Lansing, MI · Member since 2015 · 301 posts · 149 votes
Hey guys!
I have an opportunity to partner with a land owner on a development. I'm curious as to what the proper way to structure this type of deal is. Who gets what equity, who pays for what, etc.
I have been part of some transactions like this with my father. In his case the owner would start out with the equity, but as more value was built by my father's work part of that equity would transfer to him. He typically wanted the end result to be 50/50 once the project was complete. This would obviously depend on the value starting out, how the work will be separated out, and the estimated end value. I would also suggest working with a good real estate attorney to sort through the details.
@Tim Puffer the proper way to structure the split between the developer and investor depends on and is defined by the level of development intended by the parties.
Development levels include paper lots, finished lots and vertical improvements (a fully built project).
Each level requires more time, Capital, expertise and RISK.
How profits are split needs to take the above factors into account. This is especially true if the developer is considering a JV with the landowner because even at "full value" land will rarely cover the full equity required to do the project if development goes beyond paper lots.
Send me a DM and I’ll send you snap shots
Of how to structure a Developer JV with the landowner with and without introducing an investment partner to fund the equity gap if one is needed.