| What is a Joint Venture? Wherein two or more | | | | $404.31 per month. |
| entities (people, corporations, etc.) work together to | | | | With this information packaged, Charlie, who lacks |
| accomplish a mutual goal; that is a Joint Venture. As | | | | the needed up-front cash to close the purchase, |
| for our discussion here, we are talking about one | | | | looks for an investor to Joint Venture the deal with. |
| party (the investor) who provides the necessary | | | | Through research with Realtors that he knows, |
| funds to acquire a property, and a second party (the | | | | newspaper ads, and referrals, Charlie finds Janice Ellis |
| entrepreneur) who will provide the management and | | | | who has done Joint Venture investments before. |
| expertise necessary to accomplish the mutual goal. | | | | Janice has an excellent high salary job with A.T.&T. |
| Let me give you an example that I have used many | | | | She also pays considerable income taxes each year |
| times. This will be an example wherein I was the | | | | which is one reason she is always looking for |
| entrepreneur, although I have been the investor also | | | | opportunities to grow her wealth and get some tax |
| in many transactions. | | | | benefits. |
| Charlie Harris, the entrepreneur, has located a nice | | | | So, after making initial contact with Janice, Charlie |
| house in a middle class neighborhood which is for sale | | | | proposes the following: |
| by owner. the owner is really motivated to sell the | | | | 1.Janice will contribute $15,000 to the Joint Venture |
| house and has even indicated that he would be willing | | | | which will pay the down payment ($8,000); pay for |
| to finance the purchase with at least 10% down. | | | | the needed repairs ($3,000); and leave $4,000 for |
| Charlie has established that the house's fair market | | | | reserve and unforeseen contingencies, which always |
| value, if in good condition, would be $120,000. also, | | | | come up. |
| the house should rent for about $1,100 a month. | | | | 2. Charlie will manage the property; although he may |
| The house has some minor repairs that need to be | | | | hire a Property Management Firm to find & manage |
| made. Charlie has a bid of $3,000 from an | | | | tenants. The cost is 10% of the rental income or |
| experienced handyman to make all the repairs. Charlie | | | | $110 per month, per tenant. |
| has negotiated with the owner for a purchase price | | | | 3. My recommendation is that Charlie let's Janice have |
| of $80,000 with $8,000 down. the owner will finance | | | | ALL the tax benefits; interest, taxes, maintenance, |
| the balance of $72,000. The loan will be amortized | | | | insurance, etc., deductible to Janice. |
| over a 30 year period (with no pre-payment penalty) | | | | 4. Both parties would equally share the monthly cash |
| with payments of $479.02 per month, including | | | | flow of $294.31 per tenant. |
| interest of 70% per annum. | | | | 5. When the property is sold at a later date, Janice |
| Charlie obtains information from the County that the | | | | will receive her $15,000 back FIRST, then the balance |
| annual Real Estate taxes are $1,800 per year. Fire & | | | | of profits are equally divided between the parties. |
| Casualty Insurance will be $800 per year. Both added | | | | These posts are the opinion of the author who is not |
| together and amortized would be $216.67 per month. | | | | engaged in rendering legal, accounting, or investment |
| This amount added to the loan payment ($479.02) | | | | advice. If such advice is required or desired, the |
| and subtracted from the Fair Market monthly rental | | | | services of competent professional persons should |
| amount ($1,100) indicates a positive cash flow of | | | | be sought. |