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  • Property-a-holics

    Joint venture structure

    Hi

    I was planning on a JV deal for the first time and wanted to get some help with structuring the deal.

    Property price £150k

    Conversion to 5 bed all ensuite HMO – around £50k

    I provide the purchase funds, and the property goes in my name, the JV is a builder with his own firm, and he will pay for and carry out the conversion. The rental income will be in the range of £2200-£2600 PCM, and the exit would be to sell the completed project to another investor as a ready to go tenanted investment property.

    The projected profit would be sales price minus my purchase monies (back to me) and minus the builder’s conversion costs (back to him) the remaining profit will be split 50/50.

    What do people think of the way we are structuring this deal? How do I protect myself from the builder changing his mind and not completing the works and walking away as at the entry point they don’t have any money in the deal. Also, I think there might be a conflict of interested as they could over inflate prices of the conversion and cream more money at the exit stage.

    I don’t want to be financially tied so would prefer that I pay for the property and it is registered in my name, the builder has said he would want a restriction at the land registry to protect him.

    Also what is to stop the builder walking away at any point. I will use my own solicitors but would like views from people who maybe have experience of these types of deals. The builder does have a good track record of doing similar deals with other investors.

    While we will be holding the property during the sales period it would be tenanted, what would be the fairest way to split the rental income during this period.

    Thanks

    Mike

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    Why not speak with the other investors he worked with? That will give you his track record and you can also see the structure of the JV.

    How was he wanting to structure the deal, as he will know what he did before.

    But having a solicitor do a partnership agreement is very sensible especially if you haven't done this before. I imagine the profit will stop the builder walking away.

    Marcus

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    Didn't go ahead in the end. The JV wanted me to purchase and fund the refurb and then once we refinance I pull out most of my funds and then we go 50/50 on the rest. I wasn't comfortable with the JV not having any skin in the deal.

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