QUOTE (justaguy103 @ May 4 2009, 05:35 AM) I`ve been looking for ways to start investing in real estate. It seems that a Joint Venture or a Limited Partnership are 2 of the easiest ways to get started. Please share pros and cons of both.
Thanks!
a JV is a concept. An LP is a legal structure, usually done between 10+ parties.
A JV is done between very few people .. say 10 at the most as all parties have to sign the same agreement, called a USA (unanimous shareholder agreement). It is hard to have a USA signed by 48 people.
Once a USA or JV agreement is signed then a legal structure has to be created to hold the real estate.
There are at least 4 options here:
a) you, the person, buy it .. and share the proceeds along the USA
b) a corporation is established with numerous sub-options such as voting (common) shares vs. non-voting (preferred) shares
c) a limited partnership is formed, with you (or a very small group organized as a management firm of say 2 or 3 or 4 people) as the GP (general partner) who executes the venture according to the USA and the LP agreement
d) a trust is formed, with you (or a very small group organized as a management firm of say 2 or 3 or 4 people) as the trustee
Keep in mind that in an LP the LP doesn`t own the property. Same as a JV. The JV or the LP is not a legal person in Canada and thus can`t legally own property. Thus, usually a person or corporation owns the property legally, but the beneficial interest of the property goes to the LP (or JV parties)
A USA is about $3000 to $6000 depending on complexity.
To incorporate a company is about $500 to $10,000, depending on complexity.
An LP agreement is around $8000 to $15,000, depending on complexity.
An offering memorandum (OM) allowing you to market participation in an existing LP or corporation to the eligible public at large is around another $12,000 to $25,000, depending on complexity. Now you are selling securities and as such, will have to report to the securities commission and follow their rules about eligibility and reporting.
The main benefit of an LP is that it allows flow-through of gains or losses to the unit holders, i.e. an LP is not taxed but the LP unit holders are. The drawback are its initial and ongoing cost and complications with non-resident investors.
Do an LP only if large sums of money are invested (say $1M+) or more than a dozen folks are involved .. so this is what we do.
My early JVs were all corporations with common and preferred shares and a USA. Try that first .. then when warranted use an LP or trust later !
