I wil be the potenital funding/money partner for 50% of profits on a flip.
I've asked for the other partners to assume 50% of the loss if the deal goes south and to write this into the JV. They said they've never done this before. They will be the project manager and investing their time for 50% of profit; however, they don't have any skin in the game in terms of actual cash.
Is it normal for me, as funder, to ask to have a loss allocation written into the document? Should I assume a first loss position up to a specified amount? What's typical? I would appreciate your thoughts. Thanks,
If they are confident in what they're doing, and honest, not only should they share the loss, but I in their shoes would be offering a guaranteed minimum return, say 5-10% APR.
I agree. If you all are partners, that includes partners in a loss as well. Profits should be split 50/50 and so should a loss if that occurs.
@Frances Regalado Sounds reasonable to me. They are the one that control much of the success of the project, and should have enough confidence in their work, and project management that they put their money behind it. If not, I'd rethink the partnership. Also, make sure you have some safeguards in place and a set way any draws will be handled, etc., pay subs directly, and get lien releases before payment.
Do you have a partnership agreement? How is title on the property held? The more details we have, the more specific we can be on answers.
Thank you for all your posts. I felt like I was being very reasonable by asking for the loss allocation until they told me they had never written this into their JV contracts before. Since I trust and assume they are more experienced than me, I thought maybe I was being unreasonable; hence, this post.
In any event, I am very appreciate of these responses. They expect me to get back to them this evening, and now I can do so with confidence.
Thank you again!
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