Hey there, real estate enthusiasts!
Our hosts Moxin Reza and Cheryl Leong are back with another exciting episode, ready to spill the beans on the last two more strategies that can help you rake in those sweet $ix figures in the world of real estate investing.
Today, they dive deep into the fascinating world of Builders Joint Venture. So, grab your hard hats, folks, because things are about to get interesting!
This strategy involves forming a joint venture with a builder to tackle a development project. The builder takes a 15-20% margin and shares the profits with you. If the numbers make sense and the deal works, you could be looking at a juicy 20% margin for yourself.
Ka-ching! 💵💰
Here’s the deal: Builders typically get paid during the lockup stage, but until then, they’re often barely breaking even from a cash flow perspective. They rely on that 15-20% margin on each project to make it all worthwhile. So, it’s crucial to carefully negotiate the terms of the partnership because a builder’s margin is different from a developer’s margin.
Builders are hands-on superheroes when it comes to managing costs. You’ll likely see them on-site, doing everything in their power to save money.
But here’s the catch: Builders JV works best when the market dictates the price point and the builder knows how to keep costs low without compromising quality.
Remember, builders are in it for the capital, so they may exit these ventures sooner than you think.
Banking matters also come into play here. If you’re not cash funding the entire build, the bank will want to see the builder involved in an arm’s length transaction. They may pull 15-20% as a margin, but fear not—that money flows back to you as cash flow. 💸💼
So, who should you partner up with for a JV? Look for builders with a solid track record and financial stability. You don’t want to be left high and dry halfway through a project, right? Make sure you’re in good hands, and success will be within reach.
When the builder is also your JV partner, a clear JV contract that outlines the relationship between you and the builder is a must. The ownership of the project should always sit with you—banks see it that way too. When things go sideways, you don’t want to be left scrambling for side agreements or background acumen. Keep it official and straightforward.
Happy investing, folks! May your profits soar and your ventures thrive. See you on the flip side!
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Episode Highlights:
- 00:00 Welcome to Helpmebuy Property Podcast
- 02:26 Exploring Builder-Developer Joint Ventures
- 04:35 Why Builders Choose to Collaborate
- 07:14 Understanding Joint Ventures with Builders
- 09:42 Demystifying Profit Margins: Dispelling the 20% Myth
- 10:25 Builders’ Blueprint for Consistent Work
- 12:34 Assessing Downsides in Builder Joint Ventures
- 14:50 The Bank’s Stance on Builder-Developer Separation
- 16:28 Exploring Funding in Builder JV Partnerships
- 18:31 Risk Management 101: Safeguarding Your Joint Venture
