A few months ago I JV'd w/ an investor on a couple of properties. We closed under their business and we have a signed JV agreement. I put the down payment on both properties. At the time I did not have an LLC set up which the hard money lender required which is why we closed under their business. The agreement between us is that i cover the down payment and they handle the renovation and make the monthly interest payments. Upon sale we would split profits 50/50. Now my partners advised me they are out of funds and cannot cover payment on either property this month. Both properties are fully renovated and on the market already
I'm looking for the best exit strategy where i can recoup my investment, so this is what i came up with so far:
opt 1- BUY OUT. i suggested i pay off the principal balance on both properties using traditional financing. Ownership will go solely to me. this alleviates them of the monthly payments and puts the liability on me. i'm figuring this would be a nominal loss/profit or breakeven due to closing cost, but at the very least I would avoid the hard money lender from foreclosing and having to go to courts to prove my stake in the property with the money I initially put down
opt 2- WHOLESALING the deal. this would still be a buyout only i would go under contract and assign this to another investor to take over. my assignment fee would be what my down payment was on each property so this would be pretty much a break even. going this route i can avoid having to pay out of pocket for closing cost since the end buyer/investor would pay that.
note: i'm the listing agent on one of the property and another broker is listing the other property at 1% commission, with both paying 3% to the buyers agent
looking for feedback or creative ways to minimize my risk. if there is any possible way for a profit would love to hear that as well!
Well, it sounds like this could be worse, but it is still a pickle.
It seems to me the biggest risk here is that these properties are in your partner's business. If they are in serious financial trouble, you'd hate to see any cash from the sale disappear.
I don't like the wholesaling option so much. If you already have the properties on the market, that route would take away a lot of the profit. On a positive note, you would be out of the deal quickly.
Buying him out completely works but only if you have the cash available. I like that you could get the properties in your name quickly.
A third option might be an agreement to take over payments. I would make that contingent updating your agreement and putting the properties under your ownership. Of course, you'll need concurrence from your lender, but sounds like they might want to have you on the hook rather than your partner. (On the other hand, some hard money lenders are predatory, so they might just be hoping you default.)
thanks for your input Greg. i just see the wholesaling as an option to avoid the double close and a quick way to recoup my funds. it's a way to get another investor to take over and do as they please without having to do any renovation. there's still meat on the bones to make it appetizing for an investor
is there a way to transfer title into my name without doing a purchase? i guess i could assume the mortgage from hard money lender but it's an outrageous rate. i could cut that in half going with a conforming loan.
Closed on a house for some buyers recently that the seller/agent rehabbed. Had been in the market since last summer. He did a refinance into a traditional loan last February while we were still negotiating. Just closed in May.
Refinancing would be a good option, it would buy you time to get it sold and protect your profits, and would also reduce the interest rate instead of paying the hard money rate.
1. Put liens in your name on the properties ASAP. If they are in trouble and you are not listed as a lender you could lose it all.
Also what does the agreement say about default. Get an attorney involved to understand the contract and go through default proceedings. This is a business decision and you need o protect yourself. I see way too many people give someone money who they think they know and do not take legal action because they "think" it will get better. If you think it is only happening to you I have some land in FL to sell.