All Topics / Help Needed! / taking on a partner
My wife and I have a few IP’s at present and are considering more. However we are currently thinking about taking on a partner for our next one or more IP’s (perhaps commercial properties). We understand there are risks with doing this but are interested in other peoples experiences and recommendations. The reason behind taking on a partrner are:
1). Incresae the skill base of our team
2). Share the risk (with others and through diversification)
3). Increase the asset base with which to workWe are also keen to learn how you actually take on a partner. What options are there and what are the pros and cons of each (buying an off the shelf company, JV on each project …..).
Thanks,
AndrewWhen you say partner do you mean a money partner or a J/V partner (who will take a more active role in the prperty).
Taking on a J/V partner can be good, espically if your skill sets compliment each other (one person is used to getting loans, finance and tying up land (for example) and the other is a developer), it can also reduce the work load (which can be quite useful).
Taking on a money partner is adifferent ball game. When you take on a money partner they are trusting you (the management) to control the investment; That means the profit and the risk control strategy, and so therefor communication is vital.
Before I started to raise funds I had bought over 8 houses with a replicable strategy. I had an exit strategy if they investment did not do what I wanted. I minimsed the downside by using the proper legal structures and J/V agreement, as well as my own risk control strategies.
Taking on a money partner is not something you take on lightly (it’s their money, not yours) and the downside can be very bad (lawsuits) and your reputation can suffer badly. So beware – get a stable of deals going (and a track record, usign your own funds), be very careful who you take on as a money partner, get the proper contracts/ legal structures and know your investing method inside out.
Also on your first investor deal you might have to provide quite high returns (over 15% for example).
Rgds.
Lucifer_auHi,
I agree with the comments made by JackW.
In addition, some key issues I’d be thinking about generally fall under the rights and responsibilities of all concerned, namely:
* Contribution of time and money
* Sharing of profits / losses
* Who ‘runs’ the investment
* Ability to exit the deal
* Requirements to contribute more funds
* Tax implications of investment
* Agreement on time frame of deal
* Established criteria to sell / minimum required returns on investment
* Death etc. of parties
* Basis for determining value of asset at any one point in time
* Procedure for mediation of disputesThat should get you thinking.
Oh, and if you haven’t already read it… pages 60 and 61 of ‘$1,000,000 in Property in One Year’ provide some good tips about matching yourself with the right type of business partner.
Finally, the two biggest things needed in a successful business partnership are: TRUST and ACCOUNTABILITY.
Regards,
Steve McKnight
**********
Remember that success comes from doing things differently.
**********Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Thanks Lucifer)au and Steve.
I have read pages 60 and 61 and that is what got me thinking about this in the first place. Thanks!
Once you have determind that a particular person(s) are suitable (i.e. you have determined why you need/want a partnership, what you expect to gain from it, how you protect the interestes of one anothere etc.) what tools are available to create one? Can it simply be done with a letter of intent? Should you set up a new company? What other methods are avilable and what are the pros and cons of each?
Has this been discussed on the forums before (I couldn’t find it) and/or is there a good reference that talks this through. Or is this best down one-on-one with a solicitor?
Thanks,
AndrewYou should speak to your accountant first, but as a guide, there is a joint venture agreement online at http://www.lawcentral.com.au.
Terryw
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I think its s5 or 6 of the Partnership Act: A partnership is between 2 or more people carrying on business in common with a view of profit. Following from this, there is no actual requirement of intent or written contracts/documents (I could give you cases if I could find my Corporations Law books, but thats a different thing all together).
My point is that if you want to go into a partnership, legally you dont have to do anything, but for investing in property (such a big investment), you’d be crazy to set it up as a partnership. Your liability is unlimited, that’s the nature of a partnership. I’m assuming you would like to limit your liability, so for the same/similar cost of getting a lawyer to draft some sort of partnership agreement stipulating the issues Steve and others have highlighted above, you could just setup/buy a shelf company and hence limit your liability and provide an escape (through selling your shares in that company and stepping down as a director) should you so wish in the future. i.e. the company would provide you with limited liability, liquidity and an exit plan or means of changing ‘partners’ for your future ventures.
Hope this rambling of Corps Law memories is of some assistance!
(“,) $$$ HoLdEnCoMmOdOrE $$$ (“,)
Another thing is, even if you setup a company like Rob suggests, partnerships often breakdown. One party may suddenly wish to exit, so you must plan how this can happen. ie can they sell there shares to anyone, does the other party have to buy them or do you have to sell the whole property etc. So you will need a shareholders agreement as well.
However, when buying a property under a company structure, all directors will be required to give a personal guarrantee for the loan (if you have one). Therefore if something bad happens, the lender can come after one or both parties, and their personal assets.
Even if one party just wants out, the loans will have to be redone, so the guarrantees are removed etc. This can cause probelms if your circumstances have changed, eg. you have stopped work, and your partner wants out. You may not qualify for the loan on your own.
Terryw
Discover Home Loans
Mortgage Broker
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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