I have been on both sides of the JV table with real estate investing. Currently our family is the JV partners for two sets of gents investing in property in the greater Manchester area. We have also brought in JV partners to fund our bigger real estate deals in the past.
I had owned a Bridging company in the US. We used our families money initially and quickly ran out. It took time however ended up with 5 gents who became our JV partners for mortgages. I made sure they were secure. I would find the loans, lend at only 65% LTV, fund the loan and then assign them the loan. This way the charge was registered in their name or company. They were secured. We all prospered and turned over tens of millions in loans. Proverbial win win…
I also used JV partners in larger real estate deals. I built the trust and confidence from the bridging company. We did 100,000 square feet of warehouse development. We formed a SPV and had an agreement in place. We were both covered. Our family was 60% since we found the deal and the investor 40%. However in the midst of work it became very clear to both of us, that he did not just put up money but rather tremendous expertise. He asked if I would reconsider and making 50/50. I did and that cemented the relationship even further. We went on to do many more profitable deals.
The point of this post is that Good Property Deals Bring in JV Partners
All the loans we did were good safe loans so one investor brought another. The warehouse project was a huge deal and we both walked away with a life changing amount of money. JV deals have to be win win. A JV deal is a deal you would do yourself or with the JV partner. The deals simply have to be good…or have at least good potential.
Examples of JV Deals in which offered on Friday
Currently we are 3 HMO projects with 2 more to convey this coming week. We made offers on 2 other deals last week. One is a 7 bed en suite HMO deal and the other is a commercial to residential conversion. Both are highly profitable. Our builders are capable of handling the work. I have reached out to several investors in London whom I have had a prior relationship with to show them the deals. Will be interesting to hear their thoughts. We look to JV with people that not only bring in money but bring in expertise.
7 Bed En Suite HMO Salford
Costings
Running the numbers
Buy below @ or near 150,000
Stamp duty 3% 4,500
Refurb 70,000
Legal buy 1,000
Total cost 225,500
Unexpected add 10,000??? ( based on refurb)
235,000 on the high side
Rentals
7@475 per month= 39,900 Worst case
7@ 525 per month 44,100 Mid case
Could be 550 as above example Best case
Reality might be somewhere in between…possibly 44,000 We want to figure on the low side
Assuming 44,000 gross income,Based on 14% Gross yield -potentially valuation conservatively 300,000 Plus…could be higher…or 7 times income 308,000 Plus ( Could be 10 times but want to be conservative). It even could be greater…however also could be less depending in a change in economy or interest rates.
The motivation would be to sell on the property either with vacant possession or tenant and we would use our management agent to run the property. All profits from rent and sale would be split on a 50/50 basis. As the property is up for sale, it will be cash flowing. We would anticipate refurbishment to take 8-12 weeks at a maximum. The JV partner would own the property in their name or company name to ensure their security. We would have a JV agreement in place plus a RX1( Restriction on the property) to protect our interests.
Worsely Conversion Project
Vendor is looking for 150,000. We are hoping to pick up slightly less. The idea is to create 4 X 2 bedroom flats in Worsley an area we have worked in last year. We feel on a low side the flats would sell for 1800 sq meter possibly higher. Would take approx 3 months time to refurbish after planning permission/permitted development granted. We would look to pre sell with local estate agents. The property is big enough to create 4 @ 50 square flats ( subject to Planning permission & architect drawings). Flats will be to a high standard to create a Wow effect. We have a rough quote of 30,000 refurbishment cost from our builders. Very close to train into Manchester.
Cost 150,000 Hopefully buy at 130,000 ( cash offer)
Refurbishment 120,000
Architect 8,000
Legal 1000
Stamp duty 4,000 ( assuming buying below 150,000)
Estate agent fees 7,000 ( selling finished flats)
Guess estimate 290,000 cost
Not a lot for sale in the immediate area. 2 Bed houses are approx 70 sq meters. We feel potentially we might have to sell below 125,000 -135,000. As per local estate agents they felt we could sell the flats subject to finish 90,000 to 125,000.
Sell 4 flats @100,000= 400,000
Cost 290,000
Potential profit 110,000
Potentially sell for more than 100,000…possibly 125,000
40% Plus
These are examples of what we perceive to be good deals for ourselves and a JV partner. The motivation for bringing on the right JV partner is to be able to much bigger deals. We look to do these smaller deals to build trust both ways.
The key to creating a good relationship with any JV investor is that initially that the deal should be solid ( However there are virtually always issues to overcome) and that the JV partner is flexible and honorable. Look to constantly build trust. Have great communication. Do not be afraid to show them the deals plus all your prior deals. A good JV partnership is akin to almost a marriage.
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