How do I get this JV funded?
Hi everyone,
I'm new to the whole JV thing and I wanted to get some ideas on how (or if) this could work out. Basically, I'd like someone to come in to give me a 25% downpayment and I would give them 50% equity. However, there's a few problems and hopefully you all can help me out. Here's some basics:
1. The property is a $2.9 million acquisition with no problems and 95% current occupancy. The previous buyer bought it 2 years ago and dumped money into it.
2. The net operating income is $300k/year BEFORE debt servicing. Cap rate of 10%.
3. I have been quoted a loan from my local credit union for 75% LTV and 4.5%-5% interest with a 25 year amortization. There is a balloon/refinance at 5 years. The loan is a conventional recourse loan.
4. Calculating all that together, the cash flow after debt servicing assuming 5% interest would be just under $150k/year.
5. Again, I would like to give an investor 50% equity if they gave me the 25% down payment.
Now, let me list the problems I feel like I'm running into:
1. How do I even get started? I see people wanting to "JV" all the time but I don't even know how I could set something like this set up. How would it work if the partner wanted to pull out of the investment before it's been totally paid up? How would it work if I wanted to make extra early payments towards principal? Does that equity get split to the investor? Does anyone have a recommendation on a boiler-plate plan?
2. It's a recourse loan. The bank wants anyone with 20% or more equity to put their name down as a guarantor. I would love to be able to simply guarantee the loan by myself in order to protect the investor. How do I get around this and still legally give them 50% equity?
3. I'm new to the game. I plan to hire a management company or full time on-site staff to run the property. How do I convince investors that I can do this? Should I give them more equity?
4. Is this enough equity to give a partner for the deal at hand? Can I entice the deal more by giving them more than 50% of the cashflow in addition to their equity?
5. What happens at that 5 year balloon/refinance if we can't come to an agreement on what we should do? Or in fact, what happens if we can't agree on any matter at all? They own 50% so I'd assume they get 50% of the "say".
Honestly, any tips or ideas would be appreciated. I think this is a very straightfoward acquisition without any need to risk flipping or improving the property. I would love any ideas on how I can get this done.
Thanks in advance!