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How to find JV partners and what to ask for

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majeed411

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Hello folks,

I have zero cash and zero income. I am just starting with the REIN system and I am currently negotiating the purchase of a triplex. I plan on paying the down payment and closing cost with a loan from my parents (gotta love `em). I have offered them 10% interest on their loan payable at any time, on the schedule of my choosing, or upon the sale or refinancing of the property. I chose 10% without much thought as to how reasonable that was, but I think it is a good return for them.

Moving forward, I want to propose similar deals to JV partners--in some cases offering loans with personally guaranteed interest rates, as with my parents, and/or equity. The question is, how much equity and at what interest rate? In another case, I am dealing with someone who I want to co-sign on a future property to improve my debt ratios, but he has no money to invest. Should I offer him equity in exchange for his co-signing? If so, how much?

To sustain my portfolio growth without my own cash, my plan is to be the deal maker. I find the property, present it as a likely profitable investment, and ask people for money in exchange for equity. Any advice as to how much equity to offer for what percentage of the down payment, where to find JV partners, and how to present the deal?

Thank you for your advice!

Best,

Majeed Mogharreban

[email protected]
www.majeedmogharreban.com
 
QUOTE (majeed411 @ Feb 16 2009, 09:15 AM) I have zero cash and zero income. .... I am just starting ... Any advice as to how much equity to offer for what percentage of the down payment, where to find JV partners, and how to present the deal?

You must be a good sales person !

Only a person with excellent sales skills would be able to persuade investors to invest with someone with no track record, no income and no cash !

Initially you have to offer FAR MORE THAN 50% of profit to someone .. maybe 80/20 or 70/30 .. later you can ratchet that down once you have more experience and a larger following. Whatever is win/win .. and win/win is in the eye of the investor (or you) !

10% fixed ROI to your parents or any investor may be sufficient but it will eat into your cash-flow. Better give them a % of cash-flow and equity as it maybe 0 in lean month in order to survive !

Are you pre-qualified for a mortgage ? This may be hard in your case ! Get parents or JV partner on board to pre-qualify with you .. for add`l equity stake .. and get a good mortgage broker on your team ASAP too !

Related post: 50/50 – is this fair ? http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html

More posts on how to make money .. and then get started with your own cash before asking others:

5 ways to make money http://myreinspace.com/public_forums/General_Discussion/61-3347-5_ways_to_make_money.html

How to get started http://myreinspace.com/public_forums/General_Discussion/61-4391-How_to_get_started_.html
 
QUOTE (majeed411 @ Feb 16 2009, 09:15 AM) Hello folks,

I have zero cash and zero income. I am just starting with the REIN system and I am currently negotiating the purchase of a triplex. I plan on paying the down payment and closing cost with a loan from my parents (gotta love `em). I have offered them 10% interest on their loan payable at any time, on the schedule of my choosing, or upon the sale or refinancing of the property. I chose 10% without much thought as to how reasonable that was, but I think it is a good return for them.

Moving forward, I want to propose similar deals to JV partners--in some cases offering loans with personally guaranteed interest rates, as with my parents, and/or equity. The question is, how much equity and at what interest rate? In another case, I am dealing with someone who I want to co-sign on a future property to improve my debt ratios, but he has no money to invest. Should I offer him equity in exchange for his co-signing? If so, how much?

To sustain my portfolio growth without my own cash, my plan is to be the deal maker. I find the property, present it as a likely profitable investment, and ask people for money in exchange for equity. Any advice as to how much equity to offer for what percentage of the down payment, where to find JV partners, and how to present the deal?

Thank you for your advice!

Best,

Majeed Mogharreban

[email protected]
www.majeedmogharreban.com

Majeed, check to ensure sure your Lender will allow the downpayment to be loaned to you and not from your own resources. You may need to partner up with your parents and have them on the title and on the mortgage. Then of course you would give them an equity position rather than interest on their money, as it would be an equity investment rather than a loan.

Work with an experienced and investor-knowledgeable mortgage broker on this to ensure you get it right.
 
QUOTE (thomasbeyer2000 @ Feb 16 2009, 11:14 AM) Better give them a % of cash-flow and equity as it maybe 0 in lean month in order to survive !

Hi Thomas,
How are you defining cash flow? Most persons define it wrt real estate to mean the following:

Cash Flow = Gross Monthly Income - Gross Monthly Expenses - P&I - Taxes - 5% of Rental Income (Insur + Maint + Manage) - 5% of Rental Income (Vacancy).

I`ve seen persons include Principal payments as positive cash flow (not deducting it) and although from a tax perspective that`s correct, from a living point of view that`s not.

Thanks,
 
Getting a good paying full time job will also go a long way to making your goals more realistic.
 
I like invest4profit`s post.
Why do you have zero income?
Get a job, save money...
Why would any one of sober thought invest money with you ?
10% interest - I have structured something like this before - So if 30k DP needed for my end I put down 10k and paid interest at 10% on 20k - so that seems reasonable to me - but other than a parent gifting you why would an investor do this - If you owned and managed a few hundred properties over a long period time .. maybe a bit more understandable...
 
QUOTE (nextrnd @ Feb 16 2009, 12:59 PM) Hi Thomas,
How are you defining cash flow? Most persons define it wrt real estate to mean the following:

Cash Flow = Gross Monthly Income - Gross Monthly Expenses - P&I - Taxes - 5% of Rental Income (Insur + Maint + Manage) - 5% of Rental Income (Vacancy).

I`ve seen persons include Principal payments as positive cash flow (not deducting it) and although from a tax perspective that`s correct, from a living point of view that`s not.

Thanks,

That`d probably be 5% each for insurance, maintenance, and management. Really, you`ll have an actual number for insurance, 5% is fine for maintenance and vacancy and more like 10% for management.

While Thomas has enough experience to know ballpark costs per-unit, most of us are familar with REIN`s cashflow worksheet, where we use actual and projected numbers. That`s the real positive cashflow number.
 
Come on!
Surely this guy has no hope of getting a mortgage!
Other than VTB of the entire amount, private funding, or having his parents co-sign, what chance is there of financing?
I`m guessing zero.
How can he even be negotiating? With whom? Maybe a friend or family member.

I`m perplexed by the scenario and surprised by the encouraging responses.
 
QUOTE (nextrnd @ Feb 16 2009, 01:59 PM) Hi Thomas,How are you defining cash flow? Most persons define it wrt real estate to mean the following:

Cash Flow = Gross Monthly Income - Gross Monthly Expenses - P&I - Taxes - 5% of Rental Income (Insur + Maint + Manage) - 5% of Rental Income (Vacancy).

I`ve seen persons include Principal payments as positive cash flow (not deducting it) and although from a tax perspective that`s correct, from a living point of view that`s not.

Thanks,
cash is cash .. cash-flow as in CASH-flow .. i.e. cash-in vs. cash-out .. hopefully INTO your pocket .. and not out of it !

cash in: rent + misc. revenue like cell phone tower rental, laundry, late fees, parking fees
cash out: mortgage payments, utilities, property taxes, insurance, condo fees, management fees, upkeep (R&M)

i.e. actual rent collected - actual expenses .. some month there will be 0 revenue and some expenses .. i.e. negative .. and some month will be positive .. hopefully most months !

Expenses: .. a rough estimate is 25-50% of rent .. depending on age, location, property type & who pays utilities, before mortgage payments (i.e. upkeep/R&M, taxes, condo fees, insurance, management fees)
 
QUOTE (housedoc @ Feb 16 2009, 06:25 PM) Come on! Surely this guy has no hope of getting a mortgage!
Other than VTB of the entire amount, private funding, or having his parents co-sign, what chance is there of financing?
I`m guessing zero.
How can he even be negotiating? With whom? Maybe a friend or family member.

I`m perplexed by the scenario and surprised by the encouraging responses

Maybe because he is not sitting on his butt crying and is actually out doing something that at the very least will be a beneficial learning experience.
What perplexes me is those like you that want to stifle the entrepreneurial spirit.
 
QUOTE (thomasbeyer2000 @ Feb 16 2009, 06:10 PM) cash is cash .. cash-flow as in CASH-flow .. i.e. cash-in vs. cash-out .. hopefully INTO your pocket .. and not out of it !

cash in: rent + misc. revenue like cell phone tower rental, laundry, late fees, parking fees
cash out: mortgage payments, utilities, property taxes, insurance, condo fees, management fees, upkeep (R&M)

i.e. actual rent collected - actual expenses .. some month there will be 0 revenue and some expenses .. i.e. negative .. and some month will be positive .. hopefully most months !

Expenses: .. a rough estimate is 25-50% of rent .. depending on age, location, property type & who pays utilities, before mortgage payments (i.e. upkeep/R&M, taxes, condo fees, insurance, management fees)

Thanks Thomas, my question was targeted at the Mortgage-Principal payments, inotherwords is the Princpal amount of a Mortgage payment considered positive or negative cash flow ? From a tax perspective its considered positive cash flow since its taxed, however after making a mortgage payment, it doesn`t factor into a Rental Surplus - therefore I don`t pocket this amount. But I think you answered my question in your last paragraph.
 
I`m with you Ed. People have overcome greater obstacles. GO FOR IT; but follow a good system!
QUOTE (EdRenkema @ Feb 16 2009, 08:27 PM) Maybe because he is not sitting on his butt crying and is actually out doing something that at the very least will be a beneficial learning experience.
What perplexes me is those like you that want to stifle the entrepreneurial spirit.
 
QUOTE (nextrnd @ Feb 16 2009, 08:27 PM) ... is the Princpal amount of a Mortgage payment considered positive or negative cash flow ? ...
cash is cash .. and principal paydown is NOT cash .. it is "equity" i.e. networth improvement .. but not (yet) cash !

Therefore it is also not cash-flow.

Ask a clerk @ the Safeway checkout if they take your equity in return for groceries !

Equity can be turned into cash by:
a) selling a property, or
b) getting higher mortgage or
c) a line-of-credit behind the 1st mortgage
 
QUOTE (housedoc @ Feb 16 2009, 04:25 PM) Come on!
Surely this guy has no hope of getting a mortgage!
Other than VTB of the entire amount, private funding, or having his parents co-sign, what chance is there of financing?
I`m guessing zero.
How can he even be negotiating? With whom? Maybe a friend or family member.

I`m perplexed by the scenario and surprised by the encouraging responses.

I`m with Ed and Zander. Go for it! The only one who can say no is the bank, and you won`t know until you try. There`s no down-side! Also, he is using an effective combo of private funding and/or his parents. There`s lots of chance if he does the extra 10% on the prep side.
 
QUOTE (EdRenkema @ Feb 16 2009, 09:27 PM) Maybe because he is not sitting on his butt crying and is actually out doing something that at the very least will be a beneficial learning experience. What perplexes me is those like you that want to stifle the entrepreneurial spirit.

I guess that doing something is better than doing nothing.
I agree that going through the motions of finding a potential properties and running the numbers is good practice. I`ve been doing it for years.
I`m not a `stifler of entrepreneurial spirit`. I`m a realist!
I was simply asking questions.
 
QUOTE (housedoc @ Feb 17 2009, 06:38 AM) I guess that doing something is better than doing nothing.
I agree that going through the motions of finding a potential properties and running the numbers is good practice. I`ve been doing it for years.
I`m not a `stifler of entrepreneurial spirit`. I`m a realist!
I was simply asking questions.


I appreciate you are a hard realist yet I don`t understand how making deprecating remarks about an individuals inexperience will further anyone`s progress on this forum. I met someone who bought his first investment property from under my nose, a multifamily 4 plex, fully tenanted, plus he got a nice VTB. It can happen.
Please don`t try to humiliate or ridicule someone for endeavouring to make progress. That is a step away from bullying and I get my back up when individuals show those tendencies.
If you have that much experience at `running the numbers` why not comment on how to realistically make projections and structure an offer rather than making remarks such as - does this guy even have a chance.

It is your perogative to sign on anonymously and declare your wealth of experience however you will notice the most experienced investors on this forum are fully transparent as to their ID and their objectives which is to further everyone`s progress.

Please take my resonses as a personal opinion as I am not a forum administrator.
 
Hello,

Thank you all for your great advice. I started this post, so let me clarify my situation. I am an immigrant from the US, married to a Canadian, and the average estimated wait time for me to be able to get a job in Canada is 3 years. That said, I am prospecting properties to purchase under my wife`s name with her buying/borrowing power. We are pre-appoved for a mortgage on a $230,000 triplex at 10% down, and I`ll be able to fund that with the gift/loan from my parents. That`s not the problem. The problem is the next property--the long term plan. Where do I get more cash? JV partners is one option, so I am trying to prepare how I will approach potential cash partners and what sort of terms I should offer them.

Thank you Thomas Beyer for your suggestion. He suggested offering 80/20 or 70/30 to a cash partner. In that case, I find a property, calculate its estimated profitability, and say to a potential investor "Here is a profitable property. You pay the downpayment and cosign on the mortgage and title, I`ll take care of everything else, and we split equity and cash flow 80/20 or 70/30". Does this seem reasonable?

If so, where do I find these fat cats? What should I say to them? Any tips? Thanks!
 
QUOTE (thomasbeyer2000 @ Feb 16 2009, 09:24 PM) cash is cash .. and principal paydown is NOT cash .. it is "equity" i.e. networth improvement .. but not (yet) cash !

Therefore it is also not cash-flow.

Ask a clerk @ the Safeway checkout if they take your equity in return for groceries !

Equity can be turned into cash by:
a) selling a property, or
b) getting higher mortgage or
c) a line-of-credit behind the 1st mortgage

Yes! This is the answer I was looking for and I agree, `cash is cash` and principal payments = equity. I`ve seen persons refer to NOI as cash flow and hence my inquiry about Principal payments. Thank you for your excellent responses, much appreciated.
 
QUOTE (majeed411 @ Feb 17 2009, 09:31 AM) Hello,

Thank you all for your great advice. I started this post, so let me clarify my situation. I am an immigrant from the US, married to a Canadian, and the average estimated wait time for me to be able to get a job in Canada is 3 years.
are you sure about this ? I am an immigrant too .. and married a Canadian .. and could work IMMEDIATELY !

QUOTE (majeed411 @ Feb 17 2009, 09:31 AM) That said, I am prospecting properties ..... calculate its estimated profitability, and say to a potential investor "Here is a profitable property. You pay the downpayment and cosign on the mortgage and title, I`ll take care of everything else, and we split equity and cash flow 80/20 or 70/30". Does this seem reasonable?

If so, where do I find these fat cats? What should I say to them? Any tips? Thanks!
After attending a year or so @ REIN .. you will have most answers .. it takes

a) a presentation that is impeccable and compelling with charts, spreadsheets and pictures, incl. your own bio, a specific deal, a description why real estate in general, why with you, and why in that town/city you picked .. and why this property .. maybe 8-20 pages
b) sales skills
c) some money to advertise, drive around and buy coffee or dinner
d) a track record
e) time to network
f) spending MUCH time, months and years probably, in places where people with money hang out, such as: churches, golf clubs, ski hills, lounges, parties, investment seminars, theaters, baseball games .. i.e. everywhere were people mingle and are open to talk money .. i.e. most places .. after a comfortable relationship is built .. I don`t talk money with strangers usually .. but with friends or people I trust .. so build TRUST .. and trust is built through positive life experiences .. and experiences that are then "sold" or "related" to the person willing to discuss opportunities without that being "weird" or "unusual" .. some people are natural charmers or sales people .. and some are not .. and since I do not know you I don`t know if selling or building relationships is your key strength !
g) a website
h) a change of "labels" .. I would not call people that have $100,000 to invest fat cats, for example !

All beginning is hard .. it took me a decade to master .. and I am still learning / improving ..

How much kerosine is burned lifting a plane off the ground ? roughly 30-40% of the total kerosine for the entire trip .. so soaring is easy .. once the plane is off the ground .. but liftoff takes years to learn and is expensive ...
 
QUOTE (EdRenkema @ Feb 17 2009, 08:15 AM) I appreciate you are a hard realist yet I don`t understand how making deprecating remarks about an individuals inexperience will further anyone`s progress on this forum. I met someone who bought his first investment property from under my nose, a multifamily 4 plex, fully tenanted, plus he got a nice VTB. It can happen.Please don`t try to humiliate or ridicule someone for endeavouring to make progress. That is a step away from bullying and I get my back up when individuals show those tendencies.
If you have that much experience at `running the numbers` why not comment on how to realistically make projections and structure an offer rather than making remarks such as - does this guy even have a chance.

It is your perogative to sign on anonymously and declare your wealth of experience however you will notice the most experienced investors on this forum are fully transparent as to their ID and their objectives which is to further everyone`s progress.

Please take my resonses as a personal opinion as I am not a forum administrator.


Unfortunately the tone of the written word is easily misinterpreted.
I wasn`t trying to ridicule or humiliate. Far from it! Nor was I trying to imply that I`m an experienced investor. I own 1 building, 3 doors as you folks say.
That`s why my questions had possible options. I`m trying to better understand the financing side. Also, I enquired with whom a seemingly unqualified buyer would be negotiating. I thought I was asking legitimate questions. That hardly makes me a bully.
Having been a self-employed, single parent, without a high income, I recognize how difficult it is to get a mortgage.

Some of your fellow REIN members have also asked how he expects to get investors without bringing anything but enthusiasm to the table. Why pick on me?
 
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