Joint Venture with existing tenant

[drew]

Hi,

I am looking for some expert opinions on a possible opportunity for myself and an existing tenant.

I have a tenant who is interested in getting a share in the ownership of a 4plex I own. He has stated that he was considering purchasing it before I did but wasn`t ready for various reasons. I am considering to set up a joint venture partnership with him but I am not sure what is the best way to go about this.

If I remember correctly, there was a previous thread which dealt with owners JVing their existing property (I can`t seem to find this) although I don`t know if anyone did this with a tenant.

Any insight or advice would be greatly appreciated.

Thanks,
Andrew

 

[terri]

I`ve been trying to work with my tenants for a while. I have yet to do it for various reasons but I love the idea of helping my tenants own and have a live in partner that will look after the property. Like any Jv agreement you have to outline the partnership clearly, state what % you each own, how involved you both are, what duties, taskes you each take one. Get a good lawyer to write up the jv contract for you.

good luck,

Terri

 

[drew]

QUOTE (terri @ May 6 2009, 10:05 PM) I`ve been trying to work with my tenants for a while. I have yet to do it for various reasons but I love the idea of helping my tenants own and have a live in partner that will look after the property. Like any Jv agreement you have to outline the partnership clearly, state what % you each own, how involved you both are, what duties, taskes you each take one. Get a good lawyer to write up the jv contract for you.

good luck,

Terri

Thanks Terri,

What I am thinking of doing is setting up the jv with a traditional 50/50 split where I would be the re expert and do all what that entails and he would put in the downpayment on a new mortgage and be an onsite property manager. For sure we would have in writing a good legal agreement checked over by our lawyers stating exactly what all the details are.

My thinking is that if he were to live there then we could qualify for just 5% downpayment and he could get into ownership with little $ and get a great return.(much better than just paying rent) Since I know all the numbers and how the property performs I am confident I can show him this.

Now would also be a great time with mortgage rates being so low and if this were to work out I would use the extra $ from the deal to fund another purchase of income property.

I have in mind a purchase price although it does seem a bit odd that I will be buying back my own property with a new partner who is putting in the down payment. I am striving to make this a win win deal and I hope it works out.

Any other feedback?

Thanks,
Andrew

 

[Anonymous]

QUOTE (drew @ May 7 2009, 01:25 AM) Thanks Terri,

What I am thinking of doing is setting up the jv with a traditional 50/50 split where I would be the re expert and do all what that entails and he would put in the downpayment on a new mortgage and be an onsite property manager. For sure we would have in writing a good legal agreement checked over by our lawyers stating exactly what all the details are.

My thinking is that if he were to live there then we could qualify for just 5% downpayment and he could get into ownership with little $ and get a great return.(much better than just paying rent) Since I know all the numbers and how the property performs I am confident I can show him this.

Now would also be a great time with mortgage rates being so low and if this were to work out I would use the extra $ from the deal to fund another purchase of income property.

I have in mind a purchase price although it does seem a bit odd that I will be buying back my own property with a new partner who is putting in the down payment. I am striving to make this a win win deal and I hope it works out.

Any other feedback?

Thanks,
Andrew


The key is going to be establishing a few things:
1) who will be on title?
2) will the JVP do any work IE onsite PM
3) What is his/her expectations of the deal

Also, if you sell, you will more than likely trigger a capital gain. Maybe you can still remain on title and either register JVA on title OR have them qualify jointly for the mortgage.

What ever you do, the key will be to communicate everything and have it documented.

good luck

 

[drew]

QUOTE (MarkGarrett @ May 7 2009, 01:30 PM) The key is going to be establishing a few things:
1) who will be on title?
2) will the JVP do any work IE onsite PM
3) What is his/her expectations of the deal

Also, if you sell, you will more than likely trigger a capital gain. Maybe you can still remain on title and either register JVA on title OR have them qualify jointly for the mortgage.

What ever you do, the key will be to communicate everything and have it documented.

good luck

Hi Mark,

Thanks for your input. I really appreciate it and your expertise and experience. As to your questions:

1) I am thinking we would both be on title (i.e. my wife and I together as one party, and tenant as the other). I am not sure what other possibilities there are in this case.

2) I hope to have the JVP involved as an onsite PM and am guessing he would like to be this as well based on our previous conversations. We are going to have a meeting soon to talk about such things.

3) His expectations of the deal I will find out soon. For sure I know he plans to continue living here for the next few years and this is why I think we could both benefit from a partnership.

As to the part about selling I am still not sure about what to do. I do want to, if we can, get a larger new, low interest rate mortgage with the 5% down payment option as he is residing in the property. This would provide excellent leverage and roi. However, I don`t know if I have to "sell" the property to actually get a larger mortgage. Perhaps I would refinance so I would need an appraisal? Then get a new mortgage based on the apppraisal value with both of us on title?

For me to remain on title and register a JVA would not involve getting a new mortgage, correct?
The reason I am hoping to fet a new mortgage lies also in the fact that mortgage rates are so low now compared to what my rate is now. My payout penalties are very low so that would not be a problem.
I have owned the property a few years and I feel it is worth more than what I paid for it as I have made quite a few improvements as well as increased the income. I just don`t know what value an appraisal would come in at. This is why I was leaning towards a "sale" where I could realize some of the gains and put them to use by investing in another property. I see your point that I would then have to pay tax on that gain so I think what you are suggesting is to avoid this if possible.

I will continue to work on this deal to make it a win win situation whereby all parties will benefit. I am thankful for this forum and all the great questions, answers, discussions, and solutions provided by a broad range of members new and old.

Thank you,
Andrew