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PLP-024 My First Joint Venture Deal and the Lessons Earned

1 – How I got involved in my first Joint Venture deal:

  • Investor friend came to me for a private mortgage on Single Family Residence he owned as a rental in Baytown, TX.
  • Coming up on 5-year anniversary and balloon note was due: $55,000, looking to borrow 65k.
  • Had too many mortgages in his and his wife’s names – Banks said “NO”
  • Originally asked if I would refinance him for 5 years at 5% (take some cash out)

Well. . . .

  • I only wanted to loan for 12 months
  • Interest rate too low, and higher interest rate would significantly reduced his monthly cashflow
  • House had a really good tenant (building their retirement home)
  • I declined the, didn’t meet my criteria on paper, and my gut said no
  • He tried other sources of money but was unsuccessful and came back


  • He suggested
    • Option 1: He sells the house to me/my IRA at slight discount
      • Not want I wanted to do
      • I wasn’t comfortable with his asking price (~75k, his ARV ~90-95k)
    • Option 2: We do Joint Venture on the deal,
      • he sells the house to my LLC at a significantly reduced price
      • He retains a percentage of the deal (TBD) and I get to keep the cash flow
  • I chose to Joint Venture
    • My LLC got a loan at a community bank (w/ personal guarantee)
    • I had to come up 20% down payment
    • Down Payment and my share of closing costs = 14k
    • Partner retained 40%
    • Closed in early September
  • How things worked out
    • First 3 months were easy
    • Tenant called on Oct 23rd and apologized for mailing the rent payment late (arrived on the 26th)
    • Tenant finished building retirement and moved out in December
    • Who does what? Who manages property? Who handles repair requests or contacts the tenants?

2 – Lessons Earned and what you should take away from this story:

  • Didn’t run the numbers well enough.
  • Became too active an investment for my liking
  • Should have negotiated better terms – I had the most leverage and all the time, balloon due, un-mortgageable) not to take advantage of the partner but could have made the deal work better for me and I never asked
  • Failed to confirm tenant’s security deposit transferred to me (LLC) 1k
  • Didn’t outline each partner’s precise responsibility, duties, obligations
  • Didn’t discuss or formalize how the property would be managed

However, aside from some tenants headaches, miscommunication between the partner and I sold the house to a group of 3 investors (my partner was one).  When the final sale settled, I run some numbers and found that I had made about 8.5% on my money in 26 months  – not the ROI was hoping for on a “passive” investment.

But all is well that ends well!  I did made money so the investment was not a loss.  And besides, I was able to earn a good education by taking action – not by reading about it or looking at someone else’s case study. I was in the middle of it and felt all the emotions:  the good, the bad and the horrific.

My education consisted of the following crash courses in such topics as:

  • Where there is a will there is a way
  • The power of a network
  • How to be creative when putting together a deal
  • How not to JV when you don’t ask questions or get a second opinion (until its too late)
  • How one should always let someone else look over the deal if you are not sure (investor and lender)
  • Property managers need to be managed, closely
  • Tenant screening is VITAL to getting a good tenant and increasing your ROI



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About the author, Keith Baker

My ultimate goal is to create an economy for Real Estate (and other) Investors where banks are no longer needed. An economy where every day people look to each other for leverage and support. During the day I am an insurance adjuster for the oil field, where I handle millions of dollars of other people's money (OPM), and by night I invest in Real Estate and host this podcast. I hope you have an excellent experience and find real value within this website and the Private Lender Podcast. Please leave comments or submit your questions on the Contact Page.

I wish you prosperous, safe and happy lending and investing!

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