Joint Venture - Investor gets all the cash flow

[Anonymous]

I have a potential investor who is interested in doing a joint venture with me on a cash flowing condo. All the JVs I have done have been completely 50/50 partnerships with both parties on title and mortgage. The investor in this deal will be putting in all the cash, and I will manage the property. He wasn't interested at first, so to sweeten the deal I've offered him my cash flow portion and instead he pay me 10% management fee.



What I'm wondering is this:

• Is this a common way of doing a JV? ...or have I lost my marbles.
  
  
• Is a JV agreement strong enough to give me 50% of the profit after sale, or should I also be on title?
  What questions am I not asking?
  
  
  Any advice? I'd especially love to hear from Thomas Beyer on this, but of course any experienced advice is welcome.
  
  

Thanks in advance.

 

[Nicola]

Just curious - will the investor also take care of any negative cash flow?

 

[Thomas Beyer]

seems like a fair deal to me ..



"fair" is what both parties agree to ..



Who qualifies for the mortgage ? [assuming investor, too, then 50% to you is a VERY good deal for you .. in my books mortgage qualification is worth 12-16.667% .. so if investor puts up cash and qualifies for mortgage then I'd say that 33.33% for you is fair .. but again, whatever you both agree to !!]



Who is on title ? [I assume only the investor]



Ensure you have this wording in your JV agreement: "This agreement is an interest in land and may be registered by either party on title"



That is strong enough to protect either party. File a ceveat a few weeks after closing, then he can't sell it without paying you your fair share !



Agree up front though on:

[list type=decimal]
[*]when to sell / how to determine to sell .. for example: when

• mortgage is due in 5 years, or
• when property goes up 20%+ or
• when it drops 15% or more .. or
• when either party says "sell" or
• when investor says "sell", or
• when vacancy exceeds 4 months, or
  ....

where cash calls are funded from
what "cash flow" means .. is there a reserve, say for 6 month mortgage payments ? Is there a reserve for the carpet or a paint job that usually has to be paid for every few years ?
if you can be fired if you do a lousy job managing the property ?
how to handle a dispute, for example agree upfront on an independent party, say a lawyer you both trust to make a fair decision
[/list type=decimal]
What is the price for this condo ? Where is it ? What is the rough rent/month ? What are condo fees & taxes ?

 

[OurRealtor]

• Who will pay property taxes
• Costs of Sale
• Who will do financial management
  Yes, who will pay for some odd expenses when both Property Manager and Condo Developer refuse and say" Its not covered in their fee?" Yesterday I paid ~$135, with no signed receipt invoice either from the plumber or PM , its to say that plumber actually perfoormed the job and actually received that amount from P.M.
  Trust not what counts, bottom line is controlled contract document, JV agreed and carefuly drafted agreement must be registered on the title according to promises, otherwise, don't trust any words. Any minute details should be written, agreed and signed
  But if you will show smartness, investor may refuse to proceed with you.

 

[Anonymous]

Thanks Thomas. These are all things I need to figure out. I suppose a reserve of a certain $$ amount would be wise to cover shortfalls, but that doesn't really sweeten the deal for the investor. So what I'm seeing is this - it simply looks like a better deal to him, although he'll probably end up making the same amount in the end if he's the one paying for the maintenance and shortfalls.



The condo is in the North Okanagan and can probably be negotiated down to $95,000. Rent is minimum $650. Strata fees $70. Taxes $120. I already own 2 units in this building and am on strata council which is a bonus for the investor.

 

[Anonymous]

Just another thought. Perhaps I tell my investor that instead of giving him all the cash flow, we do a 60/40 split on the profit from sale? And I still keep the 10% management fee. I think I like this idea better.

 

[Thomas Beyer]

[quote user=jlee]I think I like this idea better.


whatever you can agree with your JV partner !!

 

[bbellissimo21]

Would it not be more lucrative for you in the long run! If the deal goes well he'll want to come in on another deal. From a business perspective, a repeat customer is where you really earn your profit, not from someone who buys once and never see him again.

Make him want to come back! Remember your selling a product. Something we learned at the ACRE meeting this weekend in Toronto. "Patrick Francey".

Bruno