What is the joint venture Silent Partner loan?
This is where someone will fund the acquisition of a property and also fund the repair costs of the property and maybe even fund some marketing dollars for the property to resell it. They are what we call a silent funding partner.
We only use joint venture silent partners for larger projects. Joint venture Partners generally have incredible resources, especially cash positions or retirement fund positions.
Let’s say that you met someone at a REIA meeting and they didn’t want to learn real estate investing but they wanted to invest in a real estate deal. And let’s say that you didn’t have very much cash but you needed Capital to be able to put in all cash offers for transactions that you could add value to and resell.
Here’s some basic steps of a joint venture agreement,
- Agree that you would do all the work. You would find the project and present the opportunity to the joint venture partner.
- Once you agree on the project, you would ask the joint venture partner to deposit earnest money into escrow, say 10% of the value of a project. It is important to also look at the taxation for both parties. It might be wise for the joint venture partner to use retirement funds for the project so that the taxation will be advantageous.
- You would then sign a joint venture agreement that would describe the terms: generally you buy something, you fix it up, and you resell it, and from the proceeds of the sale you pay back the joint venture partner 100%, And then split the profits after that. The split could be 50-50 or it could be 40-60 or it could be 33-67.
- It is important have a lawyer involved to protect everybody’s interests.
- It is customary to open up an LLC just for this project.
