None of my cash in deal structures?
Member since 2019 · 1 post · 0 votes
Good day,
I am a real estate and corporate/commercial lawyer in Edmonton, AB, CAN. On the side, I am trying to create a nice real estate portfolio. I am a recent graduate with no savings. I am considering some joint ventures on the following terms:
Investor put up the cash for a downpayment and cap-ex/vacancy fund;
obtain financing in both investor name and my name (or corporation);
create JV agreement that protects investor downpayment and initial contribution;
I manage real estate;
Net revenue split 50-50; and
Net equity split 50-50 after initial investment paid back.
I have not had any luck with this yet and wondered if you all have any opinion on restructuring this to be more appealing to investors and/or better for the venture.
All comments are helpful and thank you for your time.
R
@Robert Hainsworth Another option is approach the seller about seller financing. Before you run that route ask around to local lenders if they will consider doing 80% LTV with a 20% seller's note. 90% of them will be a no, but a few will consider it based on the deal. I've gotten into quite a few properties doing 20% seller's financing and the bank doing the rest. Seller financing helps both parties, it lower's my OOP expense and it delays some of the capital gains taxes if the seller is just looking to cash out. If their plan is to 1031 into something else they obviously won't even consider the seller financing. DTI ratio needs to be excellent, and you'd better have an exit strategy with a possible 5-year balloon.
@Robert Hainsworth I would contact landlords and build a relationship with them to start of with your plan. They would be willing to do owner financing once they get to know you.
With regards to finding a partner, with the declining property prices in Edmonton, I would try to look for deals on new construction as most smaller builders use short term money.
I saw that properties in Edmonton have had drastic discounts; looks at Edmonton real estate stats to see the discounts. Once you can pull a good deal money would follow. For example I saw listings sell for 50% below cost. Also visit new construction sites you will see builders leins on some properties, that’s where you can find willing sellers.
Good day,
I am a real estate and corporate/commercial lawyer in Edmonton, AB, CAN. On the side, I am trying to create a nice real estate portfolio. I am a recent graduate with no savings. I am considering some joint ventures on the following terms:
Investor put up the cash for a downpayment and cap-ex/vacancy fund;
obtain financing in both investor name and my name (or corporation);
create JV agreement that protects investor downpayment and initial contribution;
I manage real estate;
Net revenue split 50-50; and
Net equity split 50-50 after initial investment paid back.
I have not had any luck with this yet and wondered if you all have any opinion on restructuring this to be more appealing to investors and/or better for the venture.
All comments are helpful and thank you for your time.
R
Robert i like your JV proposal and your honesty, but i think you might be going a little fast with your terms. (Forgive me if I come off a little harsh).
Others may disagree with me on this, but my philosophy is that there are 3 parts to building the portfolio. Finding the deals, managing the deals, and financing the deals. The management part I've outsourced to a property manager, and I've always found that finding good deals to be harder than financing them. So i would say 50% for the structure you're proposing may seem a little generous.
If I were in your shoes, being that you're just starting, I would probably ask for a much smaller cut at this stage in time possibly 5% or 10% (to get your foot in the door) and work on increasing it over time. But you'd have to come with something other than the management, such as finding a good deal as part of the proposal.