Does long term JV for buy and hold work?

Hi all, a lot of JV is short term - for good reasons, especially that exact timelines and expectations/milestones limits the increased risk from many heads driving the cart.

On the flip side, has anyone invested with friends/business partners for longer term (~5-10 years buy and hold) and how did it go?

Thinking about pooling our pennies for a down payment of a commercial RE for cash flow.

 

Consider exit options if one party needs to exit for marriage, financial, business, personal reasons ...or death.

 

NO

Unless everyone has plenty assets and income or the total opposite where they're finances dependent on the long term holding.

 

You're tying your finances to the other person indefinitely. It's a bit like a defaco relationship. It will affect everything you do financiall whilst the joint ownership is in place.

The only person I'd do something like this with is my wife. I also consider that to be a long term relationship.

 

This is where a structure may assist. eg as a Dircetor you may give a guarantee and its less a financial impact than if it was a mortgage in joint names

 

My first four commercial properties I did as a JV.
All went well ...but only $1.6m total purchased in 1994-5.
However by 1996~~~2021 the cash flow was so good I not only brought out all my partners out but increase the portfolio twenty fold, income fifty fold.

Having similar minded partners push you to do more and more deals.

 

No, not joint ownership - thinking of a Pty Ltd trustee with the goal of limiting liabilities to % portion held and its effect on future serviceability. Even with a husband I'd still prefer tenants in common arrangement to be honest, I like things spelled out in loud and clear in ink

 

Agree on needing a structure, I wanted to get on your client list in fact! But first, I have to find out if we even have enough combined borrowing to purchase where the good yield is.

Definitely need structuring - watertight clauses, exit strategies for all reasons you mentioned and more. Aiming for closed ended comm prop trusts style where the exits/buyout clauses are clearly defined, except we're not selling at the 10 year mark (for example) but more indefinite until it's a single ownership + sellout.

 

Nicely played! My friends and I are on the same boat re: maxing out individual resi borrowings and curious about CRE. Putting less into comms means lesser CRE % per person's portfolio , meaning lower risk - at least that's what it looks like at the moment. Trying to crystal ball into the future from the experiences of good people here.

How did you buy them out? Making an offer market rate/above or did they just want to exit naturally?

 

Fair point, plus ideally they have diamond hands.. but I'll take available collateral for now

 

Even in a company ownership stucture the directors need to guarantee the full loan amount, even if you only have a 50% interest. From there it becomes a question of how future lenders will treat that guarantee. Some will assume the full liability in their calculations, a few others will ignore it entirely. This sort of structure is probalby the best way to go about it but it's not an absolute solution.

Joint tenants or tennants in common is irrelevant to the bank for lending purposes. This has more impact on legal consiquences than lending consiquences.

 

A problem I've encountered with joint ownership is accessing equtiy in the property in the future. If one person wants to access equity lenders must ask what will be the benefit to the other person. If you can't demonstrate how the other party will benefit from the equity release then the lender may not approve it.

Case in point, two sisters bought a unit together about 8 years ago. They initially lived there but rented it out as they both moved on with their lives.

Early 2020 one sister wanted to buy another property as her own home. Great serviceability. Not a huge cash deposit but the original unit has more than doubled in value so it has tonnes of equity. The lender would not allow an equity release because there was no benefit to the other sister in funding the equity release. They wouldn't even cross collateralise the two properties.

We did of course find a solution, but the original property was not a part of it.

 

Not really.

The commentry here tends to be fairly residential specific. A future residential loan application doesn't discriminate too much about how to assess commercial or residental property.

Commercial lenders are more flexible in how they look at things, so third party joint ownership of any property (resi or commercial) may be viewed quite differently in a future commercial deal.

 

One was a divorce,So wife

Two was a agreement to disagree (I wanted to borrow from Bank at 9.5% to repay a lease calculated at 4.8% his wife ,

Three thought it is better to switch to shares properties too much work his wife .

Fourth we found it was too much work doing studies, fixing a old house and at 18-19 we felt it was more fun chasing girls (we were 19)

So all the Reasons why JV split was due the female species