Private Money Partnering

Types of Partnerships and Group Ventures

Chapter D (continued)

Equity Sharing

A third kind of a partnership you may have heard about is an equity sharing arrangement. For instance, a Hopeful Homeowner wants to live in a house but doesn't have money and/or credit to buy it. Peggy and Paul Investor buy it for Hopeful Homeowners to live in, and then they all share the equity growth and tax consequences in some way. That is one type of equity sharing arrangement.

Or a seller want to sell the house, but doesn't have the money or time to fix it up to get top dollar, so Peggy or Paul Investor contribute the money. Then when it is resold, the seller and Peggy and Paul would split the profits in some manner. That is also an equity sharing arrangements, another type of partnership. Don't get either of those types of partnerships confused with the joint venturing for private money, which is the focus of our discussion.

Property-Specific Joint Venture Agreements

Instead, what we are going to deal with is a property-specific joint venture agreement between two, or at most among a few, investors. A joint venture is any business association that is formed to accomplish a particular business transaction. One thing, one deal, one house, one apartment complex, designed to be goal-specific. One. Now, it does not have to be in writing to be legal, but why would you put into writing? Because it’s good prudent business practice, and it makes good business sense. A verbal agreement is legal, but it is not enforceable. But a written agreement is both legal and enforceable.

A written agreement is a way to protect yourself, a way to protect yourself from errors, and a way to protect your friendship, especially if you’re partnering with a friend. To avoid misunderstandings, put it in writing. The structure variables are going to differ, on whom your partner is, what your goals are, what the experience level is. Each joint venture you do might be with a different partner. The transactions in one joint venture relationship won't affect any other business dealings you may have, unlike a legal partnership which might be in the ongoing business of buying and selling lots of houses. It works best for simple, small deals. And it’s not expensive to structure.

Funding Fundamentals- The Money - Chapter E