JV Partners - Purchase ONE Bigger Property with everyone or Two Smaller Properties - one with each partner?

[Nir]

Hi,
A few people are interested in purchasing with me.

Two of them are good friends of each other. Therefore, with them I have the option to purchase a bigger property, say one 25 plex with both instead of say two 10 plexes - one with each.

What would you do - look for one 25 plex OR two 10-plexes? why?

THANKS.

 

[Thomas Beyer]

QUOTE (investmart @ Jan 1 2010, 09:19 PM) What would you do - look for one 25 plex OR two 10-plexes? why?
a 25-plex .. more efficient to buy and operate .. more profitable ..

5 year minimum hold + find time .. so ask for a SIX year commitment, a cheque and a signed JV agreement .. then start looking for deals !

why not get 4 more people .. or 40 .. and buy a 100-plex .. or better: several ?

 

[Nir]

Thanks Thomas.

Good points. I thought there might also be con`s (from pros and cons) like the added complexity related to adding people to the same purchase/agreement but I guess for you this part is not complicated. also, I thought less risk buying two 10 plexes. will explain through an extreme example:
assuming the two 10 plexes are purchased in different cities: if the city where the 25-plex is, becomes a ghost town - you lost everything. in the case of two 10 plexes you are left with half. now extend that to a simple loss in value in one town and the same logic still works - you reduce your risk by not putting all your eggs (apartments) in one basket (building).
Now, I think you (correctly) do that too. you just benefit from both - bigger buildings (with the efficiency/advantage to size you mentioned above) AND buying in different cities. so to summarize: it depends on the investor`s future business plan and i would also recommend 25 plex only if the investor plans to continue buying. otherwise if the 25 plex is a last purchase (in order to retire for example), then I might still recommend two 10 plexes.

Lastly, interestingly I find in many cases additional units (buying a bigger building) do not reduce price per unit(!) maybe because of the additional efficiency to mange logistically, such building can be sold for the same (or higher) price per unit(?) do you find the same or do you actually always expect to pay less per unit for bigger building (compared to smaller buildings in the same area of course)?

Regards,
Neil

 

[EdRenkema]

QUOTE (investmart @ Jan 2 2010, 08:56 AM) Thanks Thomas.

assuming the two 10 plexes are purchased in different cities: if the city where the 25-plex is, becomes a ghost town - you lost everything. in the case of two 10 plexes you are left with half. now extend that to a simple loss in value in one town and the same logic still works - you reduce your risk by not putting all your eggs (apartments) in one basket (building).
Now, I think you (correctly) do that too. you just benefit from both - bigger buildings (with the efficiency/advantage to size you mentioned above) AND buying in different cities. so to summarize: it depends on the investor`s future business plan and i would also recommend 25 plex only if the investor plans to continue buying. otherwise if the 25 plex is a last purchase (in order to retire for example), then I might still recommend two 10 plexes.

Regards,
Neil

I would recommend joining REIN and receiving the top 10 Ontario Investment Towns report as part of membership also accellerating your progress by networking and leveraging off the knowledge of others.
Either that or just purchase the report from REIN, its all about economic fundamentals and the price is minimal.

Think about it, you`re already leveraging off the knowledge on this forum if you joined REIN you would have a lot more information.
I say this because I`ve seen what you`ve accomplished so far and I know you would be that much further ahead as a member.
But don`t take my word for it, ask Thomas Beyer, education is cheap compared to the payoff!

 

[Nir]

Hi Ed.

FYI I purchased all of REIN research incl. top towns, participated in the quick start event and plan to join in the future..

However, my question is related to JVs more than top towns.

Cheers.

 

[EdRenkema]

QUOTE (investmart @ Jan 2 2010, 10:02 AM) Hi Ed. FYI I purchased all of REIN research incl. top towns, participated in the quick start event and plan to join in the future..

However, my question is related to JVs more than top towns.

Cheers.

OK then why your question about dividing into 2 10-plexes in separate towns because of the potential risk of one town dying off?
Instead as Thomas suggested a 25-plex is more efficient, just look for an undervalued or poorly managed assett in a top 10 town or near enough to benefit from it. If a building cashflows that is what matters, just more homework to be done before the buy.
Add to that Thomas` further point about looking for bigger projects with those kind of partners, it sounds like you`re onto a good thing, by that I mean you have partners that GET IT!

Something I haven`t been able to do yet, and its getting very frustrating for me, people just don`t get it, they think too small, one guy with $200K in free equity between him and his wife and she had a business and he a consultant to the hospitall industry with 3 teenage kids - it took 3 weeks for him to find time for a 30 minute presentation and all he could talk about was he could do the repairs and maintenance himself because he was pretty handy!!
He really doesn`t get it.

I like what you`re doing and look forward to meeting you again in the New Year, all the best.

 

[Nir]

Thanks Ed. I also look forward to meeting again..

You are right about top towns being low risk. Note it was just an "extreme example" as mentioned above. I just find "extreme cases/examples" help explain things, sorry it actually confused you. The idea though is if you purchase in more than one top 10 town, you DO reduce your risk VS purchasing only in one top town, although all top cities are good.

Regarding finding a partner - what you are trying to do is simply more advanced and difficult than what I do:
you see - I have not even started looking for JV partners! Luckily very few people who know me came to me!
Therefore, so far, I haven`t had to beg people to listen to me. I`d hate that too Ed!

At a later stage however, I will have to do what you do and spend more time on presentations etc. I`m just not there yet.
One tip I have though is if you buy right - you don`t have to look for many people because you will only need VERY FEW properties to survive.
something I find even REIN members do not see, perhaps since it is not even recommended by REIN, is - buy cheap cheap cheap and you can leave your day job after 3 properties!!!

Growing a business is a broad discipline. I am not an expert in the field but not being able to sell an idea to others can be improved by improving communication
or/and negotiation skills or other things depending on the cause.

The funny thing about attracting partners is the more relaxed you are (let`s call it inner peace) the more people perceive you as successful. this alone helps attract people.
For some reason human kind is such that sometimes those showing less interest in others attract more interest from others than others.
can people sense some tension? perhaps it`s something as small as that Ed(?)

Cheers.