Looking for some feedback on a JV proposal.

[JBagorio]

I have a JV proposal from a friend and here’s how it goes. I will provide the cash down and he will put the time and money to do the renovation. We will buy an under valued property that is livable, but needs a bit of fixing to increase the value. The catch is he will leave there as a renter and do all the renovation in his expense. Upon sale all parties will receive all their cash outlays and the balance is then split 50/50.

 

[RCrein]

QUOTE (JNB @ Dec 20 2009, 02:17 AM) I have a JV proposal from a friend and here`s how it goes. I will provide the cash down and he will put the time and money to do the renovation. We will buy an under valued property that is livable, but needs a bit of fixing to increase the value. The catch is he will leave there as a renter and do all the renovation in his expense. Upon sale all parties will receive all their cash outlays and the balance is then split 50/50.

If your partner lives in the property he becomes your tenant with associated challenges if his tenancy drags on. Will you have a written agreement as to what will be renovated and his materials investment? Will his labour and materials minus value of rent match your downpayment? Can he afford the materials? You may find that he has a conflict of interest between being a partner and tenant. In the worst case scenario, he doesn`t do the renno, or worse yet damages the property and still recieves a 50% interest in the property. Not saying this can`t work, but your lawyer should take steps to propect your interests? As a last question, are you confident that going this route will be cheaper and faster than paying contracters to get in there and get the job done?

 

[JBagorio]

QUOTE (RCrein @ Dec 21 2009, 11:56 AM) If your partner lives in the property he becomes your tenant with associated challenges if his tenancy drags on. Will you have a written agreement as to what will be renovated and his materials investment? Will his labour and materials minus value of rent match your downpayment? Can he afford the materials? You may find that he has a conflict of interest between being a partner and tenant. In the worst case scenario, he doesn`t do the renno, or worse yet damages the property and still recieves a 50% interest in the property. Not saying this can`t work, but your lawyer should take steps to propect your interests? As a last question, are you confident that going this route will be cheaper and faster than paying contracters to get in there and get the job done?

First of all thanks for not only reading my post, but also for your questions. My intentions have been to get all sort of feedback (if it’s not too much to ask) from REIN members or nonmembers regarding the idea to help me with molding the possibility of this Renovation JV proposal.

The way I think of it…Please bear in mind that due to the conflict of interest the partnership and tenancy are two separate contracts or agreements in one. The tenancy agreement will be the same with its normal 6 months to a year time period and can be renewable. All tenancy rules will be applied without any exceptions. In terms of the partnership agreement all contingencies and divorce strategies will be enumerated for sure cover all expectations and partners responsibilities we will need to abide by.

In terms for the ownership split. The 50/50 will be a basis. It wills all depends on the ration of how much money down vs. the amount of renovation needed.

To address your last question…Yes it will definitely save me $$ given that the renovation is not coming out of my sweat and pocket. You have to remember this is not a quick flip and there is no rush. This could be a 3 to 5 year hold with the intention to rent…In this case to a good friend of mine.

Always with noting to hide and with good intentions!

 

[bizaro86]

QUOTE (JNB @ Dec 22 2009, 10:27 AM) This could be a 3 to 5 year hold with the intention to rent…In this case to a good friend of mine.

If it comes down to choosing between your keeping your friend and getting your rent money, which would you choose? In advance, how do you feel if you have to make that choice, knowing the bank will still need to paid the mortgage on this property.

Best regards,

Michael