April 4, 2010
Real Estate Investing | Real Estate Investing Mistake #7 – Not Having Joint Venture Agreements In Place
Real estate investing is exciting when you’re just getting started. Real estate is all you can think about and all you can talk about. Your enthusiasm rubs off on others and you instantly start attracting people that want to lend money on for deals, partner with you on properties, joint venture with you on aspects of your business, etc.
The problem is that when you’re so excited, it’s hard to imagine anything EVER going wrong. Why would you need anything more than a handshake and verbal agreement?
Sure, you may be laughing as you read this, but you’ll see… when it comes time to putting a joint venture together, you’ll be eager to get moving along and you just might make this critical real estate investing mistake… and it COULD wind up costing you tens of thousands of dollars, friendships, and worse.
I once heard an attorney approach real estate investing joint venture agreements in terms of marriage… He said, “Plan the divorce before you get married”! It sounds morbid, but the advice is sound (I know from PERSONAL experience… and not ONCE, but several times!). It’s really funny to see what happens to people when money and stress are involved!
In this article series, I’ve highlighted 17 mistakes that I made early on and share with you what you can do to avoid making the same real estate investing mistakes I made…
Real Estate Investing Mistake #2: Not having joint venture agreements in place with partners
I remember reading a book in which the author talked about partnerships and recommended against them. Shortly thereafter, a mentor, coach, and friend warned me against partnerships, one in particular with my best friend at the time.
However, I thought my circumstances were different and that I could handle my “partnership” in my first rehab project. I was so wrong! In a short time, my partner and I were at each other’s throats.
We ruined both our business and our friendship.
We didn’t have the same expectations. We didn’t have the same thoughts on things. We didn’t handle finances the same way… We just really didn’t lay the groundwork properly and made every mistake you could imagine!
How to Avoid Real Estate Investing Mistake #7
What I learned later was that “partnerships” by nature rarely work.
The better your friendship or relationship is, the worse it will turn out in the end.
Instead, look at the alternative of building many joint ventures. This enables you to do projects on a deal-by-deal basis. You do a deal, if it works out, you do another and another and so on.
That way, you’re not bound by a “partnership” and you’re not obligated to each other’s personal finances. When you outgrow the relationship, you simply move on to new joint ventures.
Realize that there will never be true equality in a business partnership, so protect yourself and your “would-be” partner by setting up joint ventures instead.
It will save business relationships and friendships.
To Avoid Making the 17 Most Common Real Estate Investing Mistakes, Claim Your FREE eGuide Entitled: “17 Mistakes New Real Estate Investors Make” at http://www.RealEstateTrainingAcademy.com/Mistakes. Inside, you’ll learn the 17 most common mistakes and, more importantly, how to avoid them!
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7 Comments on Real Estate Investing | Real Estate Investing Mistake #7 – Not Having Joint Venture Agreements In Place »
March 30, 2011
bob shark @ 6:22 am:
his books are probably the only investing books that i dont like, they are no help and he is clueless to the real world
May 22, 2011
tim's wife @ 10:35 pm:
I played Monopoly for the first time with Olivia this past year. Here I was giving her tips about real estate investing, thinking I’ve got so much good advice to share. (We’ve owned a rental for many years and I have my real estate license.) Wouldn’t ya know it, my 12 year old kicked my butt.I went after the expensive properties and overextended. She played it safer, buying up cheaper properties. Something to be said for being a slumlord, I suppose.
May 25, 2011
Edward @ 8:01 pm:
You're a decade late for that particular bogeyman.
June 6, 2011
naomikrauss@rementor.com @ 12:10 pm:
yah you’re absolutely, i can’t work when i’m sick… recently posted..Real Estate Investing Book
July 12, 2011
Edward @ 4:22 pm:
You're a decade late for that particular bogeyman.
August 28, 2011
satarnag @ 12:17 pm:
When a property gets foreclosed on, and it's the first lien holder that is doing the foreclosing, then the second and third and fourth (etc.) will get wiped out at the foreclosure auction. What an investor will do is to buy/tie up the property from the defaulting owner and see if he can discount the first and second. The second will most likely agree to a small amount (usually 7-10 percent) because they will lose everything once the property gets foreclosed on. The first will usually accept a 20 percent hit.
Now what you quoted is that the second note holder was stating that he will own the property by buying it from the person in default and take over the first position's loan payments and make it current. Therefore, he is not interested in selling his note to the investors. The investors in that example were idiots for not controling the property first or the owner didn't want to sell. The investors were hoping to buy the second note at a discount and bid at the auction and own the property with at least 15 k equity plus whatever the homeowner had in equity.
You can buy any note by approaching the lending institution that holds the note and making an offer to buy it. You will need cash to do so.
Also, to clear up the quoted reference, you can purchase property "subject to" existing liens/loans. Taking property "subject to" means that you will take over the payments, but the old owner is still responsible for the loan(s). So if you stop paying the mortgage/trust deed, the lending institution will go after the old owner and start foreclosing on the property. Buying property "subject to" existing loans is one way where someone with no money and/or credit can get into a home and own it. The second note holder was buying the property from the defaulting owner using the "subject to" clause.
I either confused you or helped you. Either way, I just saved you hundreds of dollars in late night real estate infomercials!
E-mail me if you have any questions.
Regards
October 6, 2011
Cr1s @ 4:57 pm:
You have up to 3 years (exactly) from the time you moved to sell your ex primary residence TAX FREE, assuming that you lived in it for 2 years before you moved away. Price it right and offer a higher commission to a selling agent. It works.
You don't have to manage property yourself. Get a professional manager. It's not a 1039 exchange, it's a 1031 Exchange. You don't avoid taxes forever, you just defer them.
What's wrong with paying taxes if you have a long term gain, the tax rates arent that high. Selling the property could become the biggest mistake of your life. People have made fortunes by holding property long term