So here`s the scenario: You and a JV partner buy a property and hold it for 5 years diligently putting away a percentage of the income for long term maintenance of the property. Over the course of the five years nothing major has occured and there is starting to be a considerable amount of money in the account. Your partner decides they no longer want to hold that property and want out of the deal. What happens to the maintenance money you have saved? This is obviously something you work out in advance but what`s fair and equitable for each party? Thanks in advance for your comments!
Question about Joint Venture Maintenance fund
- Thread starter ebolaman
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I might be misunderstanding something in your post but isn`t this simple - same thing that happens to JV partners stake - they get appropriate payout as set out in your JV agreement? (ie half of cash available in account easiest way and buyout price reflects this... or none as being treated as pro-rated portion of maintenance during that time period.)
QUOTE (ebolaman @ Jan 24 2010, 10:43 AM) So here`s the scenario: You and a JV partner buy a property and hold it for 5 years diligently putting away a percentage of the income for long term maintenance of the property. Over the course of the five years nothing major has occured and there is starting to be a considerable amount of money in the account. Your partner decides they no longer want to hold that property and want out of the deal. What happens to the maintenance money you have saved? This is obviously something you work out in advance but what`s fair and equitable for each party? Thanks in advance for your comments!
QUOTE (ebolaman @ Jan 24 2010, 10:43 AM) So here`s the scenario: You and a JV partner buy a property and hold it for 5 years diligently putting away a percentage of the income for long term maintenance of the property. Over the course of the five years nothing major has occured and there is starting to be a considerable amount of money in the account. Your partner decides they no longer want to hold that property and want out of the deal. What happens to the maintenance money you have saved? This is obviously something you work out in advance but what`s fair and equitable for each party? Thanks in advance for your comments!
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QUOTE (ebolaman @ Jan 24 2010, 08:43 AM) So here`s the scenario: You and a JV partner buy a property and hold it for 5 years diligently putting away a percentage of the income for long term maintenance of the property. Over the course of the five years nothing major has occured and there is starting to be a considerable amount of money in the account. Your partner decides they no longer want to hold that property and want out of the deal. What happens to the maintenance money you have saved? This is obviously something you work out in advance but what`s fair and equitable for each party? Thanks in advance for your comments!
"Equitable" is what both parties agree on !
Could be:
a) 50/50 after JV money is paid back, or
b) 60/40 or
c) 50/50 on cash flow after reserves .. then all cash to investor, then 50/50, or
d) hurdle rate to investor (say 6% annually), then 50/50, or
e) fee for acquisition for RE expert + annual management fee, then 50/50, or
f) straight 7.5% interest on money invested until sold, then money back to investor, RE expert keeps the rest (if any)
Whatever both parties feel makes sense !
Cash accumulated it is part of equity .. and your JV agreement should cover how equity (trapped in asset + cash) is split.
usual is: all money goes to investor first, until his money is repaid, then 50/50.
In a buyout scenario the "usual" approach is: get an appraisal for house, deduct the mortgage, add cash .. then one party buys the other for 50% of that equity + original investment
"Equitable" is what both parties agree on !
Could be:
a) 50/50 after JV money is paid back, or
b) 60/40 or
c) 50/50 on cash flow after reserves .. then all cash to investor, then 50/50, or
d) hurdle rate to investor (say 6% annually), then 50/50, or
e) fee for acquisition for RE expert + annual management fee, then 50/50, or
f) straight 7.5% interest on money invested until sold, then money back to investor, RE expert keeps the rest (if any)
Whatever both parties feel makes sense !
Cash accumulated it is part of equity .. and your JV agreement should cover how equity (trapped in asset + cash) is split.
usual is: all money goes to investor first, until his money is repaid, then 50/50.
In a buyout scenario the "usual" approach is: get an appraisal for house, deduct the mortgage, add cash .. then one party buys the other for 50% of that equity + original investment
Thanks for the answers guys, clears things up a bit for me. What I was getting at was a method of pro-rating the maintenance money so that the partner leaving wouldn`t be able to walk with 50% of the maintenance money and leaving you on the hook for long term issues with your share. Thanks again for the advice.
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Yes
As set out in your initial agreement
QUOTE (ebolaman @ Jan 25 2010, 10:08 AM) Thanks for the answers guys, clears things up a bit for me. What I was getting at was a method of pro-rating the maintenance money so that the partner leaving wouldn`t be able to walk with 50% of the maintenance money and leaving you on the hook for long term issues with your share. Thanks again for the advice.
As set out in your initial agreement
QUOTE (ebolaman @ Jan 25 2010, 10:08 AM) Thanks for the answers guys, clears things up a bit for me. What I was getting at was a method of pro-rating the maintenance money so that the partner leaving wouldn`t be able to walk with 50% of the maintenance money and leaving you on the hook for long term issues with your share. Thanks again for the advice.