The split isn't the confusing part of these two JV offers

I've got a 1960s 3/2 in a working class suburb, ARV somewhere around 215k based on four sales inside half a mile, repairs quoted at 45k by a contractor who walked it with me. Seller is a landlord who's done with it and has verbally agreed to 128k. Nothing signed yet, which is the part that matters here.

I put the lead in front of two wholesalers I've met at the same meetup. First one wants 50/50 and says he'll put the property under contract in his entity, handle the seller from here, run it through his title company and bring his own buyer. Second one offered 70/30 my way, but on that deal I go get the buyer and he just looks over my paperwork and answers the phone when I panic.

So the 50/50 gets me a much higher chance of a check and the 70/30 gets me a bigger share of something I'm not sure I can produce. My buyer list is nine names and I've never sold anything to any of them.

What I'm actually unsure about is smaller than the split. If partner one signs the contract in his entity, what am I holding? Nothing I sign with the seller, nothing I can point to if he decides three weeks from now that the deal is his. I don't know what document is supposed to protect me there or what it should say.

Decision in front of me this week is which one I call back before the seller changes his mind. I keep flipping.

Answer

2devon_pierce Get yoursPRO5

The nine names is your answer on the 70/30. I've got about 140 on my list from six months of work and I still wouldn't bet a live contract on them producing a cash close at 45k of repairs.

On what you hold: ask partner one for the JV agreement before the seller signs anything, not after. I'd want it to name the property, name both entities, state the split as a number, and say who pays if earnest money burns. Also ask him straight out whether your name appears anywhere on the purchase contract or the assignment. If the answer is no, then the JV agreement is the only thing you have, so read it slowly.

The other question I'd ask is what he does if his buyer comes in at 140 instead of 150. Does the fee shrink and you both eat it evenly, or does his cost come off the top first.

3 replies

2wendy_park48CapitalPRO7

A few things I look for in these, since I read the paperwork nobody else reads.

Who has authority to amend or terminate the purchase contract. If it's his entity on the contract and the JV agreement is silent, he can extend, reduce price or cancel without you. I want a line saying material amendments need written consent from both parties.

How the fee actually moves. Two ways: the closing statement shows both parties receiving their share, or the partner receives the whole assignment fee and pays you after. The second one means you're an unsecured creditor of a guy you met at a meetup. Whether a settlement agent will disburse to a non-contract party varies by state and by the individual title company, so ask his closer directly rather than asking him.

Also ask what he thinks your role is on paper. In some states, doing the seller-facing negotiation on a deal you have no equitable interest in raises a licensing question, and the rules differ state to state. That's a question for an attorney in your state, and it's worth the hour.

Non-circumvention language matters too. Something covering this seller and this property for a set period if the current contract dies.

1diane_kowalskiPassivePRO9

Seventy percent of a deal that doesn't close is zero, and fifty percent of a closed one teaches you what the closing looks like.