Good morning. We are looking at going into our first joint venture with another couple and would like to know more about what should be written into a contract. We would provide all of the money for purchase, renos etc and they would provide all of the legwork, (find, evaluate, reno (w and w/o contractors), and sell) so we are wondering on how to split profits etc. This is all new to us and looking for some experienced JV people for some guidance. ANy thoughts out there?
Slowandsteady
I have invested in several JV deals with an active real estate investor. I am the passive investor in these deals (money partner).
Profit splits depend on the experience and expertise of the active real estate partner. If the active real estate partner is an experienced investor with an established track-record and team (contractors, real estate agent, lawyers etc...), then profits are often split 50:50.
If this is the first investment property purchase for the active real estate partner (or is a newbie), then profits would favour more to the money partner (i.e. 60:40 or so)
Be sure to get a real estate lawyer to draw up the JV deal.
Good luck!
Profit splits depend on the experience and expertise of the active real estate partner. If the active real estate partner is an experienced investor with an established track-record and team (contractors, real estate agent, lawyers etc...), then profits are often split 50:50.
If this is the first investment property purchase for the active real estate partner (or is a newbie), then profits would favour more to the money partner (i.e. 60:40 or so)
Be sure to get a real estate lawyer to draw up the JV deal.
Good luck!
My first thought is somebody has been watching too many 'buy, reno and flip for a profit' TV shows. But maybe not.
My first question if I were to seriously consider such a venture would be how much experience does this couple have in reno and flipping of properties? If the answer is none, then they are simply assuming the risk of their time. Which is worth X$/hour.
Frankly, if that were the case I would be more likely to look at simply paying them a salary for their time and taking all of the net profit myself. If I am going to take all the financial risk, I would expect to get all the financial profit. If they only invest time, why should they get more than just paid for that? If they are willing to risk their time 'up front', without being paid, then their 'profit' should be in line with what their time is worth. What percentage that would amount to would depend on the property and the anticipated profit it would generate.
If they are 'established' in this kind of thing, then I would be asking why they needed my money rather than use their own. That doesn't seem to add up to me unless they want to work on more properties than they have funds to invest in. If they have a proven track record to show me, then I would be asking them what percentage they would offer me. After that, it's called negotiating. Obviously there will always be risk in such a venture and you have to assess the risk to reward ratio to determine how much reward you would need to gain in order to be willing to assume the risk. In that case, they are investing their 'expertise', not just their time and so they are entitled to more than just a wage.
But in any case, first you need to say what experience they already have or don't have in order to get some more relevant opinions here. It isn't just a case of asking for how to structure a JV advice without providing enough background info for people to consider.
My first question if I were to seriously consider such a venture would be how much experience does this couple have in reno and flipping of properties? If the answer is none, then they are simply assuming the risk of their time. Which is worth X$/hour.
Frankly, if that were the case I would be more likely to look at simply paying them a salary for their time and taking all of the net profit myself. If I am going to take all the financial risk, I would expect to get all the financial profit. If they only invest time, why should they get more than just paid for that? If they are willing to risk their time 'up front', without being paid, then their 'profit' should be in line with what their time is worth. What percentage that would amount to would depend on the property and the anticipated profit it would generate.
If they are 'established' in this kind of thing, then I would be asking why they needed my money rather than use their own. That doesn't seem to add up to me unless they want to work on more properties than they have funds to invest in. If they have a proven track record to show me, then I would be asking them what percentage they would offer me. After that, it's called negotiating. Obviously there will always be risk in such a venture and you have to assess the risk to reward ratio to determine how much reward you would need to gain in order to be willing to assume the risk. In that case, they are investing their 'expertise', not just their time and so they are entitled to more than just a wage.
But in any case, first you need to say what experience they already have or don't have in order to get some more relevant opinions here. It isn't just a case of asking for how to structure a JV advice without providing enough background info for people to consider.
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