Question about single deal partnerships?

Question

Hello, I am wondering if there is a contract or way to partner on a single deal.  I have a deal "tied" up to purchase with my company name, but I have someone who is also interested in partnering.  How do I go about doing a partnership on a single deal?  Is it a joint venture agreement somehow?  Thank you.

Scott Hubbard · Answer

This complicates things a bit because he will likely need to have this in his own name to in order to finance.

Can you assign the contract?  If not, perhaps you may be able to amend the current contract to allow assignment.  The seller would have to agree to this of course.

If you can assign, then your capital partner can effect a loan and you can do  a partnership where the principal loan has first priority of payment.

Bryan Hancock · Answer

If there is a lender involved I would get their requirements too.  Using debt makes everything harder because you have a lender to please too.  Have you checked to see if the lender is okay financing both of you instead of he individually?

Assuming that a portfolio lender is okay with the arrangement they may allow you to subordinate your interest in the deal so that your share of the profit sharing comes after they are paid back.

Bryan Hancock · Answer

A JV works well for single deals.  I actually prefer to JV with potential partners on each deal because it is easy to "split up" later on if things go south after one, two, or X deals.

Be careful about securities laws if one party is passive!

Bryan Hancock · Answer

You're welcome Greg.  Make sure you engage a competent attorney to make sure that you aren't violating securities laws.  If all the investor is doing is financing the deal passively and you are running it that is technically a security.  You need to make sure you have an exemption or that things are structured properly in case things go south.

Greg P. · Answer

Not yet, but will do this Monday.  Thanks a lot everyone.

Greg P. · Answer

The issue is, he is using bank to finance this thing and I'm not sure if his bank will allow this if it is not his own LLC.  Thanks.

Bryan Hancock · Answer

How about letting him lend on the property?  He could also lend to your LLC or place equity in your company.

You can also have a lawyer draw up a profits sharing agreement and use a Deed of Trust.  This could be an equity-based arrangement if that is what you were hoping for.  I would put his legal entity on title as well and do whatever the lawyer instructs you to do to make sure that he is somewhat active to avoid securities problems.

Greg P. · Answer

I'm not sure if this is answered already but I have the property TIED up in my company name.  So my company has to buy it.  He wants to partner up and finance the deal, but he is not part of my company.  So, how can we still make this work, where he finances the deal and I buy it with my company?  Is there a way we can do a contract beforehand or?  Sorry I am a bit confused.  Thanks for all of the help

Scott Hubbard · Answer

If the deal is definitively a one and done deal, then I agree with Mark that using a mortgage or trust deed can be a good plan.

However, with SAFE Act, you would not want to do more than four deals a year with the same investor this way.

Also, using an LLC where your partnering on a single deal can be more expensive than necessary.  You have sartup filing fees and dissolution filing fees.

In my opinion, doing a JV partnership, whether it's a single or serial deal, is your best course.

I have attached a simple example of a JV agreement.  In this agreement, the capital partner holds title and the real estate investor manages the renovations and markets the property.

This is a very simplified version and is intended to be a template whereby you fine tune the details with an attorney to correspond with your goals.

Once you have a completed agreement by your attorney, you can keep using it over and over again.

Advantages:

1.  You avoid SAFE Act because it is a partnership and not seller finance.
2.  It is usually cheaper than setting up an LLC for each project in the long run because you can use the template over and over again
3.  There is also some anonymity by using this agreement closely held whereas an LLC requires public notice

Disadvantages:

1. There is no asset protection with a JV, so it is recommended the partners be either a corp or LLC
2.  The legal costs for setting up a JV can be as or even more expensive than an LLC

Mark Yuschak · Answer

If he wants to finance the deal, complete the transaction with his funding, then record his interest as a mortgagor with the register of deed.

Question about single deal partnerships?

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