- Joined
- May 9, 2013
- Messages
- 53
Hello,
I'm putting together various potential exit strategy options for a potential JV partner.
1) Hold as is
2) Sell
2) Refinance
3) Partner Buyout
4) 3rd party buys JV partner share
I'm trying to understand #3, 4, and 5 better.
Looking for information to help me create the JV agreement.
Sample Scenario
Purchase: $250,000
Initial 80% LTV mortgage: $200,000
Downpayment from JV partner: $50,000
New value (5yrs): $300,000
Value of mortgage in 5yrs: $175,000
Equity in property: $125,000
"Profit": $75,000
"Profit" split 50/50: $37,500
New 80% LTV mortgage: $240,000
Refinance Equity takeout: $65,000
If we go #3 Refinance...
What typically happens to the $65,000 equity takeout from the refinance? Is the JV partner's initial $50,000 investment to be paid back first, before we split the profits 50/50? Or is the the $65,000 considered the profit, and thus split 50/50? The reason I ask is because REIN's JV model typically says "The investor partner is paid back his initial investment before the profits are split".
If we go #4 Partner Buyout...
If my partner wants out and I want to stay in... If we refinance, it raises $65,000. I pay the JV partner $50,000 of that to cover his initial investment (then there is $15,000 left). He is still owed $37,500 for the "profits", which is a shortfall of $22,500. What is typical in this situation? Would I cover the $22,500 out of pocket in order to stay in the property? What if I don't have the money to do so (or if I'm buying a much bigger asset that is actually 10x the cost, and I don't have $225,000 to stay in)? Are there any other options?
If we go #5 3rd party buys JV share...
Would 3rd party need to come up with $50,000 (JV partner's original investment) + $37,500 (JV partner's profits) to buy in?
Or would the asset be refinanced first, with the new 3rd party qualifying for the mortgage? 3rd party downpayment is $60,000 (20% of new value), mortgage is $240,000 (80% LTV). Existing mortgage is discharged, leaving $65,000 leftover. JV Partner is owed $87,500 ($50,000 investment + $37,500 profits), so 3rd party comes up with the $22,500 shortfall, for a total investment of $82,500 (instead of $87,500)?
What is the most "typical" scenario for most seasoned REIN members? I know holding and refinancing is the most ideal option, but in speaking with potential JV partners, it appears that they want to start getting some profits in their pockets after 5 years. Thanks in advance.
I'm putting together various potential exit strategy options for a potential JV partner.
1) Hold as is
2) Sell
2) Refinance
3) Partner Buyout
4) 3rd party buys JV partner share
I'm trying to understand #3, 4, and 5 better.
Looking for information to help me create the JV agreement.
Sample Scenario
Purchase: $250,000
Initial 80% LTV mortgage: $200,000
Downpayment from JV partner: $50,000
New value (5yrs): $300,000
Value of mortgage in 5yrs: $175,000
Equity in property: $125,000
"Profit": $75,000
"Profit" split 50/50: $37,500
New 80% LTV mortgage: $240,000
Refinance Equity takeout: $65,000
If we go #3 Refinance...
What typically happens to the $65,000 equity takeout from the refinance? Is the JV partner's initial $50,000 investment to be paid back first, before we split the profits 50/50? Or is the the $65,000 considered the profit, and thus split 50/50? The reason I ask is because REIN's JV model typically says "The investor partner is paid back his initial investment before the profits are split".
If we go #4 Partner Buyout...
If my partner wants out and I want to stay in... If we refinance, it raises $65,000. I pay the JV partner $50,000 of that to cover his initial investment (then there is $15,000 left). He is still owed $37,500 for the "profits", which is a shortfall of $22,500. What is typical in this situation? Would I cover the $22,500 out of pocket in order to stay in the property? What if I don't have the money to do so (or if I'm buying a much bigger asset that is actually 10x the cost, and I don't have $225,000 to stay in)? Are there any other options?
If we go #5 3rd party buys JV share...
Would 3rd party need to come up with $50,000 (JV partner's original investment) + $37,500 (JV partner's profits) to buy in?
Or would the asset be refinanced first, with the new 3rd party qualifying for the mortgage? 3rd party downpayment is $60,000 (20% of new value), mortgage is $240,000 (80% LTV). Existing mortgage is discharged, leaving $65,000 leftover. JV Partner is owed $87,500 ($50,000 investment + $37,500 profits), so 3rd party comes up with the $22,500 shortfall, for a total investment of $82,500 (instead of $87,500)?
What is the most "typical" scenario for most seasoned REIN members? I know holding and refinancing is the most ideal option, but in speaking with potential JV partners, it appears that they want to start getting some profits in their pockets after 5 years. Thanks in advance.