decide maybe it is best to have 2 jv investors and everyone gets 25% of the profits taking financial stress off the project. As the project is delayed waiting for the cement, investor 4 backs out and the renovator/builder takes his position so he now has 50%. He has a lot in the community and the other two investors also have a lot to build on with a two year building commitment. The idea is that they build, flip and reinvest the profits into their own properties. All done with a handshake...no written joint venture agreement. Deal is that builder does the house for $100k and the house is completed in the fall of 2008 and listed for spring of the following year.
Now here is what happens...
The house is in need of an additional $20k... Everyone chips in. (Now in fall of 2009, builder says that he told everyone it might go as high as $120k in the beginning... although investors don`t have anything on paper and their memories seem a little foggy.)
Next, the house did not get the small loose ends finished, nor was it listed as it should have been as per original agreement to sell in the spring so that all could proceed with their own projects. There was a small for sale sign in the window that was taken down as the builder thought we should hold this til the market improved. All three lots were suppose to be built on in 2009 although the community relaxed the stipulation as they saw the flip built and then the "family" related investor`s house was on it`s way for 2009. Incidently, that project was now quoted at being another almost 20% above the original quote...hmmm... plus an additional amount for upgrades if desired. This builder sure has a problem doing estimations. Family investor fired him from the job and will finish it himself.
Then the builder is complaining about his "friend" investor not helping with building the house? Family investor thought this was a cash deal and builder took it to the finish with his helpers??? Now what gives?
Lately, this builder says that he has paid an additional $13,000 to cover costs. Also said that he was taking out some wages that he did not collect from last fall??? The two investors do not have funds to add and probably will not at this point anyways. "Family" related investor says, let`s all 3 sit down with the original budget and bring an accountant`s statement, give us each a copy and show us why this project is sooooo overbudget and let`s get loans to get this to where it should be. Builder refused to "disclose" the paperwork on the project. Now tells Family related investor for all to just keep your money, that he will just take it out as shares in the project since he owns more than 50%... Isn`t that fair he states? Okay, so now we have a control freak trying to run the show and dictate the profits to the investors. This looks like a job for a good lawyer upon closing to put the house in order!
Seems to me, any overruns the 3rd time should be eaten by the builder since his estimate is now off the richter scale and at the very least, hold the amount owing til the property is sold and then deducted off the total and the rest divided 50 25 25.
Currently, the property is going up to be listed shortly as it must get sold so that the builder and his friend can get their houses started for 2010. The deadline is past due already.
Upon sale, it seems that the selling lawyer will have to get the accountant`s statement, examine it very carefully and probably will have to draw up the joint venture agreements so that they are in place and the "friend" investor will have some paperwork to justify him getting his 25%. My guess is that the funds might end up sitting in the lawyer`s trust account for some time if the builder refuses to disclose the lawyer.
Any ideas as to what else the Friend and Family related investor could do in the meantime? Sign a jv between themselves perhaps since the Family related investor`s name is already on the property paperwork? Sure appreciate the thoughts about this venture!
Now here is what happens...
The house is in need of an additional $20k... Everyone chips in. (Now in fall of 2009, builder says that he told everyone it might go as high as $120k in the beginning... although investors don`t have anything on paper and their memories seem a little foggy.)
Next, the house did not get the small loose ends finished, nor was it listed as it should have been as per original agreement to sell in the spring so that all could proceed with their own projects. There was a small for sale sign in the window that was taken down as the builder thought we should hold this til the market improved. All three lots were suppose to be built on in 2009 although the community relaxed the stipulation as they saw the flip built and then the "family" related investor`s house was on it`s way for 2009. Incidently, that project was now quoted at being another almost 20% above the original quote...hmmm... plus an additional amount for upgrades if desired. This builder sure has a problem doing estimations. Family investor fired him from the job and will finish it himself.
Then the builder is complaining about his "friend" investor not helping with building the house? Family investor thought this was a cash deal and builder took it to the finish with his helpers??? Now what gives?
Lately, this builder says that he has paid an additional $13,000 to cover costs. Also said that he was taking out some wages that he did not collect from last fall??? The two investors do not have funds to add and probably will not at this point anyways. "Family" related investor says, let`s all 3 sit down with the original budget and bring an accountant`s statement, give us each a copy and show us why this project is sooooo overbudget and let`s get loans to get this to where it should be. Builder refused to "disclose" the paperwork on the project. Now tells Family related investor for all to just keep your money, that he will just take it out as shares in the project since he owns more than 50%... Isn`t that fair he states? Okay, so now we have a control freak trying to run the show and dictate the profits to the investors. This looks like a job for a good lawyer upon closing to put the house in order!
Seems to me, any overruns the 3rd time should be eaten by the builder since his estimate is now off the richter scale and at the very least, hold the amount owing til the property is sold and then deducted off the total and the rest divided 50 25 25.
Currently, the property is going up to be listed shortly as it must get sold so that the builder and his friend can get their houses started for 2010. The deadline is past due already.
Upon sale, it seems that the selling lawyer will have to get the accountant`s statement, examine it very carefully and probably will have to draw up the joint venture agreements so that they are in place and the "friend" investor will have some paperwork to justify him getting his 25%. My guess is that the funds might end up sitting in the lawyer`s trust account for some time if the builder refuses to disclose the lawyer.
Any ideas as to what else the Friend and Family related investor could do in the meantime? Sign a jv between themselves perhaps since the Family related investor`s name is already on the property paperwork? Sure appreciate the thoughts about this venture!