Financing deals through joint ventures?

[Tabish Masood]

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]

@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.