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The following has been reproduced by kind permission of the aggrieved JV partner, who wished to remain nameless, as a warning to others about some of the things that can go wrong in a JV.The person entered into a JV partnership with someone who also sourced the deals for him.The JV partner writes:
I saw the properties before purchase, the figures seemed ok, and I was the buyer / sole owner, and I was holding the purse strings so thought I was in control.First project -Flat in docklands – damp issue, spent a long time trying to get permission to do work, which cost a lot of bridging interest. He thought it would take a few days to get permission, in the end after 9 months I told him just to do the work.The refurb which was to be below £20k cost £34k (how on earth you spend £34k in a 2 bed flat I don’t know, and potentially there has been some cost padding). I then had to manage selling the property and cut andrew out of the loop as he was useless. I got a good agent and he went round and photographed the faults.I had to find another plumber and tiler – as the expensive bathroom had a plumbing leak behind the bath and had to rip out the floor / tiles and then find replacement tiles and get it re-done, so another £2500 repairs. Finally sold the flat, total loss about £20k – as JVP’s estimate of a sale price of £325-350k was overestimated and it sold for £300k – only offer I had after 6 months of marketing.So – summary, poor management, under-costing, over-estimating end value, poor workmanship = loss, and he fails to respond on my requests to settle up 50% of the loss.Its ongoing as I’m taking the management company to court as they failed for 9 months to give permission which cost a lot of money. That might cover the loss, but they haven’t responded to a single email, and are just letting it go to court which is costing me yet more money.Second project –
Detached 5 bed house.
His estimate on cost of works = £60k, actual cost £117k.
His est on end value £500k+, actual (pending) sale £475k – I’ve had offers of £400k and £460k.
Huge time overrun.Post him and contractor “finishing” – I couldn’t sell it, so got agent to walk around each room and tell me what was wrong with it – turns out a whole load of work / snagging needed – as example it has a basement and a pump in a “well” (sump). Pump blew the fuse and basement flooded.Turns out he used a pond pump, not a basement sump pump with battery backup and alarm.. so I had that fixed / replaced, lots of re-decorating, electrician fixed some wiring, handyman fixed kitchen bench / doors – badly fitted. I had some proper gardening done with planting as was very poor. Total “remediation” £20k.Was bridging finance to start, I had to re-finance as that was expensive and also cost overrun – I had to get some cash out, but there was a lot of finance costs due to massive time and cost overrun.So there will be a loss of £38k overall, which I will be tackling him with shortly.Summary – poor management, massive under-estimation of costs, over-estimated end value, very poor workmanship and loss on project._________________The deal sourcer/JV partner is a member of an ombudsman scheme, so there is a route of redress there.However, in the first instance, the aggrieved JV partner has written to the deal sourcer/JV partner and his builder asking for 50% of the loss._________________Unfortunately, failures of projects will be having a get-out-of-jail card going forwards - otherwise known as the "Brexit Blues". That excuse could cover a multitude of failures and sins, but I am sure this card will be played a lot over the coming years.Of course, people entering into projects were mostly already aware of Brexit and the possible impact on the property market, and should have cut their cloth (aka budgets and numbers) accordingly and been very conservative in their estimations of returns, but now they can use this excuse to explain any failures or losses, therefore avoiding any responsibility that things have gone pear-shaped!SEE ALSO - How to stay safe lending money & property JVsUP NEXT - Know Your EnemyDON'T MISS - Joint ventures - things that make you go Hmmmm. NOW WATCH:
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
I don’t mean to be cruel but this guy sounds like an absolute fool...
its not a sourcers job to tell you;
- what a property is worth
- how much a renovation will cost
- what likely demand will be for resale
A sourcers job is what is says on the tin; to source the property. I wouldn’t trust a sourcer to tell me what a property is worth because in all likelihood they have no idea.
This guy should have done his own due diligence and got independent experts to assist him in working on what the property can be resold for and what how much work is going to cost. Never ever rely on a 3rd party (with incentives to see the sale go through) to tell you how much something is worth.
This guy should write off the money right now. Without iron clad legals (which from reading the above, I’m almost certain he won’t have in place) it will be an expensive and time consuming venture going through the courts
I think you misunderstood - he was in a JV with the sourcer who was acting as Project Manager and was undertaking the refurb. The sourcer sourced the deal and proposed and costed the refurb and got the partner to fund it on a profit share basis.On your point: I wouldn’t trust a sourcer to tell me what a property is worth because in all likelihood they have no idea.If that is the case, how can sourcers claim they have sourced a "deal" and/or have negotiated a discount?!?! They might be selling you something at above market value if they don't understand how to value a property. So what are you paying them for? You might as well go direct to Rightmove.Having said that, I do agree that you should not take their word for it, and undertake your own due diligence to check that you are not paying over the odds ...
A sourcers job job is to find a potential opportunity and make the introduction to the vendor.
why would anybody trust a property sourcer (who has no formal qualifications, building experience, land buying skills) to work out what a potential property is worth?
The job of the developer/purchaser is to do their own development appraisal/due diligence and tell the vendor what they can pay for the property.
Anywho who relies on a sourcer to tell them what a property is worth fundamentally doesn’t understand their role and in all probability is leaving themselves exposed to a huge amount of risk! And if the potential developer/purchaser doesn’t know how to properly estimate a properties value then they shouldn’t be going forward with the purchase
For anyone who is seriously interested in learning what a property sourcer does and how the transaction takes place I would recommend Paul higgs Land sourcing course.
Paul was head of land for one of the UKs biggest house builders and knows what he is talking about.
There will always be deals that go bad, but having two with the same sourcer/manager is a suspicious coincidence...
It sounds like the person who sourced and managed the deals was out of their depth.
If that is the case, how can sourcers claim they have sourced a "deal" and/or have negotiated a discount?!?!
Quite simply - they lie !