All Forum Posts by: Scott Hubbard

In my opinion, you will need to carefully consider your plan because you are meeting the definition of self-dealing as the aforementioned would be considered a prohibited transaction (see IRC 4975).

Checkbook control, in my opinion, will also be like putting a bulls-eye on your forehead attracting the attention of IRS auditors.

Based on your own ambitions stated above, it is advisable that you seek expert advice immediately.

@Kevin and Brian

This discussion was preliminary and I too want to nail down some costs, credit limit, and a rate. I have a meeting scheduled this Friday and I bringing in my bank statements from another bank.

I am with one of the big five right now and you should have seen my business banker's face when I asked about getting a BLOC using my cash flow as collateral. After looking through her brochure's, she said they do not have that type of loan program.

I am done with big banks!

I have been talking to a local bank about leveraging cash flow flow without using the property as collateral. Basically, it would take a PG and a UCC-1 against the entity (that holds title and collects the rents) specifically naming the income as collateral in lieu of the property.

They require multiple streams of income with a minimum of twelve months tracking. Many of my properties are leveraged, but there is decent cash flow to leverage further. This is also called factoring.

In your case, it may be difficult to leverage this type of arrangement with just single property. But its worth a try.

One could argue that this proprietor is actually offering a type insurance policy or performance bond. Essentially they "guarantee" performance in exchange for a premium. Sounds a little "guruish" to me since I doubt they have the financial backing to adequately reserve for losses. If I am wrong, then they should offer transparency with regard to their financials evidencing adequate loss reserves.

Good point. Since most people use a boilerplate option contract, it's verbiage is unlikely sufficient to be used in conjunction with JV agreement. This is why I suggested the OP seek counsel and disclose the arrangement between the optionee and the JV Partner. A property owner can voluntarily grant the right for the optionee to market and to assign its rights to market even to the dismay of the REALTOR community.

I know for certain these arrangements can be done from personal experience, but I am not an attorney either, so I again recommend the OP speak with one first.

Also, see if you can talk to other investors who use a JV in just such an instance. They may be able to help you with actual working examples of agreements.

A JV is best used between two-parties where one party has some equitable interest and the other party providing some other critical function. The agreement itself protects both parties as there it spells out an actionable requirement by both.

So, in my opinion, you can use a JV in this situation if the option contract allows the optionee third-party marketing rights. You and the wholesaler would then agree to split the proceeds from the sale of the property should you bring a buyer and conclude the sale.

There are three keys that must be met before proceeding:

1. A contract between the seller and the wholesaler allowing a third-party exclusive marketing rights and there be no precedent agreement like a MLS listing agreement.
2. Have an attorney draw up or modify an existing JV agreement that addresses all concerns of both you and the wholesaler.
3. Disclosure to the seller.

First two are obvious, but the second is very important because notice must be given whenever any secondary agreements are made to any interest. You do not need to disclose the JV agreement itself necessarily, but you and the wholesaler should disclose your role and that you will be compensated based on performance.

Sometimes the third key can kill the agreement especially when the wholesaler wants down play the fact he is trying to assign his/her rights.

Keep in mind I am not an attorney nor do I play one in the movies, but I would proceed cautiously and only after you have an attorney review the option contract as the JV agreement could end up being unenforceable and all your hard work and expense for not.

A JV agreement is usually a property specific or at least an agreement tied to specific assets. When the asset or property is dis-positioned (sold, surrendered, depleted, etc) the joint venture is terminated. Whereas a partnership (LLC, LP, GP) may be ongoing or perpetual.

JV agreements can be private or closely held usually not requiring public notice like LLC's and corps. Note: Some states do require them to be recorded. Becuase of this, JV's can be cheaper, in the long run since you may be able to avoid costly entity fees like in California.

I like JV's because they are great when your partnering with another investor or money partner for a single acquisition. If you know that your going to be moving into ongoing property acquisitions, then you may also consider an LLC or other partners

Here is a simplified sample of a JV agreement. http://www.biggerpockets.com/files/category/forms

Yes, you can partner with the wholesaler using a JV agreement, but only if the wholesaler has an equitable interest in the property. Effectively, the wholesaler or YOU would have to purchase the property first.

If he only has it under contract, then you will need to have a exclusive or limited marketing rights agreement. The wholesaler's contract with the seller must also afford the wholesaler assignment of the marketing rights to a third party (you).

There are two distinct types of financing and both require your and your money partner's ROI requirements and risk thresholds.

One: An equity partnership is where operating partner and money partner have an ownership stake (title) in the property. This means it is shared loss/gain proposition and you assume potential liability for any losses including legal issues that may arise.

Essentially, your betting that your operating partner has the skill and experience to find, rehab, and manage the property. The risks you assume should provide you a premium over and above a safer investment.

There are also tax advantages that may come with an equity partnership, so you should

Two: A debt financing arrangement (a.k.a. Deed of trust investment) is where your the lender holding a first position deed of trust against property. Simply put, your not an owner. In exchange, you receive a fixed rate of return in the form of a mortgage payment. The operations and management partner will actually be on title and assume any risks associated with the property. You will receive a monthly return regardless of the property's performance.

The risk here is non-performance by the property owner, but you can have the title company or closing attorney hold a quit claim or warranty to be recorded upon default.

When buying and holding, I prefer to have money partners to use a debt financing arrangement if they want nothing to do with the property. It offers a similar ROI with respect to the equity partnership without the added risk. This is also a better choice if the duration of the investment needs to be a shorter timeframe.

Good Luck!

In my own market, there is little chance of a retail bidding war, so this is where the supply and demand paradigm is your best gauge for choosing your strategy.

I hesitate to use option 1 in my market as demand is not strong enough. If I list below market value, I will get an offer substantially less than even my already low list price.

Regardless of your marketing strategy, in many markets including my own, you need a value proposition. Since demand is retail demand is to relatively low, I prefer to offer a better product than my competitor just as Will does.