JV Question - Reserve Fund

[Nir]

Hi All,

Technical question for investors who purchase with JV partners:

Do you actually keep a minimum balance (say $10,000 or 3 months rent) in your JV joint bank account OR do you keep it elsewhere?

If for example one of the partners has 20K LOC with zero balance would you call this/use this as "reserve fund" although there isn`t
really a positive balance in any account?

For one of my JV purchases I just keep a minimum balance in our joint bank account. Was just wondering if there are different/more creative
and recommended ways of doing this(?)

THANKS,
Neil

 

[GaryMcGowan]

Depending on the size of the fund. For some of our properties we keep it in a separate high interest savings account. For other properties we keep it in the same account for that JV partner and in our JV agreement we agree to keep a minimum balance.
I can`t say we use a LOC for a reserve fund as one day the bank could call that line. I`m interested to see what others say. Good question Neil.

 

[JBagorio]

QUOTE (investmart @ Dec 30 2009, 11:39 AM) ... for example one of the partners has 20K LOC with zero balance would you call this/use this ......

The way I will see it if this is my JV and I am the expert...it is irrelevant where the initial funds for acquiring, staying power/reserve funds, and/or first tenant placements money came from. Given that it was part of the deal…I expect that to come from the $$ investor or partner, and it will be placed in an interest bearing account.

 

[Thomas Beyer]

QUOTE (JNB @ Dec 30 2009, 01:25 PM) The way I will see it if this is my JV and I am the expert...it is irrelevant where the initial funds for acquiring, staying power/reserve funds, and/or first tenant placements money came from. Given that it was part of the deal…I expect that to come from the $$ investor or partner, and it will be placed in an interest bearing account.
I`d agree with that statement STRONGLY .. get the cash and CONTROL it .. and have at least 3 .. better 6 months of mortgage payments PLUS any known deficiencies in property (say, you know carpet is old and needs a $3000 injection in the next 2 years or 3 appliances need replacement for a further $2000 plus the outside paint is old and ugly for another $2000 ) ..

MOST JVs are underfunded and overleveraged ! Having a house vacant for 3 or 4 months is not that uncommon !!

 

[Nir]

Thank you everyone for the great input!

Hi Thomas, the rule of thumb I heard somwehre (perhaps from you?) is around 3 months of rent which is much higher than 3 months of mortgage payments - around 3 times more!

I wonder which amount is more common(?)

Regards.

 

[Thomas Beyer]

QUOTE (investmart @ Dec 30 2009, 04:53 PM) Thank you everyone for the great input!

Hi Thomas, the rule of thumb I heard somwehre (perhaps from you?) is around 3 months of rent which is much higher than 3 months of mortgage payments - around 3 times more!

I wonder which amount is more common(?)
weaker market implies more reserves !

 

[Nir]

QUOTE (ThomasBeyer @ Dec 30 2009, 05:10 PM) weaker market implies more reserves !

why did you mention 3 mortgage payments then and not 3 rents? as you suggested - more reserves for weaker market. thanks.