Any suggestions on the structure of a partnership with investor who has CASH $$$ :)

Hi surfsup

There are very many ways to structure the arrangement you've outlined and our way of doing it may not suit your circumstances.  But here's how we'd probably structure it:
1.  Buy the property(s) in a unit trust, after making sure that the expert finance brokers on the Finance sub-forum can get finance for this entity.
2.  Organise for our partner's family trust to own 50% of the units and our family trust to own the other 50% (with both family trusts having a corporate trustee).
3.  Make sure we get a property specialist solicitor to draw up a JV agreement to spell out very clearly what is expected of both parties.

I'm sure there will be various ideas offered.  Chose the one that suits your circumstances best but keep in mind asset protection, taxes and the requirement to have a strong JV agreement in place.  Expect challenges and understand that a strong and detailed JV agreement will help you through these rough times.

Cheers,  Paul

What area are you looking to buy in?

Hi Harry

I agree with Terry, i.e. work out a percentage split that you're both happy with and adjust the percentage unit ownership.  It's really a matter of your negotiating skills and your ability to sell the value of what you're bringing to the JV.

However, as you do more transactions together, your experience will increase and you may look back and wish the unit split was 50/50.  One way around this is to leave the unit ownership at 50/50 and adjust the profit share for each project through the JV agreement.  This means you have a JV agreement for each property (a good idea anyway) and profit share and all other variables within the JV can be adjusted as projects vary and expectations invariably change.

Cheers,  Paul

Harry,

Good in theory again, but very hard to implement. Why would a partner take all the risk and give you a bit of the profit?

You could use a unit trust (to take part of the risk) and protection your ownership position. But there are many things to cover.

in an education program i'm participating in, they like to keep things simple and say that time input and money input shoudl be considered equal, and therefore if 1 person is putting in 100% of the time and the other 100% of the money then profits split 50:50. This is regardless of level of experience… You could however work a budget into your agreement and decide costs prior to commencing, and if you go over costs then forfeit some part of your profit, and possibly also if you manage to come in well under budget that could go back into your pocket.

holding onto the properties at the end could pose problems as you may have different decisions about what you want done with them, whether to hold, sell etc etc. What happens if there's an unexpected illness/separation/family crisis or job loss and someone wants to sell in a hurry but the investor doesn't and is not in a positionof buying them out? One way around this is your cash investor could pay for a valuation at settlement, then you come in and do all the reno work (funded by him) then get a valuation on completion and you take a share of the increase in value, allowing him to retain the property in his portfolio. Or alternatively you could request a % fee for managing the project, however you may be more motivated with a decent 50% share of the profits.

Before going to speak to a solicitor to get it all drawn up, have a good long look at your own goals and their goals, and decide – do you want to hold half a property in your portfolio, or do you want to make some quick cash out of the deal which can go into other investments held in your own name?

Good luck!