Joint Venture scenario

From: David H

Sorry for a long post but I would appreciate anyone's thoughts on the scenario below.

I know a builder who has been renovating houses and selling. He has a lot of his funds tied up in projects awaiting development etc so he cannot access much at the moment.

His proposal is that I and my wife provide the finance to buy and renovate a property while he will provide the expertise, designs, manage the project etc. The property will be purchased in our name. He will use subcontractors in certain areas and also work on the project himself. At the completion of the project, after taking into account all costs including finance costs for my mortgage etc, we will split the profits 50/50. Note that without his expertise I would not really know what to do and would be still looking.

The proposed figures are buy at $160k, spend $50k renovations, sell $280+. So all up including costs etc I would think it would cost $220. Renovations will add an extra storey (master bedroom, ensuite and walk in robe), add a study, 3 existing bedrooms become 2, sharing an ensuite and having WIR each, adding a guest room with ensuite, tidying up the kitchen, adding a family room and decking and then a double garage. Sounds a lot but not much structure needs to be altered (so I'm told). Costs will be kept down as he will do a lot of the work himself using is HIA company.

So what do others think of this? I'd be happy to clear $30k on 100% borrowed money. I'm not yet sure if he is expecting a wage out of this (which would be a small retainer and obviously reduce the profits) or if getting 50% of the profits is reasonable.

Getting someone else to do this work sounds similar to Michael Yardney's offer that he is making, except that I would think the turnover will be quicker in this project and I will have more control over the project & be able to learn more by spending time and asking questions. I feel this is important in learning what to do.

Please provide as many comments as you want.

Thanks in advance.
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Reply: 1
From: Brad M


Just a quick comment on legal implications of of joint ventures. I am not a lawyer but write this to suggest you speak to one before you become involved with this.

As I understand it there can be issues involved in joint venture arrangements later being classed as partnerships where there is a split of profit rather than split of revenue and each joint venturer being responsible for their own costs.

Brad M
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Reply: 2
From: Michael G


In have to think about all the what ifs;

- what if he goes bust and cannot complete the project

- public liability

- costs over budget, whos responsible?

- council delays

- holding costs?

- probably want a firm contract where any delays on his part eat into his side of the profit maybe?

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Reply: 2.1
From: Neophyte .

You need to make sure there is something at risk for the builder as well. You need to make sure that he can't walk away and leave you holding a half completed building.

I wouldn't be paying any of the renovation costs up front and only allow him to take his disbursement on settlement of the sale. This way if he goes bust half way through you'll have half the renovations done for free and you can get another builder to complete the job. Progress payments may be required for materials, but only pay on delivery. i.e. the goods are on your premises.

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