Joint Venture

8 Replies

Hey BP,

I am looking at a possible deal in Los Angeles county that would be more beneficial to both the seller and I if we joint venture. The house will not be able to be financed conventionally due to the condition of the property. The sellers only options would be to sell the property all cash to an investor at a discount due to the condition of the property or fix it herself. The house will need a considerable amount of remedial work and money to get it up to code standards.

My proposition would be to put up the money to fix the property to code standards and rehab it to get top dollar on the market. The seller would be simply providing the property. After sale we would split the profits left over from the 75% LTV and cost of construction. We basically would be splitting the remaining 25% minus the realtor and closing costs.

My question is how to structure the contract. Would the seller still hold the insurance? How would I be protected in a deal like this? The seller is still not sure what they want to do, but I would like to be prepared. I am sure there is someone out there that has done a similar deal or an attorney to give some insight. Any help would be much appreciated. 

There was a podcast episode about something similar, the investor/General Contractor basically put a lien on the property for the work he did and had a contract with the owner of the property to split the profits at the close of escrow.

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I agree, I don't remember how that other company dealt with it but they were dealing with motivated sellers so he didn't have any problems, but there is some risk.

@Mark Shuter Not to out anybody down, don't get me wrong, there are some great motivational podcasts out there, but like any deal, evaluate everything that has been said, some are smoke and mirrors in a way, some talk only about their experience and applies only locally. The key to podcasts for me is listening to what they say but internalizing how you apply it to yourself or a specific deal, stock knowledge is better than none at all, but little knowledge is pretty dangerous and costly. what makes a deal tick, specially seller finance without proper guidance could make or break their bank. I'm a seasoned businessman, going on 10 years in government construction business, and I am pretty vast on research, even I am scared of joint ventures, you can't cover all the what ifs, and even my lawyer can't offer me full protection and full money recovery within 6 months.

Thanks for the responses guys. I also think it would be hard to be protected in a deal like this. Even with a tight contract she could take off with the money at closing. It most likely wouldn't happen, but knowing that this job would need 150k-200k, it might not be worth risking. This is a high dollar property and the carrying costs with private money are pretty intimidating. If she does decide to sell, it might be easier to partner up with another investor. I will talk with another attorney if she still seems interested in being apart of the flip. Thanks again for all of your input.

The only way I'll do something like that is if I take position on title and she agrees whatever I do within 1.5 years without question. In short, make it YOUR property until you sell. But no seller will agree to that. There might be people more experienced with seller finance, I know I met a couple but they offer a course program. It might be worth looking into if the spread is that big, partner with an expert so to speak.

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