Quickstart Joint Venture - Classic Deal Example

[Nir]

Hi All,

In the Quickstart event in Toronto earlier this year, the following example of a classic 50/50 Joint Venture deal was presented:

Investor #1 brought $50K in cash or investment capital, covered down payment and closing costs and reserve funds.

Investor #2 brought real estate expertise, contacts, local knowledge, financing approval, and WAS ON TITLE AND MORTGAGE.

Both had 50% ownership and covered 50% of negative cash flow.

My questions are:

- Does it make sense NOT to put investor #2 on title and on mortgage?
Investor#2 lives abroad.. should I put him on title if he wants to? What are the implications accounting-wise?

- Only negative cash flow is mentioned in the example from the event. How is positive cash flow usually handled, technically? Is it divided between the parties on a monthly basis or do investors usually save the amount in a joint/Corp. account? This is important to me as generating positive cash flow is my main goal.. so wanted to confirm I can use/withdrew the money (50% of any positive cash flow) every month(?)

- Lastly, renovations like new roof, electrical system upgrades etc. within first year - is the money needed, provided by investor# 2 who is also covering down payment or is it usually paid 50/50 by both investors from the point of purchase on..?

THANKS & REGARDS,
Neil

 

[Thomas Beyer]

QUOTE (investmart @ Jul 8 2008, 09:00 AM)
My questions are:



- Does it make sense NOT to put investor #2 on title and on mortgage?

Investor#2 lives abroad.. should I put him on title if he wants to? What are the implications accounting-wise?




I would NOT do that .. unless you have to because

a ) it makes the mortgaging more complicated

b ) you can't sell without his consent



You are the expert .. and your JV contract should state when a sale should happen .. say 5 years from start or when value has risen by more than X% or whenever one partner send a notice in writing (perhaps after year 1)...




QUOTE (investmart @ Jul 8 2008, 09:00 AM)
- Only negative cash flow is mentioned in the example from the event. How is positive cash flow usually handled, technically? Is it divided between the parties on a monthly basis or do investors usually save the amount in a joint/Corp. account? This is important to me as generating positive cash flow is my main goal.. so wanted to confirm I can use/withdrew the money (50% of any positive cash flow) every month(?)




It is usually split 50/50 also .. unless your JV agreement states s.th. different such as: after a $2000 reserve any money from cash-flow will be paid to investor.



It is up to you how to split that ! Whatever you agree ! Keep in mind that you have to do a lot of work while holding (see this post here:
- Lastly, renovations like new roof, electrical system upgrades etc. within first year - is the money needed, provided by investor# 2 who is also covering down payment or is it usually paid 50/50 by both investors from the point of purchase on..?




count this in your initial $ calculations, i.e. a decent reserve .. try to avoid cash-calls .. but that could be part of the agreement that initially he puts in, say $50,000, and may have to put $s in up to a further $10,000 .. then 50/50 .. whatever you agree on !



Hence, leave some of that cash-flow in the bank before you take it out so you can cover odd items like new paint, a new door knob, a broken window ..



Happy JVing ....

 

[Nir]

THANK YOU THOMAS FOR THE GREAT ADVICE AND FOR ANSWERING ALL MY QUESTIONS!!!

Regards,
Neil