joint venture

Regina, while I haven’t done it, a close friend has. In theory it should work well, but the builder was less than honest, so while the deal succeeded, it was hardly worth it given the profit actually generated. From this I have learnt to put in place well-written and watertight contracts, with no loose ends. I would also recommend only working with a builder you know. Good luck!

Regina,

Would you feel comfortable listing out the basics of your joint venture… ie. what are the responsibilities of each party, how profit / loss is to be distributed etc.?

I’ll provide some feedback with my thoughts on the set up and it would be an excellent discussion for people who have no experience in joint ventures too.

Thanks,

Steve McKnight

OK, let’s have a look…

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I haven’t got to this point yet.
I have recently brought 3 properties(outer east) with subdivision potential. The first has just been submitted to the council, they are supposed to respond in 2 weeks. My thinking is, that the money I make on selling the land can be paid into the mortgage, such that the property becomes cash flow neutral or just positive.

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How much money to you think that you’ll make with the subdivision. I recommend that you flesh out a more detailed exit plan so you’ll know what has to be done to get your money back.

Can you be more specific with the numbers of the deal… i.e. how much cash in, cost of subdivision, details of finance etc..

I’d be very interested to see how the numbers stack up to compare the risk:reward on the deal.

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After developement expenses and capital gains tax are paid,whatever is left over, will be a deposit towards the next property, so you are able to leap frog into the next property very quickly. I have to wait one year, before selling however, as only half of the profit is then capital gains taxed at your top marginal tax rate, this then being 25% tax versuds 50% tax if sold in under one year.

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Hmmm, unless you are deemed to be in the business of subdivision, in which case the profits that you make are income and not capital gains.

What sort of property are you looking for in your next deal? In fact, I think you would really benefit from having a two or three year plan that outlines what you are doing and how much money you stand to make.

I regard deals of this nature to be earned income rather than passive income.

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Joint venture is a thought, in that I have just seen a property owned by a builder, with the potential to be strongly cash flow positive, so if he can sell me the property at a discount, he can have my land to build his next townhouse in return.

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This isn’t so much a joint venture as it would be a straight deal negotiation.

A JV would be you supply the land, the builder supplies the property and you share the profits or output on an pre-agreed basis.

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At the moment its still my thoughts, depends on council approval and the price he is willing to sell his current property.

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Regina, I strongly urge you to be more specific with developing a plan to make this work. It seems to me that it is all a bit too remote and that a lot has to happen in order for you to make money.

Property development is a dangerous arena for newbies, especially with rising interest rates. I urge you to proceed with caution and to not bite off more than you can comfortably manage.

Regards,

Steve McKnight