JV Partnership with Parents, any suggestions?

[dwoychuk]

Hi Everyone,

Having just completed the ACRE weekend, I am very excited to start putting the peices together. After the JV portion yesterday and Russell talking about partnering with Family and Friends, I really want to get my family involved so they can share in my (and my wife`s) success. They have 100k-150k in equity in their home and I would really like them to take advantage of that. I am going to visit them this saturday to show them as much as I can on what I learned this weekend

I am just wondering if anyone would be able to share some of their experiences with this, and possibly how they structured their JV agreement. My parents both turned 60 this year and I want to be able to help them retire in the next 5 years (which is part of my personal belize).

Any input would be greatly appreciated.

Thanks in advance,

Dan Woychuk
403.921.0433
[email protected]

 

[invst4profit]

As with any new business you must consider the full consequences of what you are entering into.
Do your parents need there money for retirement.
What are your plans financially if in the first 3-5 years there is no return. As in 0 or negative cash flow.
What is your exit plan as far as your parents actually seeing a return on there investment toward there retirement.
What happens if your business plan should fail and you lose your parents money.

My advice is, considering your parents age, they should be very conservative with there investments.
At there age they should be looking at guaranteed investments not speculating in real estate.
Try to go it alone on the first property or instead of taking them on as partners borrow the money at a reasonable interest rate. That way if things go bad they can still count on you paying them back from your employment earnings.

 

[BenSanderson]

Hey Dan,

I`ve been considering the same thing as you are for some time now. My parents and my Aunt have almost 200K in home equity, and both are eager to invest with me. It`s tempting to take advantage of these resources right off the bat, but I`m restraining myself from doing so until I have already tried a property or two myself.

One of the mistakes I made when I first began looking into Rent To Own, was that I began telling my parents of the incredible ROI that could be had with such an investment. Now that I`m further along in the process I had to admit to them that these numbers I had first heard about were highly exaggerated, much to my parents dismay (although the actual numbers are still very good). Lesson learned - prove it to yourself first and you will have a much easier time proving it to others.

As I`m sure Russell mentioned, there are some incredible rewards in bringing family into JVs, but at the same time, if things go south, the consequences can be disastrous, and even tear a family apart.

I would caution you against working with your parents money until you are comfortable with the work involved and the REI process in general. Then, once you have a good handle on the ups, downs, risks involved and potential money to be made, you can approach them with some realistic numbers and see if it still appeals to them. Also make sure that your agreements are in writing and signed by all parties. Making sure everyone knows what is involved from the outset will keep things civil if anything unexpected should arise.

 

[dwoychuk]

QUOTE (invst4profit @ Nov 9 2009, 01:50 PM) As with any new business you must consider the full consequences of what you are entering into.
Do your parents need there money for retirement.
What are your plans financially if in the first 3-5 years there is no return. As in 0 or negative cash flow.
What is your exit plan as far as your parents actually seeing a return on there investment toward there retirement.
What happens if your business plan should fail and you lose your parents money.

My advice is, considering your parents age, they should be very conservative with there investments.
At there age they should be looking at guaranteed investments not speculating in real estate.
Try to go it alone on the first property or instead of taking them on as partners borrow the money at a reasonable interest rate. That way if things go bad they can still count on you paying them back from your employment earnings.

Hi Greg,

Thanks for your response.

Their primary means of retirement income will be through my dad`s pension, he is a government employee. I also definately wouldn`t ask them to pull out all of their equity as I wouldnt want them to put all their eggs in one basket.

Though I know real estate is never going to be a 100% for sure game, I would never ask them to put money on something that I was speculating on (other family members of mine have been burnt by that). I just don`t see there to be a ton of other options for them to use that money and get a good enough return on it to make it worth while.

This is also in a very early stage, at this point I want to see if they are even interested in it and then from that point I would go out and start looking for a property.

Have you had any experiences related to a JV partnership? Anything specific that worked or didn`t work in the process for you?

Thanks again

 

[dwoychuk]

 

[westboundventures]

QUOTE (dwoychuk @ Nov 9 2009, 01:43 PM) Hi Greg,

Thanks for your response.

Their primary means of retirement income will be through my dad`s pension, he is a government employee. I also definately wouldn`t ask them to pull out all of their equity as I wouldnt want them to put all their eggs in one basket.

Though I know real estate is never going to be a 100% for sure game, I would never ask them to put money on something that I was speculating on (other family members of mine have been burnt by that). I just don`t see there to be a ton of other options for them to use that money and get a good enough return on it to make it worth while.

This is also in a very early stage, at this point I want to see if they are even interested in it and then from that point I would go out and start looking for a property.

Have you had any experiences related to a JV partnership? Anything specific that worked or didn`t work in the process for you?

Thanks again

I have done a JV with my parents, but I do not recommend doing this as your first deal. Complete a deal or two by yourself first to prove to yourself that you have what it takes.

In my opinion, if you need to "convince" your parents to do a JV with you, then it is a poor idea. In my case, my parents were interested in what I was doing, and I shared my successes with them. I waited until they expressed an interest in participating before I considered doing a deal with them.

Real Estate can be a great investment if done properly, but is not "guaranteed" to make a greater return than other investments. Let your parents do what they are comfortable with.

 

[CamMcCarroll]

Dan,

Do you have any siblings? How will you include them in your "plan".

If no siblings, then you are doing a JV with an individual, they just happen to be your parents. Doing a JV is about trust. If your parents "trust" you enough to invest with you, then start the process. Don`t manipulate, guilt, or pressure them. Allow them to say no if its not for them. Approach them like you would any other JV partner, they have a choice to say no. If they say yes, treat that money WAY better than you would treat yours. And provide them the BEST service you can. I am of the belief that what REIN is teaching can provide powerful tools for creating wealth, and your parents may benefit greatly from the knowledge you have learned. It is exciting to share this knowledge with people, especially when they are willing to listen, as parents tend often do.

I am creating a porfolio for my Dad, it has been a ton of work, very stressful at times, frustrating to be running up against the things that annoy me about my family (they come up 10 fold in JV`s), but I am very satisfied with the partnership. More importantly my parents are VERY satisfied with the venture.

Oh and I would recommend you join REIN as well, (if you haven`t)-for me its been all about the support and community of like mindedness.

Hope that helps

Feel free to contact me if you have any questions

Sincerely

 

[dwoychuk]

QUOTE (westboundventures @ Nov 9 2009, 07:04 PM) I have done a JV with my parents, but I do not recommend doing this as your first deal. Complete a deal or two by yourself first to prove to yourself that you have what it takes.

In my opinion, if you need to "convince" your parents to do a JV with you, then it is a poor idea. In my case, my parents were interested in what I was doing, and I shared my successes with them. I waited until they expressed an interest in participating before I considered doing a deal with them.

Hi Peter,

I appreciate the input.

Convince was probably a poor choice of words. I want to show them what I learned over the weekend. My mom actually brought the idea up when I was mentioning some of the stuff regarding JV`s

I guess the main reason I am thinking of working with my parents early on is because I don`t have any working capital myself. So i need someone else in the deal, and even though I am just starting out, I think it would make me want to succeed even more as to not let my parents down.

How did the JV go with your parents, was there anything you ran into with it make you want to do it again or not?

Thanks,

 

[dwoychuk]

QUOTE (Cam @ Nov 9 2009, 07:06 PM) Dan,

Do you have any siblings? How will you include them in your "plan".

If no siblings, then you are doing a JV with an individual, they just happen to be your parents. Doing a JV is about trust. If your parents "trust" you enough to invest with you, then start the process. Don`t manipulate, guilt, or pressure them. Allow them to say no if its not for them. Approach them like you would any other JV partner, they have a choice to say no. If they say yes, treat that money WAY better than you would treat yours. And provide them the BEST service you can. I am of the belief that what REIN is teaching can provide powerful tools for creating wealth, and your parents may benefit greatly from the knowledge you have learned. It is exciting to share this knowledge with people, especially when they are willing to listen, as parents tend often do.

I am creating a porfolio for my Dad, it has been a ton of work, very stressful at times, frustrating to be running up against the things that annoy me about my family (they come up 10 fold in JV`s), but I am very satisfied with the partnership. More importantly my parents are VERY satisfied with the venture.

Oh and I would recommend you join REIN as well, (if you haven`t)-for me its been all about the support and community of like mindedness.

Hope that helps

Feel free to contact me if you have any questions

Sincerely

Hi Cam,

Thanks for the reply.

I do have a sister, and she will be an add-in to my plan. My parents and my wifes parents are first.

As I mentioned in my previous post, it was actually a suggestion by my mom regarding a JV so I at least know they would like to hear about it. I do have other family that I could contact as well.

I will be getting a REIN membership very shortly as I would like to attend the December meeting here in Calgary.

Thanks again, and I really appreciate the offer for help.

 

[invst4profit]

QUOTE (woychuk @ Nov 9 2009, 04:43 PM) Hi Greg,

Thanks for your response.


This is also in a very early stage, at this point I want to see if they are even interested in it and then from that point I would go out and start looking for a property.

Have you had any experiences related to a JV partnership? Anything specific that worked or didn`t work in the process for you?

Thanks again

I have not had a partner, except my wife, but if I did it would never be a relative.
The fact is most new businesses fail in the first 5 years and this business is no different. Novice investors in real estate often make mistakes on there first purchase, even REIN members, and so did I. I have lost plenty of money over the years.
Many new investors in real estate get in way over there heads in the beginning with tenant, money and stress issues and get out at a huge loss vowing to never do it again.
I started this business knowing I could lose all my money and for that reason, from the outset, vowed not to directly involve family.
I did however borrow money from them and it was very beneficial for all of us.

No I would not directly partner with family. Our relationship is far to important to me to place it in jeopardy over anything so volatile as money.

 

[bizaro86]

QUOTE (invst4profit @ Nov 10 2009, 06:38 AM) I did however borrow money from them and it was very beneficial for all of us.

I borrowed some money from my parents to buy my first (personal) house. When I started this business I commited to myself that, even if I were forced to declare bankruptcy as a result of business failure, I would make good on that loan through future employment income.

It is wise to be very careful with family, and consider the upside AND the downside. How will you structure the deal, and what risks are you willing to take. What happens if something unexpected goes wrong? Relationships have been ruined when that happens, and your family is worth more than money.

Michael

 

[dwoychuk]

QUOTE (bizaro86 @ Nov 10 2009, 08:48 AM) I borrowed some money from my parents to buy my first (personal) house. When I started this business I commited to myself that, even if I were forced to declare bankruptcy as a result of business failure, I would make good on that loan through future employment income.

It is wise to be very careful with family, and consider the upside AND the downside. How will you structure the deal, and what risks are you willing to take. What happens if something unexpected goes wrong? Relationships have been ruined when that happens, and your family is worth more than money.

Michael


Hi Michael,

That has definately been a thought in the back of my mind. My plan so far is going to be explaining the process in as much detail as I can from what I have learned so far, and if they have some questions that I don`t know I will have to find out for them. I wouldn`t want to ever get involved in a deal and not have them understand 100% what the possible risks are as well as all of the positives.

I would also feel very strongly the way you did, in terms of it wouldn`t be an option to not pay them back. I would have to find a way.

Thanks for your input.

Cheers,

 

[dwoychuk]

QUOTE (invst4profit @ Nov 10 2009, 06:38 AM) I started this business knowing I could lose all my money and for that reason, from the outset, vowed not to directly involve family.
I did however borrow money from them and it was very beneficial for all of us.

Hi Greg,

I don`t know what the exact definition of a Joint Venture is, but if you are borrowing money from family is that not essentially the same thing?

What kind of terms did you have with your family regarding the money you borrowed?

I ask, because I am sure my parents would lend me the money as well, but how do you work that into the mortgage application? When we bought our primary residence my parents gave me $5000 towards it and I had to have a signed gift letter to state that I didn`t have to re-pay the money to them. I wouldn`t be able to do that truthfully in this instance.

Thanks again,

 

[AndyLuchies]

Hey Dan, you sound serious about RE investing, so you`ll likely be looking to get more JVs than just your immediate family eventually, so why not kill 2 birds with one stone.

Take the time to put together a professional looking JV presentation. Get to know enough so that you would be comfortable explaining the JV to a complete stranger. The tendancy with families is to get too lax on the details, ESPECIALLY if its a) your very first deal; and b) your first JV.

Then, you can ask family members if they could do you a favour and "test-run" your JV presentation. (This is what I`m doing with my parents because they`ve expressed a slight interest in my real estate, but they`ll probably be more skeptical than a stranger. No, my mom doesn`t trust me, haha.)
This is a way to keep all pressure off them, but present the info and they think they`re doing you a favour while you`re getting your vision started in all of them!

The main thing is DON`T shortcut the JV process because its family. Make it look professional and squeaky clean. If you start off with a "hand-shake" only attitude, you may not like where it ends up. Plus, this is a lower risk dry run for when you go get more investors outside of your family. (family will let a few mistakes go that other investors won`t.)

Also, when you think you`ve got your JV presentation perfect, make sure you "test-run" it by that one person in your family (everyone`s got one) that is skeptical of EVERYTHING. You`ll find a lot of questions come up that you may not have thought of.

 

[westboundventures]

QUOTE (dwoychuk @ Nov 9 2009, 10:47 PM) Hi Peter,

I appreciate the input.

Convince was probably a poor choice of words. I want to show them what I learned over the weekend. My mom actually brought the idea up when I was mentioning some of the stuff regarding JV`s

I guess the main reason I am thinking of working with my parents early on is because I don`t have any working capital myself. So i need someone else in the deal, and even though I am just starting out, I think it would make me want to succeed even more as to not let my parents down.

How did the JV go with your parents, was there anything you ran into with it make you want to do it again or not?

Thanks,

It sounds like you may have already made up your mind that you want to do a JV with your parents. I agree with Greg when he states that you are likely to make mistakes on your first property. I would, first and foremost, make sure your family is fully aware of this.

My JV with my parents has gone very well so far, and I would definitely do it again. But in my case, the property has been performing slightly above expectations so far, so there haven`t been any problems which might add stress to our venture.

Should you decide to go ahead and pursue a JV deal with your parents, I would offer you the following suggestions:
- make them fully aware of the risks of real estate investing, including possible negative cashflow and capital losses.
- have a full JV agreement done up as if you were investing with a partner you didn`t have a strong relationship with. You MUST decide on how you will deal with various problem situations before you do the deal, and "design the divorce" in advance. Once you join REIN, there are some good JV templates in the member`s download section.
- set the goals and objectives for the JV in advance, and agree on exactly who is responsible for doing what.
- estimate rent and expenses very conservatively. This way when you share your forecasted profits with your parents you are setting expectations low. This gives you room to make mistakes without disappointing them. Then focus on overdelivering.
- this last one should go without saying, but just a reminder: make sure you are buying a quality property with good cashflow in a neighbourhood with good economic fundamentals!

 

[dwoychuk]

I just wanted to thank everyone for their ideas and feedback. It seems to be a common theme that it is not recommended to enter a JV partnership with family right off the get go so it looks like I may need to look for another solution.

The problem I have (as I am sure many people just starting out do) is no money. My wife and I do own our home, but it is a high ratio mortgage and any equity we had in it is gone for the time being (we have only owned for 1 year).

So it looks like my options are:

1) look for a JV partner outside of my Friends/Family circle
or
2) get a couple of quick turn transactions under my belt

So, with that being said. Could anyone share with me how you might approach a "stranger" for a JV deal? I guess my biggest question off the start is do you try and find a property first so you can take some numbers/calculations to that person in a presentation or do you try and line up someone that might be interested in doing a deal and then look for the property afterwards?

On the Quick Turn side of it, I understand the concept of it but again what is the best vehicle to get going? I have seen some stuff on Ron Legrand`s yellow letter, I have also heard people saying to just hit the pavment so to speak and start talking to people with For Sale signs on their lawn.

Again, I really appreciate all of your feedback and input. This is a great community! I am hoping to get a membership in the next couple of weeks so I can also take advantage of some of the other resources that are available to REIN members.

 

[invst4profit]

To attract a partner you must bring something to the partnership. Usually either experience or money. Probably not possible in your present situation.

Try making offers on properties with the condition the seller hold the mortgage. Often you will find older owners looking for a steady retirement income. Assuming they own a property that is paid off they may be interested in being the banker. You will still need some cash for the deal so start saving.
You will likely pay a higher interest rate than market but if the numbers on the income still work it is a good way to get into the market.

 

[AndyLuchies]

I want to clarify what I said earlier. I do not think its bad to do JVs with family, in fact I believe I said something to the effect that they`re more forgiving than strangers might be--only make sure your JV setup is fit for a complete stranger before pitching it to your family.

Your family are likely the only people who will invest with you even if you don`t bring anything that convincing to the table. However, don`t under sell yourself either, as Russel Wescott (sp?) says "In the land of the blind, the one-eyed man is king!" You are a real estate expert compared to many people out there.

Talk with Russel, he started off from scratch with JVs with family and friends, so its definitely doable. I`d recommend getting together a flawless JV presentation, then approaching your family, use examples from other successful real estate investors similar to what your strategy will be. You`ll be helping out your family as well as yourself.

Don`t neglect the awesome resources God has given you (family members and friends with dough!)
(my two cents)