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  • Entrepreneurs

    Please critique my JV set-up ...

    I'd welcome your thoughts on my ideas for the next stage of my property plans..

    I've bought 4 bog-standard BTLs in Hull with the help of Mr X.

    Mr X sourced some of these properties (with some input from me) and refurbished them. He's also now let them for me at good rents and manages them for 10%..

    Overall, they yield about 8%, after mortgage repayments and management fees.

    I'm happy that Mr X is trustworthy, so please take this as your starting point.

    I can now release £128,000 from two of the unencumbered houses.

    My long-term goal is to buy more BTLs, but for now I want (for both personal and business reasons) to increase my capital.

    I'm therefore looking at doing some "flips", on a JV basis with Mr X.

    His basic proposal is as follows:

    1. He sources the property.
    2. I put in the purchase and refurbishment money (for example, £60,000 + £20,000).
    3. He refurbishes the property on an "open books" basis, then handles the marketing and sale side.
    4. Goal sale price is £95,000.
    5. We split the £15,000 profit 50/50.

    Obviously, only a modest profit, but I want to keep things as risk-free as possible. I also want to build a long-term, mutually beneficial relationship with Mr X.

    How does all this sound, on the face of it?

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    MR X is the only real winner here. No money put in but profit taken out. The figures you quote for deposit plus refurb for Hull could buy a complete 3 bed house with 8% yield. Never buy far from home and hand over control to a management company

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    Just from a very business stand point. Your ROI is less than 10% depending on whether you have added the total cost of purchase like SDLT, conveyancing, estate agent fees on selling etc...

    Assuming all is taken into account, because great majority of the projects run longer and cost more than the initially predictions, as long as you think ROI of less than 10% is acceptable then go for it. Most houses now take at least 50% longer to sell compared to 12 months ago.

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    Does the refurb cost of £20K include MrX's labour which you pay for?

    I feel a fairer agreement would be that if you put in the money, MrX puts in the management +labour (so you don't pay for it).

    I agree with JLASSET, your profit margin of £15K (does this include buying and selling costs?) is very very low, it will end up almost nothing.

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