Wednesday, December 30, 2015

Joint Ventures

There are many reasons to bring in a partner when it is not possible to cash out a Seller. It is another way to negotiate with a Seller to do a real estate deal. In fact, your Seller may be interested in a joint venture, where they front the property and you the investor does the work.

A joint venture is two or more people in a deal.  They have a single purpose - to develop or improve the property - but separate identities.
Don't do an LLC or partnership, as that requires the investor to take on the partner's liability.  Several real estate gurus recommend to buy the property in a land trust, where each joint partner has a percent interest.  Name of the land trust and trustee are in the public record.  The trustee does not have to disclose ownership or beneficial interest, except by judge order.  The written trust agreement shows the beneficial interest and ownership.  This is private document.  

There are at least three ways to structure a joint venture, according to real estate investor Chris McClatchy:
  1. The Seller pays the mortgage, if there is one - with no interest, no payment by the Buyer (joint venture partner).  The mortgage is paid when the property is sold or refinanced.  At that time the original contribution by each is reimbursed, and then profits are split at 50/50.  The Seller's contribution is not a loan, but an equity investment by each joint venture partner.  Any additional cash flow can also be split 50/50.
  2. A joint venture partner may pay for the property with a seller-financed mortgage-no interest, but with installments spread over 10 years of payments.  Additional cash flow may be split and profits shared upon sale 50/50.
  3. Buy-in method, where Buyer and Seller contribute equally or investor pays a low cash price.  All cash flow is divided.  Profit is divided.
These are a few ideas about joint ventures to get you started, and give you one more tool in your tool belt of negotiation options.

Happy New Year!

Happy Investing!

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