Good evening BP,
I am literally running in circles for the past few weeks regarding the JV structure I am trying to design with my Dad.
He has the capital to invest (no time, no knowledge), and I have the time, energy and hunger for REI success. I think our partnership could be really successful and meet both parties goals.
We want to buy & hold residential rentals in Florida and grow our portfolio of cash-flow houses. The capital will be used for down payments of residential loans, rehab projects. Eventually, we would want to branch out to multifamily buildings after we gain some experience and meet to right people to partner with. For now, I will try as much as I can to look for BRRRR SFR opportunities.
How can I structure a Joint Venture that benefits both of us for the long-term? Does this JV almost looks like a syndication but with 1 LP (my dad)?
Keep in mind that I have $0 capital. However, i want to benefit not only from the monthly Cash Flow but also the forced appreciation/appreciation of the properties we will acquire.
Guys, thanks a lot for your help
@Redha Laafia Just pointing the obvious... have you consulted a lawyer? That would be the best way as the agreement will define the relationship and how decisions will be made. Otherwise, there are low cost options (Rocketlawyer, NOLO, LegalShield... not endorsing any of them) that you can draft one for the state you need it in and adequately define (not an exhaustive list):
- Who is bringing what to the table
- How splits of cashflow / equity will happen
- How will the asset be held
- How will it be capitalized
- How decisions will be made to sell
@Redha Laafia I invest with my father. He is the money guy but he has some knowledge. I am boots on the ground and the time and energy contribution. I have some skin in the game financially but it is fractional at best. We put things in writing as I suggest you do, simply so that when and if there is ever question on what was agreed to you can both look back at what is in writing. As to how to actually structure the deal. What we agreed to is that I would be a 25% owner and he would retain 75% this applies to both equity and cash flow. However since we were looking at BRRRR what we agreed to is that I am able to refinance the property and pull out all initial capital then we would move to 50/50 split for that property. Again this was a conversation we had many times. It was a negotiation back and forth. I put forth what I thought was fair he countered until we came to an agreement. If you and your father have talked about doing something then start asking him what he thinks would be fair. Remember that in any partnership you want it to be positioned so that all parties feel like it is a win.
Thank you Whitney, very pertinent questions.
I have scheduled an appointment with a local attorney I was referred to.
In brief, my dad will be a truly passive investor and I will make all decisions. He will be bringing 100% of the capital. I’m not sure what’s a fair split here...I definitely want him to keep his capital safe, and I’m thinking 50/50 on cash flow and 50/50 on extra equity generated.
Thank you. I totally agree with you, especially regarding the taxes. My dad is a foreign national, so I scheduled a conference call with a Tax Attorney to discuss that matter.
In your expertise, how would you set up a long term partnership LLC with one partner that has $0 capital?
I'd like to retain a high majority ownership of the LLC and technically only have my dad as an investor/capital provider.
@Tyler Gibson great to hear you invest with you father too!
So do you have a LLC with you and him as members?
By retaining 25% equity, does it mean you gained 25% equity of the money he invested.
In other words, if you bought a property for $100,000 with his money with the LLC - you would own automatically $25,000? (I doubt it, sorry if it's a dumb question).
@Redha Laafia Yes we created an LLC. As to your question of equity, we structured it in a way where if we sell each party will receive back all of their capital that each person invested and then the profit will be split based on the percentages we had agreed to. We are buy and hold investors so the NET rental income is also split based on the percentage.