jv partners

[Twong]

Hi All,

We are on our second purchase as real estate investors so we are on a really steep learning curve. its been fun, inspite of Don`s advice to keep real estate investing boring.

We are in the process of purching a 20 suiter, have used up most of our personal money and is being offered some jv money when we share with others what we are up to. Our lender is not concerned about any side deals for financing we may make but is adament about not adding a caveat on title 6 months after the deal closes. (We followed Don Campbell`s amd Barry McGuire`s advice...full disclosure of what our intentions are to our lender and to asked for their feed back)

Does anyone have any ideas on other ways to secure the jv`s financial interest without putting them on title either as co-owners or with a caveat that refers to the jv agreement? And stay clear of infringing on the securities commission`s regulations also.

If there is a solution to this, it will open up the possibility of adding jv partners after the deal is through, freeing up money so that we can respond quickly when other great deals materialize or even just to give us resources to deal with income fluxuation or emergencies in our investments.

We are newbies with lots to learn and are thankful to have such a wonderful network to support us. Thanks you in advance for your contributions.

 

[Thomas Beyer]

QUOTE (Twong @ Oct 14 2008, 02:27 PM) Hi All,

We are on our second purchase as real estate investors so we are on a really steep learning curve. its been fun, inspite of Don`s advice to keep real estate investing boring.

We are in the process of purching a 20 suiter, have used up most of our personal money and is being offered some jv money when we share with others what we are up to. Our lender is not concerned about any side deals for financing we may make but is adament about not adding a caveat on title 6 months after the deal closes. (We followed Don Campbell`s amd Barry McGuire`s advice...full disclosure of what our intentions are to our lender and to asked for their feed back)

Does anyone have any ideas on other ways to secure the jv`s financial interest without putting them on title either as co-owners or with a caveat that refers to the jv agreement? And stay clear of infringing on the securities commission`s regulations also.

If there is a solution to this, it will open up the possibility of adding jv partners after the deal is through, freeing up money so that we can respond quickly when other great deals materialize or even just to give us resources to deal with income fluxuation or emergencies in our investments.

We are newbies with lots to learn and are thankful to have such a wonderful network to support us. Thanks you in advance for your contributions.
various levels of "security" exist:
a) a handshake
b) a sketch on a piece of paper, like a napkin
c) a legal contract
d) legal contract + a notice on title (i.e. a caveat)
e) legal contract + a 2nd (or 3rd or 4th) mortgage
f) legal contract + shares in the asset holding corporation - non-voting
g) legal contract + shares in the asset holding corporation - voting, minority
h) legal contract + shares in the asset holding corporation - voting, majority

 

[Twong]

QUOTE (thomasbeyer2000 @ Oct 14 2008, 01:40 PM) various levels of "security" exist:
a) a handshake
b) a sketch on a piece of paper, like a napkin
c) a legal contract
d) legal contract + a notice on title (i.e. a caveat)
e) legal contract + a 2nd (or 3rd or 4th) mortgage
f) legal contract + shares in the asset holding corporation - non-voting
g) legal contract + shares in the asset holding corporation - voting, minority
h) legal contract + shares in the asset holding corporation - voting, majority

Hi Thomas,

Thanks for the range in possible security I can offer the jv partner.

Since d through h won`t work for my lender, c would have to be the maximum level of security I can offer the jv partners who offers me money. Its not as solid as being on title or haveing a caveat but the jv partner`s interest is recorded and protected.

I`ll ask my potential jv partner what would make them feel secure or how much security do they feel they need.

Thanks again.

 

[Nir]

Thank you both as this is EXACTLY my situation too with a potential foreign investor. I agree sounds like C is the way to go!
Regards,
Neil

 

[Nir]

Hi Twong,

Do you plan to purchase it under your existing corporation (if you have one) or set up a new corporation for the purchase with the jv partner, although implementing option C. from Mr Beyer`s list means just a legal contract?
I`m curious to know if in the case of option c. you feel comfortable doing it under an existing corp since the jv partner will not be shown on title any way or just to be on the safe side (or for a specific reason?) you plan to set up a new corp for the purpose of this purchase(?)

Thanks,
Neil

 

[Twong]

QUOTE (investmart @ Oct 14 2008, 10:08 PM) Hi Twong,

Do you plan to purchase it under your existing corporation (if you have one) or set up a new corporation for the purchase with the jv partner, although implementing option C. from Mr Beyer`s list means just a legal contract?
I`m curious to know if in the case of option c. you feel comfortable doing it under an existing corp since the jv partner will not be shown on title any way or just to be on the safe side (or for a specific reason?) you plan to set up a new corp for the purpose of this purchase(?)

Thanks,
Neil

 

[Twong]

QUOTE (investmart @ Oct 14 2008, 10:08 PM) Hi Twong,

Do you plan to purchase it under your existing corporation (if you have one) or set up a new corporation for the purchase with the jv partner, although implementing option C. from Mr Beyer`s list means just a legal contract?
I`m curious to know if in the case of option c. you feel comfortable doing it under an existing corp since the jv partner will not be shown on title any way or just to be on the safe side (or for a specific reason?) you plan to set up a new corp for the purpose of this purchase(?)

Thanks,
Neil


Hi Neil,

My business partner and I have a corporation to hold the 20 suiter in. We also have a 4plex held outside of the corporation. I am thinking we will do jv both within the corporation and outside, depending on the size of the project. There are at least one thread in MYREINSPACE that deals with the pros and cons of incorporation so if this is a subject that interest you...

We need a fair chunk of capital for a 20 unit project. Its not impossible but the number of individuals who is willing to give us a $400-$500 k to do the deal is limited so I am looking at 4-5 investors coming up with a more reasonable but still large sum of money. I have a couple of friends who wants in on the 20 suiter but we are close to completing on the deal and its no time to start adding names on title. The lender wasn`t really keen on even a caveat. My challenge is to give the jv money partners the protection they need to secure the money they entrust with me. I have no doubt I`ll make them money but I want them to be able to sleep at nights worry free.

All the models of jv partnerships I have seen from REIN involved having the money jv partner either on title or at the minimum, have a caveat on title referring to the jv agreement. I haven`t seen an option "c" contract with rights and obligations, the amount of money ventured and the benefits and/or risks specified without the jv partners being on title. My search has evolved because I have found the pace of event in a desirable real estate purchase happens at break neck speed. If a great deal comes up, there is no time to look for jv partners before making the offer. You have to have the cash for the initial deposit, $25k and possibly the second deposit, another $75 k ready as we did in our 20 suiter deal. With a $100 k at risk, you don`t want to have to back out at the last moment because of a lack of jv partners.

But then I ask myself, what if we can bring jv partners into the projects even after we already have closed the deal. We can then pull our money out and be ready for the next deal. The results will be the same, we would have decreased the risk of not being able to raise the down payment and we`ll be able to take advantage of good deals as they come up. The only down side is we most likely won`t be able to put the jv partners on title.

Now everybody`s comfort level is different and there may be many people out there who is ok with just a legal contract securing the funds they advance to us. Certainly my sisters and my good friends are in that category but not everyone has that level of confidence in my partner and I and the more security I can provide for my jv partners, the better I feel myself. Good contracts keep good friends good friends!

This is the case where I`ll ask the particular jv partner as to how I can satisfy their requirement for security needs. I am open to anything that will be fair to all parties and not every contract has to look the same. It just has to work for everyone.

If anyone else out there has suggestions on how I can increase my jv partner`s security without putting them on title, I would appreciate your coaching.

Thank you all.

Tony Wong

 

[Thomas Beyer]

QUOTE (Twong @ Oct 14 2008, 08:50 PM) Hi Thomas,

Thanks for the range in possible security I can offer the jv partner.

Since d through h won`t work for my lender, c would have to be the maximum level of security I can offer the jv partners who offers me money. Its not as solid as being on title or haveing a caveat but the jv partner`s interest is recorded and protected.

I`ll ask my potential jv partner what would make them feel secure or how much security do they feel they need.

Thanks again.
try option f: legal contract plus a corporation that has 2 classes of shares:
100 A voting shares that YOU own and control, and one B non-voting share for each $ invested, say 100,000.

The bank usually requires the person that controls the corporation to also sign a personal guarantee for the mortgage. Thus, the investor is "secured", the bank and you. Of course, a legal JV agreement should lay out the terms of the contract/venture.

Like in life, you can always find ways to steal money from people if you want. Thus, an element of trust is required. No "security" is 100%. A car is better than a motorcycle. A seat belt is better than none. An airbag (or 8) is better than none. Driving 80 km/h is better than 135 km/h. You still might get killed.

 

[Nir]

Hi Tony,

Thanks for the explanation.

I understand you are interested in increasing your partner`s security. it makes sense. In my case there is a lot of trust because he is a childhood friend and option C is good enough for both of us. (obviously with other/future partners it might be different)

My question was a little more specific: assuming I already have a corporation under my name that holds a property or two, should the NEW purchase with the partner be under the SAME Corporation that I currently own or a NEW ONE(?)

The reason I`m asking is I`m not sure I want the new property I will purchase with a partner to be under the same corporation that owns a property I own 100%. In other words, since my partner has no issue with a legal contract only (option C), my question is about protecting myself. Am I protecting myself more by setting up a new corp in order not to link the new purchase in any way to an existing corporation that holds other properties? Your question is about protecting your partner/s

Regards,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Oct 15 2008, 08:42 PM) My question was a little more specific: assuming I already have a corporation under my name that holds a property or two, should the NEW purchase with the partner be under the SAME Corporation that I currently own or a NEW ONE(?)
you should either open a new company or a subsidiary company, both from an accounting and a liability point of view !

 

[Twong]

QUOTE (thomasbeyer2000 @ Oct 15 2008, 05:59 PM) try option f: legal contract plus a corporation that has 2 classes of shares:
100 A voting shares that YOU own and control, and one B non-voting share for each $ invested, say 100,000.

The bank usually requires the person that controls the corporation to also sign a personal guarantee for the mortgage. Thus, the investor is "secured", the bank and you. Of course, a legal JV agreement should lay out the terms of the contract/venture.

Like in life, you can always find ways to steal money from people if you want. Thus, an element of trust is required. No "security" is 100%. A car is better than a motorcycle. A seat belt is better than none. An airbag (or 8) is better than none. Driving 80 km/h is better than 135 km/h. You still might get killed.


Hi Thomas,

Option f sounds feasible. Let me work through how it may work:

Non voting shares are used so the jv partner have no say in how the company is run.
The jv partner’s initial investment is secured with the same dollar amount ownership in our company thus instead of owning part of the property, the jv partner own part of the company that own the property.
Share value is locked in at $1/share maximum, but the share`s earning is determined by the performance of the property joint ventured into together.
Each jv property will have it`s own class of share so varying priveledges and returns can be applied to each class determined by the performance of the property joint ventured into.
A jv partnership agreement is in place to spell out the particulars just like any other jv agreements. The possibility of share value depreciating can be dealt with here.
These shares are not available to the general public and are only available on request to close friends and family so we do not infringe into securities commission territory.

If my reasoning above is correct, then you have solved my problem. Yahoo!!!

Thank you for you generosity with your knowledge and experience. My partner John Carmichael and I greatly appreciate your gift to us and to other REIN members who find themselves at the same bottleneck.



Ciao,

Tony Wong

 

[Thomas Beyer]

QUOTE (Twong @ Oct 16 2008, 10:50 AM) Hi Thomas,

Option f sounds feasible. Let me work through how it may work:

Non voting shares are used so the jv partner have no say in how the company is run.
The jv partner’s initial investment is secured with the same dollar amount ownership in our company thus instead of owning part of the property, the jv partner own part of the company that own the property.
Share value is locked in at $1/share maximum, but the share`s earning is determined by the performance of the property joint ventured into together.
Each jv property will have it`s own class of share so varying priveledges and returns can be applied to each class determined by the performance of the property joint ventured into.
A jv partnership agreement is in place to spell out the particulars just like any other jv agreements. The possibility of share value depreciating can be dealt with here.
These shares are not available to the general public and are only available on request to close friends and family so we do not infringe into securities commission territory.

If my reasoning above is correct, then you have solved my problem. Yahoo!!!

Thank you for you generosity with your knowledge and experience. My partner John Carmichael and I greatly appreciate your gift to us and to other REIN members who find themselves at the same bottleneck.



Ciao,

Tony Wong




close except: I did NOT say $1/share !! I said: one share for each $ invested !!! usually the money comes in as a shareholder loan, say $100,000. Then you issue 100,000 shares for $10 total. Thus, the first $100,000 OUT of the company are tax free, a repayment of the shareholder loan !!

the issue of voting shares is CONTROL .. and a mortgage guarantee for the bank .. but the JV agreement should spell out the terms / rights .. so do NOT confuse voting shares with actual behavior / intent as stipulated by the JV agreement !!! under Canadian law non-voting shareholders have rights too that you must adhere to !!

 

[Twong]

QUOTE (thomasbeyer2000 @ Oct 16 2008, 11:02 AM) close except: I did NOT say $1/share !! I daid: one share for each $ invested !!! usually the money comes in as a shareholder loan, say $100,000. Then you issue 100,000 shares for $10 total. Thus, the first $100,000 OUT of the company are tax free, a repayment of the shareholder loan !!

the issue of voting shares is CONTROL .. and a mortgage guarantee for the bank .. but the JV agreement should spell out the terms / rights .. so do NOT confuse voting shares with actual behavior / intent as stipulated by the JV agreement !!! under Canadian law non-voting shareholders have rights too that you must adhere to !!


Thanks Thomas!

Lots of learning! Even in something as simple as using this forum! No wonder the `RE expert` partner needs +/- 50% of the profit. This is like attending RE investor university as there is definitely time and education costs to recoup.

Time to research on what non voting shareholder rights are to see potential down sides.

Yes, I see what you mean regarding the value of shares. Increase $/share, decrease number of shares outstanding. Need to research this too.

And tax consequences!!!

Thank you for the clerifications.

Ciao,

Tony

 

[Thomas Beyer]

QUOTE (Twong @ Oct 16 2008, 02:06 PM) Thanks Thomas!
Lots of learning! Even in something as simple as using this forum! No wonder the `RE expert` partner needs +/- 50% of the profit. This is like attending RE investor university as there is definitely time and education costs to recoup.
...
"need" vs. "deserve" vs. "likes" vs. "is able to get" vs. "negotiated" ..

In life you usually do not get what you deserve but what you negotiate !

related post on win/win and "50/50 .. is this fair?" here: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html

 

[Twong]

QUOTE (thomasbeyer2000 @ Oct 16 2008, 02:22 PM) "need" vs. "deserve" vs. "likes" vs. "is able to get" vs. "negotiated" ..

In life you usually do not get what you deserve but what you negotiate !

related post on win/win and "50/50 .. is this fair?" here: http://myreinspace.com/public_forums/Real_Estate_Discussion/62-2015-5050__is_this_fair_.html


Hi Thomas,

Thanks for the link. Great insights into the jv split proportion. I was wondering how I am going to recover the hours and hours of work and actual expense of nursing a project through to the pay off stage. Hard costs are easy to track but the time spent is a lot harder to keep a record of. A fee based on the value of the project sounds good! fair:fair is good. negotiation is good. not assuming is good. Making money is really good.

I liked your `five ways to make money` discussion also. I have a cousin who can`t speak English and have no sellable skills when he arrived in Canada about 25 years ago. Today he own multiple rental homes (no jv partners, all his) and was actually taking the year off to take his bearing so he can decide what else he wants to accomplish with his life. Today, he has choices, which is what having wealth really is all about. If he can become a millionair through hard work, frugal living and wise investments, going from penniless to wealthy in less than 20 years, any one of us who wants to can replicate his results. BTW, he and his spouse also raised 3 kids and university educated them along the way!

Is this is a great country or what!

Have a great weekend.

Caio,

 

[Thomas Beyer]

QUOTE (Twong @ Oct 17 2008, 04:20 PM) Hi Thomas,

Thanks for the link. Great insights into the jv split proportion. I was wondering how I am going to recover the hours and hours of work and actual expense of nursing a project through to the pay off stage. Hard costs are easy to track but the time spent is a lot harder to keep a record of. A fee based on the value of the project sounds good! fair:fair is good. negotiation is good. not assuming is good. Making money is really good.

I liked your `five ways to make money` discussion also. I have a cousin who can`t speak English and have no sellable skills when he arrived in Canada about 25 years ago. Today he own multiple rental homes (no jv partners, all his) and was actually taking the year off to take his bearing so he can decide what else he wants to accomplish with his life. Today, he has choices, which is what having wealth really is all about. If he can become a millionair through hard work, frugal living and wise investments, going from penniless to wealthy in less than 20 years, any one of us who wants to can replicate his results. BTW, he and his spouse also raised 3 kids and university educated them along the way!

Is this is a great country or what!

Have a great weekend.

Caio,
right .. a great country with LOADS of opportunity .. I too came from a far away land with less than $1000 in my jeans .. over 22 years ago ...