Financing deals through joint ventures?

Question

I’ve been flipping with a partner for a few years in the DC area and just purchased my first rental in Toledo, Ohio. I was wondering if anyone has any thoughts of financing deals through joint ventures?

Here’s what I’m thinking:

Offer 6-7% returns as a secure ROI yearly by purchasing for example a $50k house in Ohio, renting it out for $1k splitting the rent 50/50 after taxes insurance and maintenance.

Scenario:

Purchase price: $65k

Rent: $1000

Taxes and Insurance -$120

Maintenance: -$100

Remaining: $780

50% to investor $390 a month x 12= $4,680 (About 7.2%)

Upside for them in this is it’s steady returns and they don’t have to worry about the property etc because that’s what your role is.

Property is financed by investor, you purchase the property in an LLC with yourself and your investor on the LLC. Not a 506b/c fund. Joint venture to avoid all the paperwork etc.

What do you think?

Christopher Abele · Answer

@Tabish Masood

I think your numbers are off unless your intent is to be a slumlord.

1.) 50-65k houses in Toledo aren’t going to be great, turn key low maintenance homes. $100 / month for maintenance isn’t going to cover much for an OOS investor who needs to pay for labor.

2.) You’ve left nothing for CapEx.

3.) If you’re renting a $65k house for $1k, it’s not going to be in a great area; thus a higher probability of tenants that trash the place or drawn out evictions.

4.) Are you aware of the lead ordinance in Toledo and implications? Those costs are more likely to be associated with houses that can be purchased in the price range you’ve listed.

5.) What value are you bringing to the deal if you’re looking for someone to front the cash? Looks like you’re not boots on the ground nor does it appear you have a great understanding of the Toledo market.

Anyone who decides to participate in a JV based on this example underwriting is going to end up under water with you.

Chris Seveney · Answer

@Tabish Masood

The first question a savvy investor will ask is why not get conventional bank financing for these deals?

Offering 6-7% with the risk involved would turn me away as an investor. Similar structures yield 2x that return.

If you can get people that’s great as long as you have experience in the field.

Bob S. · Answer

Well your right and wrong. It all depends on your network and knowledge. I picked up a 3/2 on Priday In Euclid, nice area and very nice street all in 65k, rented for 1400. I can provide dozens of examples of all in pricing under 75k, with rents of 1200- 1500 and not in war zones/ slum lord.  Also, I put in 90% govt tenants, various programs. So secure rent and we screen very well. We have had the same tenants for years. Again your overall statement is correct , All the best

Callaway Pate · Answer

Hey @Tabish Masood, I don't see anything wrong with your financing structure. It seems like it comes down to the actual property. If your investor is satisfied with their ROI and you're sure of your numbers then it sounds like a decent deal. The only detail that's somewhat alarming is the maintenance cost but if you're confident that you can screen for tenants that you're sure won't trash the place then it could go well. I'm sure you'll make the right call.

Best of luck!

Tabish Masood · Answer

Thanks for your feedback, I haven't gone too much in depth in the market and used this as an example, only have 1 rental at the moment in the area around similar numbers, but one rental can't be compared to having 50-60. T

Bob S. · Answer

where are you getting houses ( I can get them but most cant and no not in war zones ) all in 65k? I have a large network and can get as many as I want in my market for far less than the " avg" person. So curious where you are buying ?

Financing deals through joint ventures?

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