You've started attending your local REI group and have talked with a few investors there, and you keep hearing about JV deals. So, what exactly is a JV deal?
JV means Joint Venture, and they can be structured in numerous ways. I'm going to explain how the majority of my JV deals work, and you can adjust the variables from there.
Since starting back in the business after the recession, many of my deals are JV deals.
Before the recession, I had much of my own money and lines of credit that I used to purchase and rehab my houses.
After the recession, I didn't have access to those funds anymore. 😳
So, I had to figure out new ways to fund my deals. Hard money has been one way; however, JV deals have been another great way for me.
How it works for me is, my partner will put up all the money, to purchase, rehab, holding costs, etc. and then I will find the property, renovate it and handle the selling.
Then once the property is sold, we split the profits 50/50.
Let me cover a few more details from each perspective. With my deals, the investor will have the property in their name, so at all times, they have an asset backing up their investment.
Structuring the deal this way means the investor will have to go to the closing to purchase and the closing to sell. The only other requirements for the investor are to have the property insured, and the utilities turned on.
I have one investor that has not been in half the houses we bought. He's that comfortable with our agreement.
On my side, I hunt for houses to buy, estimate all the numbers as far as renovations and ARV (after repaired value), and determine what the profit potential is. Then I present those numbers to my investors.
Once purchased, I manage all the renovations, design choices, and worked with the Realtor to list. Sometimes if the budget allows, I work with stagers to try and get the most for our flips. Pretty much anything that comes up in the process, I try and handle.
This scenario has worked well for both myself and my investors. I like it because the funding is easy for me; no banks, hard money people, no extensive paperwork, etc. I need money, I make a phone call, and it's available immediately.
The price I pay for that convenience is half the profit.
To many people, that is too high a price, and I get that. I still use hard money and banks, but I value the relationships I have with these other investors. I know if the markets turn some, banks will dry up quickly.
My investors, on the other hand, have the money to take advantage of new opportunities and will be more than willing. And since I have proven to them, I can make them money; they will continue to reach out to me.
Making money is what keeps my investors happy and open to more investing. I consistently have made my investors 10-15% and more on their money. Even if we were to lose on one, they've seen this opportunity is out-performing most anything else they are invested in over the long haul.
This is how I have structured most of my deals; however, everything is negotiable.
Maybe you are brand new, and the investor wants a little more than 50% of the profit. They feel since you are new, their risk is higher. Fair argument. So, to do your first deal, you may take a little less than 50%, but why not? You need the experience, and you have no out of pocket expenses, so why not go for it.
The more experience you have, the stronger your negotiating can be. I could go for a higher percentage in my deals if I wanted since I have a proven track record. I choose to stay where I am and develop better relationships, knowing, in the long run, it could be more beneficial.
Other areas for negotiation might be in the breakdown of duties or tasks. I've had investors that were in one of the trades we use all the time. If your investor happens to own a roofing company, then it might be best for everyone if they handle the roofing part of your renovations.
I had one investor that loved to work in the yard. She ended up doing much of the landscaping on several of our projects. It was something she loved to do, so it worked out for all of us.
Lastly, I had an investor that was retired and had a lot of available time. She was able to meet people for estimates, pick up supplies here and there and, in general, be available for a lot of the un-expectancies that can come up. I can assure you there will always be things that come up!
One point I will make, and I think it is an important one.
If you are handling all the design and renovations, the investor doesn't need to come in midway and try and make changes to your plans. You can always discuss the options, but partnerships can go south quickly if people start suggesting or worse yet, demanding things go in a different direction.
Personally, I love my situation. Most of my investors now are strictly looking for profit margins and are way too busy to get involved at all with the process. Their position is to fund, and my position is to renovate a home and make them money!
Lastly, JV deals can be a great way to do a deal. They may be a little harder if you are new to the whole business. People with a lot of money got that way for a reason.
They didn't take unnecessary risks with their money, and they may feel your lack of experience is an unnecessary risk. However, if you due your due diligence and learn your markets, you should be able to present a strong case and show them the possibility for good returns.