Joint Venture Partner
In a joint venture partnership we are looking for the investor to at minimum hold the mortgage on the investment property and contribute 20% of the purchase price plus the closing costs of the property. Occasionally we do renovations on a property and we would be looking to the investor to be able to contribute there as well. These are all items that would be planned and agreed upon prior to purchase. In these opportunities partners can use funds from a line of credit like a Home Equity Line of Credit, or cash.
The majority of our Joint Venture Agreements (JVA) are set up as a 50/50 partnership. In all our transactions we look to achieve a 30% annual Return on Investment or 15% annually for EACH Joint Venture Partner by 3 years. All JVA’s are planned for at least a 5 year term. Note within that time investors have been know to acquire all or most of their money back through refinancing (depending on the market and forced appreciation) and still maintain the property with rents covering costs.
We use a standard Joint Venture Agreement for all our joint ventures outlining our responsibilities of overseeing all aspects of the property. This document also covers things like what will occur in the case of disagreement, death and desired buyout. Our lawyer will draft it up after discussion/agreement from both the investor and Liberty Property Solutions (LPS) but we encourage the investor to still run it by their own lawyer to ensure it completely meets their needs. All fees and interest incurred as a result of setting up a joint partnership with LPS will be shared equally between LPS and our partners and expensed within the property. On exception being corporation set up and maintenance of the corporation should the joint venture partner choose to go that route.
Funds Only Investors
In these scenario’s we have many more options as to where the source of funds may be coming from. We can utilize RRSP, RESP, LIRA, various Lines of Credit and good old cash. When we are using a registered product it remains registered so no penalties, we simply use a government regulated trustee to manage the transaction (mortgage). Typically we like to use a company called Olympia Trust, likely the most commonly used within the industry. When utilizing registered funds it is always in the form of a mortgage usually in 2nd position. Unlike mutual funds and seeing where the market will take your investment, with a 2nd mortgage you determine ahead of the transaction how much you investment will make each month. We most often work with interest rates between 8-10% per annum depending on the risk level.
Individuals with cash and or lines of credit have the additional option of getting involved through a promissory note. Promissory notes are cheaper to set up than that of a 2nd mortgage and as a result we generally we look to share the savings.
In both the promissory and the 2nd mortgage situation, the cost of setting up that specific 2nd mortgage or promissory note is including in the expenses for the property at hand. To be specific all legal fees, required documents, and fees associated with the specific mortgage will be covered by the property at hand. Unlike mutual funds and stocks there are no fees to invest with Liberty Property Solutions.
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