Joint Venture How It Works
JOINT VENTURE - How It Works!
The majority of of our Joint Venture deals are structured where Bosker Properties finds and negotiates the real estate deal to the absolute best of our ability with the help of our real estate team, while the other partner puts up all of the cash required for the down payment and closing costs, in return for participating in the ultimate profits or losses in the deal. We are full partners, each with our own risks in the deal. Bosker Properties is contributing their vast expertise, experience and contacts to maximize the profits in the deal by choosing the property wisely, arranging a good price, and then managing the day-to-day operations of the property. The other is often a silent partner providing just the initial investment capital. Risks are shared, as are the rewards, mostly on a 50% each party basis (after the money partner is paid back their capital first.).
As a very simplified example (that does not take taxes into the equation):
PURCHASE & OPERATION:
- Property is valued at $325,000 when purchased, but real estate expert partner negotiates the deal and buys it at $300,000.
- The money partner puts up $65,000 (for down payment and closing costs),
- A mortgage is arranged for the remaining $240,000.
- Property is overseen by the real estate expert partner
- Money partner receives monthly or quarterly updates
SALE & PROFIT SPLIT
A few years later, the property is sold for $420,000. Here’s what happens:
- Bank gets paid back the remaining mortgage of $210,000
- Money partner is paid back their initial $65,000
- Closing costs are paid (lawyer, realtor commissions) $15,000
- Leaving $130,000 pre-tax profit which is divided equally between the two partners
This simplified math scenario above is very typical where the money partner, with very little effort, receives a strong return on their initial investment. The real estate expert puts in all of the effort of maximizing the profit for the partnership, spending countless hours so the money partner does not need to.
The one component that is missing from this equation and that is the positive cash flow. Cash flow that is created from the property, in most cases, is split 50/50 on an annual basis, not monthly or quarterly due to operating expense.
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