i have a seller open to the idea of a joint venture. the details would be as follows: i fund the entire rehab costs out of my pocket and put the property on the market. once the property sells i pay him his full asking price. his concern was “how am i protected etc.”? does anyone have any recommendations as to how this is structured and perhaps any sample paperwork to go along with it? any info is much appreciated
Your partner is protected because your partnership agreement protects him.
The agreement could stipulate that the first proceeds from the sale, go to pay off the principal contributed by the partner, and then the rest goes to pay off your cash contributions, and then whatever is left over is split between the partners according to whatever schedule you agreed to.
There should be some estimate of rehab costs, and a cap on the partners contribution.
That is, if you fail to rehab the project completely at your expense, or you run out of money, and your partner has to pony up some money to finish the rehab, your partner will be entitled to a 2 to 1 return on his additional cash invested. Meaning for every dollar he has to spend, above the cap set for his contribution, he gets two dollars back on that extra contribution. He won’t be entitled to get a 2 to 1 return on ALL the money invested, just the extra money required to complete the project.
If the partnership agreement doesn’t make him feel confident in the deal, then perhaps it’s that he’s not confident having YOU in the deal. I have no idea.
Just write up what you agree to, in detail. Look up partnership agreements and see what you find.
The basic ingredients outline who’s responsible for what, and when, and how. Then there’s, who gets what, when, and how, on the sale. After that it’s must a matter of common sense.
I would write up the partnership agreement the best you know how, and then present it to the partner for approval (negotiation).
Trust me, your partner will think of a few things he wants in there.
Take a purchase agreement and note what kinds of things in it should be your responsibility to handle, and what kinds of things your partner will handle.
Don’t assume anything. Put everything in writing.
Hope that helps.
thank you for the in depth reply javipa. you pointed out a few points to definitely consider.
have a great MDW :beer