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  • HMO & Multi-Lets

    Joint Venture with Family member

    Hi, I was hoping for some advice on this scenario.

    FYI.. I have two HMOs not far from London making £1200pcm profit deposit and refurb costing £105k each to get going (although some mistakes were made initially). My costs for training (32k) and mistakes (~another 32k) even though i have now recovered these through remortgaging and profits.

    My cousin in Norway has recently sold his (unrelated) business and wants to go into business with me. I agreed to go over there to explain what i do, the pitfalls and worst case scenarios, and see if we can put together something that works for both of us. Initially he just said he'd help me by essentially lending money on a low interest rate, but now hes looking to be a business partner and very keen on a joint company with 50/50 split of equity with me having a management fee. If it were to go through we would draw up a signed legal document for it etc. 

    That deal sounds rubbish to me as i have done the training, learned about pitfalls at some cost, will source the property and manage it. 

    Looking around it seems that with most JV ventures the investor would provide most of the upfront cash and give the one doing all the work 30-50% of the equity (after investors initial investment returned should property be sold) and then split the profit. 

    So is there a deal I could propose that would be worth it for me and might be acceptable to him? 

    Any other thoughts, ideas or experiences also appreciated!

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    Don't go into business with friends or family

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    Thats just a blanket statement. I see family going into business all the time for collective benefit. He would be a silent partner about the day to day runnings as he is not living in the same country.

    I should add that the business he just sold he built up over 20 years he founded it with his best friend 50/50 who became a mostly silent partner doing his own job, so he understand the dynamics of such an arrangement.

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    A JV means different things to different people. You both bring something to the party but the perception of the value of what you each bring may be at odds with each other . It sounds that this is the case here already and there is tension in the air

    It seems you know a lot more than him about the property business and initially he bowed to that superior knowledge. Now that you have taken time out to explain that knowledge he thinks in his mind ( wrongly ) that in a few hours he has now instantaneously acquired virtually equal knowledge to you or / and you have enthused him so much he has got carried away and he wants an almost equal slice of what is in essence your pie. How wrong is he.......

    You are right its a rubbish deal.

    I in effect JV with my mortgage lenders. I borrow from them at say 4%. They dont interfere with my business and dont suddenly ask for a 50/50 split of my profits . No I keep 100% of that. There is no reason why your cousin should want a 50/50 split unless he brings something other than finance to the deal.
    Having said that if you cant get finance eleswhere then you may wnat to give away 50% of your profits. 50% of £100 profit is better than 100% of £0

    I would either tell him this straight and if it causes tension go to another source to get the cash you need.

    JV`s with families can of course work and flourish. There are many `Smith and Sons ` type businesses which are passed down the generations. The belief and trust in each other can outshine a non family business if all the elements work well together and in harmony. But likewise if they don`t work it can cause lasting family feuds which cause so much more hurt and personal pain than two non family business partners simply shutting up shop and going their separate ways

    In your case it sounds as if there is bad karma already in the air especially on your side. If you give away more of your business than you want just because he is your cousin then I think resentment will start to eat away at you. You need to be crystal clear about this to him and tell him why 50 /50 just will not work for you. Suggest 60/40 or 70/30 maybe and look for the reaction.
    If he gets the hump then walk away ( diplomatically as possible of course ) before its too late
    Value your own worth. Easier said than done I know....

    Good Luck

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    Jonathan Clarke. http://www.buytoletmk.com


    Thanks Jonathan, that was very concise. Your right I feel he is not valuing my input and if i cant reconcile that with him amicably then i wont do any deal.

    The JV deals you have done, sound like a straight forward loans and 4% is a great rate!

    If you did a deal where you started a new business for a series of properties, where the other side was silent and wanted to split the money invested/equity 50/50, whats the worst split of profits you'd accept? Would you attach any other major conditions?

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