Builders and Property Investors for Joint Venture

[Glassman]

What's the rule of thumb with investors...

House needs a bit of work (not major) and the investor is happy to go joint venture. Aim is to do the work, and sell. What is the formula for the split?

Do we agree on a split and he deducts his building costs from his share, or is the split after deductions?

[22s]

Many ways to skin this particular cat, but in general for something vanilla like this: one does the work, one provides the cash, profit after all costs is split 50-50.

[MaxFromage]

22s said:

Many ways to skin this particular cat, but in general for something vanilla like this: one does the work, one provides the cash, profit after all costs is split 50-50.

+1

[DaveA8]

The problem is this can be as complicated or simple as each or either party decides.
Whoever’s doing the management/ building should be allocated a “wage “ for their time is often mentioned but given 5% interest rates, the owner of the money could claim loss of interest for part of the time.
Whatever happens make sure both parties are happy with the split and commitment before starting, even the smallest gripe beforehand will turn into a major issue with the stress of the build
To be fair to the builder side, it’s not an exact science so costs and time will inevitably run over and it’s always subjective as to how much of that is circumstances and how much poor management.
I was only ever involved in one, it was 3 ways and the builder was okay but the developer was very smart but needed watching as he was prone to load things or have hidden discounts.
Ultimately I have a horrible feeling that we all thought we were smarter than we were because it was 2015/2016 and house prices were kind to us, I’ll never know but I often think the extra money spent on the refurb probably added little, house prices increasing may have been more relevant and that’s what I’d be careful of today

[Maralago]

Depends…

If he’s bringing the deal to the table then sure 50/50.

If it’s just him putting in the money and you are doing everything else including identifying, works, completion etc. then I would be offering a fixed return of 10-12% with first charge.

This is what the current market is like for private investor flips and have all my students do with their investors.

[GT03ROB]

22s said:

Many ways to skin this particular cat, but in general for something vanilla like this: one does the work, one provides the cash, profit after all costs is split 50-50.

The problem with this simplification is what you define as "cost" and consequently what gets charged into the JV as cost. What one party may consider as cost the other may see as hidden profit. What right to verify the costs does the other party have.

Ultimately it is down to how much each party trusts the other.

[DaveA8]

Maralago said:

Depends…

If he’s bringing the deal to the table then sure 50/50.

If it’s just him putting in the money and you are doing everything else including identifying, works, completion etc. then I would be offering a fixed return of 10-12% with first charge.

The one I was involved in, the developer had used a company owned by the Bet Fred or some association with them, I recall he said he paid about 14% ( 1.2 monthly), given where rates are I assume this will be 3 to 5% higher and again my understanding was it started from the time of money being committed so if one plans well as they’ll need to, that extra 4 or 5 months will need to be factored in, that can have a significant effect
Also look at trade websites like Construction Enquirer, there is already a recession but I guess it takes longer to become widely known, this will affect risk and cost of capital.
I would think carefully about motivations at points like this and make sure each party understands things.
There is an independent developer doing a very nice one off build and I walk by every day and say hello and chat briefly if I see him, in our chats his already mentioned about how Builders Merchants have tightened terms and if you look at winding up petitions, behind HMRC, merchants are next, the point is that getting into these things is easy, getting out not so much

Edited by DaveA8 on Thursday 5th October 07:52

[ben5575]

Just trying to understand the set up.

Who owns the property, the investor or the builder?

If the property is owned by neither yet, why doesn't investor just buy it and pay the (or a another) builder?

Or does the investor own the property and the builder is willing to fix it at his own cost which he'll recoup on the sale? In which case I would deduct actual (previously agreed) costs of the build and also the carrying costs/legals etc for the investor before splitting remainder 50:50

Or does the builder own the property and need the investor to pay for the works? If so priority 15% return to investor on investment then 50:50 split of remainder after deducting agreed building & carrying costs etc.

[tleefox]

Has anyone asked DaveA8’s opinion?

[DaveA8]

tleefox said:

Has anyone asked DaveA8’s opinion?

I guess I was on a mobile device and it kept reloading so to that extent I apologise for the multiple posts.
It would be fairly obvious that there was an error as the posts are obviously multiplied but whether it’s worth a sarcastic post definitely says more about you than my inability to post, it’s actually a bit tragic someone would trawl this site looking for obvious errors and then post not on the subject but a clear mistake ( PS I’ll post this twice which hopefully will give you a little stiffy)

[JQ]

DaveA8 said:

tleefox said:

Has anyone asked DaveA8’s opinion?

I guess I was on a mobile device and it kept reloading so to that extent I apologise for the multiple posts.
It would be fairly obvious that there was an error as the posts are obviously multiplied but whether it’s worth a sarcastic post definitely says more about you than my inability to post, it’s actually a bit tragic someone would trawl this site looking for obvious errors and then post not on the subject but a clear mistake ( PS I’ll post this twice which hopefully will give you a little stiffy)

Wow.

I thought tleefox’s comment was mildly amusing. Your’s however were downright nasty. Definitely says more about you than him.

[boyse7en]

DaveA8 said:

I guess I was on a mobile device and it kept reloading so to that extent I apologise for the multiple posts.
It would be fairly obvious that there was an error as the posts are obviously multiplied but whether it’s worth a sarcastic post definitely says more about you than my inability to post, it’s actually a bit tragic someone would trawl this site looking for obvious errors and then post not on the subject but a clear mistake ( PS I’ll post this twice which hopefully will give you a little stiffy)

Bit salty