- Joined
- Aug 30, 2007
- Messages
- 13,879
A successful real estate project requires three investments, be it a single do-it-yourself deal, a JV with 2 or 3 parties, a syndication with 167 people like we do, or a publicly traded REIT with $2B in assets:
1) money (i.e. "green $s") for the downpayment, upgrades, reserves and upfront costs for the venture,
2) mortgage ("red $s" as in below the red line, i.e. debt/mortgage) and
3) management: skills/time/expertise applied throughout the venture, heavily upfront but usually ongoing.
I call the latter "blue $s".
I have seen many REIN members struggle to attract JV capital because the money partner thinks that a 50%, 40%, 33% or sometimes even only 20% equity stake for the expert, with or without modest fees, is unjustified because she/he puts up no money.
Usually we tell people s.th. like this: "We bring 60-80% of the money to the table (via an ever more difficult mortgage) and we do the following, and we take only 40% of the profit, and only after you get 100% of your money back. We also invest our own money for the same term, and we have experience, and not one has lost money in 13+ years in business thus far":
This long long list shows what the expert has to bring to the table - all necessary and very valuable tasks that are often very time consuming and certainly knowledge intensive (through hands-on experience or knowledge obtained by joining education/incubator groups like REIN) - and you have to get paid for it.
And yes, Mr(s). Investor if you do it all yourself you should then keep that portion of the profits, too, if you are actually able to invest the time or have those skills which often take years to acquire.
Happy JVing in a win/win fashion !
1) money (i.e. "green $s") for the downpayment, upgrades, reserves and upfront costs for the venture,
2) mortgage ("red $s" as in below the red line, i.e. debt/mortgage) and
3) management: skills/time/expertise applied throughout the venture, heavily upfront but usually ongoing.
I call the latter "blue $s".
I have seen many REIN members struggle to attract JV capital because the money partner thinks that a 50%, 40%, 33% or sometimes even only 20% equity stake for the expert, with or without modest fees, is unjustified because she/he puts up no money.
Usually we tell people s.th. like this: "We bring 60-80% of the money to the table (via an ever more difficult mortgage) and we do the following, and we take only 40% of the profit, and only after you get 100% of your money back. We also invest our own money for the same term, and we have experience, and not one has lost money in 13+ years in business thus far":
- Investigate location/area of North America to invest in
- Investigate micro-location once city or metroplex is selected
- Screen/filter potential investment properties using realistic rents and/or expenses.
- Write offer on selected property (this may involve multiple offers and multiple iterations since typically not all offers will be accepted).
- Negotiate terms and conditions of offer.
- Finalize offer.
- Inspect property
- Get reports, such as appraisals, engineering reports, structural reports, RPRs, fire inspection reports
- Apply for mortgage, direct or via mortgage broker
- Negotiate with financial institution to obtain, initially and/or later, re-finance using 1st, 2nd and/or CMHC (or in the US, FannieMae) insured mortgages.
- Set up the legal structure/corporation, and co-investor structure usually via a joint venture or limited partnership agreement.
- Select property manager, onsite manager and other professionals (such as tax advisors, inspectors, appraisers, bankers, engineers, roof experts, boiler mechanics) that may be required to further inspect the property initially and operate the property on a day-today basis.
- Will market, rent, fix up, repair, paint, landscape and/ or enhance said property to standards that expert sees fit to achieve appropriate rent and/or resale value.
- Will keep a record of such fixtures, repair material and/or landscaping material expenditures and/or of all other expenses, such as property management fees, subcontractors , onsite managers, taxes, insurance, realtor, legal, advertising and/or related expenses to market, upgrade, rent and later sell said property.
- Set up WCB (Worker's Compensation Board), contractor, Rona, Home Depot or supplier accounts.
- Negotiate and set up preferred vendor, supplier and contractor list.
- Manage all relationships with banks, realtors and/or 3rd parties.
- Set up reporting and e-payment mechanism to investor.
- Act as the primary interface to property manager, or may manage properties inhouse.
- Adjust rents frequently with market realities.
- Invest frequently (but not always) personally into the venture.
- Sign all necessary legal documents.
- File annual or quarterly statements/documents that may be required by various jurisdictions, incl tax withholding for non-resident Canadians
- Sign required personal guarantees for required mortgage(s).
- Suggest exit timing
- Suggest exit options
- Prep asset for exit
- Liaise with realtor & lawyer on exit
- Prepare document for exit
- Manage exit procedure
- Do more reporting & filing on exit
This long long list shows what the expert has to bring to the table - all necessary and very valuable tasks that are often very time consuming and certainly knowledge intensive (through hands-on experience or knowledge obtained by joining education/incubator groups like REIN) - and you have to get paid for it.
And yes, Mr(s). Investor if you do it all yourself you should then keep that portion of the profits, too, if you are actually able to invest the time or have those skills which often take years to acquire.
Happy JVing in a win/win fashion !
Last edited: