Ask An Expert with Thomas Beyer

 jointventure1

I need some help in figuring out the possible ways of structuring the following deal.  My brother in law is wanting to purchase and move into a condo in downtown Edmonton. He has a long term stable job with a decent income, but is getting engaged and won’t be able to have a down payment on a property for a while. How could we structure a JV deal with him in which we provide him with the 5% down payment (since he is moving into the property), he qualifies for the mortgage, and then he pays all the monthly fees (mortgage, condo fees, etc.)? I remember Russell Westcott talking about deal structure at a REIN meeting a few years ago but don’t remember the specifics. Any help would be appreciated!

/hidden-joint-venture-opportunities

What would be a fair split in a situation like this?

A commonly used split is about 30% for the JV expert, about 20% for the mortgage qualifier and about 50% for the money partner. There is no hard “rule”. It is more of a guideline to be negotiated and accepted by the JV expert and the partner. This usually assumes something like 20-25% cash down (i.e. a 75-80% mortgage) and significant work to find and then manage the asset impeccably for 5+ years. In this case, as he is the “tenant” also (i.e. no real JV expert is required) let’s dial that down to 10% from 30%. Also dialing down the cash portion from 50% to 10% I’d say 20% is fair for you, 80% for him. The risk is that the condo market stays flat, or drops in value, and after realtor fees, CMHC fees and legal fees, and perhaps land transfer taxes (depending on province) are deducted the risk of capital loss is significant, unless you have a 10+ year hold.

Run some spreadsheets with all these costs, and some value assumptions over the years, then decide what is win/win. Win/win is what both parties feel is fair. There are no hard rules really, especially with a brother in-law.

Alternatively, lend him the money and he pays you 6% or so on it, until it’s all paid back. Depending on your scenario and assumptions about the world and the specific condo in that specific city within it, one of the options will do better than the other.

Happy JVing!

_____________________________________________________________________________

Thomas bought his first revenue property, a rental pooled condo, in 1997 with $20,000 cash and a $60,000 mortgage in Calgary. This was followed by a 2nd condo in Edmonton (still owned) a year later with no money down, i.e. a line-of credit. After the 3rd condo purchase in 1999 he realized that real estate is priced like flour, if you buy in bulk, you pay less per unit. He bought his 1st apartment building, using his own cash and some loan from his dad, for $37k/door in 2000… a 15 suiter along 156 Street in Edmonton. He has been the president of two rental pool boards and has been on several condominium boards since 1997.  Thomas founded Prestigious Properties in 2000 specializing in multi-family apartment buildings. He currently manages over 85 million dollars of profitable, cash flow positive real estate assets, primarily apartment buildings with a total of over 1,150 suites in AB, BC, SK and TX. He is happily married with two teenage / young adult children.

{{cta(‘8d2c2b7e-9f3d-451c-8b5e-7795129de36e’)}}

Keep up to date with the latest REIN news and events! Subscribe now:

Stay Connected

All Access

Twitter Feed