Q: What is a Joint Venture Partnership?

A: Joint Venture Partnerships (JVPs) are a form of contract relationship where by several parties purchase, manage, and hold investment properties.  This is not a corporation rather, a relationship between two, three or more parties.  Each party can be an individual or a company.  The JVP is defined by a Joint Venture Agreement (JVA).  In the JVA, it defines the roles and responsibilities of each party in the JVP.  In addition, unlike a partnership or company, once the property is sold, the relationship is immediately dissolved.

The way we structure our typical JVPs is to find an investor (say yourself) who may be interested in purchasing real estate but does not have the time or the interest in the selecting, purchase, and daily management of the property.  This party (the investor) is in possession of funds they would like to invest.  We (the finder) will select, purchase and manage the property in conjunction with the investor.  For this relationship, we own the property 50 / 50 and share all unforeseen costs, monthly cash flow, and all profits from refinancing or the potential sale of the property.

The investor puts up 100% of the funds and we, the finder, do 100% of the work, and we share everything from there 50/50.

Activities such as market research, relationship building, mortgage financing, etc. are all part of our role including ongoing daily management, financial tracking, etc.

Many projects, we typically use a 25% conventional down payment, fully declare everything to the banks.  We find that the banks are very excited about working with us since we are forthcoming with all the information where as an irresponsible handful in the industry conduct unethical, incorrect, and even fraudulent activities. 

Q: How are RRSP 2nd Mortgages structured?

A: With several deals, we are able to place RRSP 2nd mortgages on the property once we are at a steady state of operation.  In this case the RRSP holder, say your editor, holds an arms length self directed RRSP 2nd mortgage on our property.  If the sample property is 200,000, you as the investor would have invested 50,000 down payment and 10,000 closing costs and staying fund.  Now, 6 months later, your editor, the RRSP lender/investor, places an RRSP 2nd mortgage on our property for 15% loan to value OR 30,000. 

As you know, many people are lucky if they are earning 6 – 7% on their RRSPs these days.  We pay 12%.  We do this in the form of a 3 to 5 year TERM 2nd mortgage where the lender receives 12% per year every year for 5 years.  At the end, I pay out the principal plus accrued interest (12% / yr x 5 yrs).  The question of appreciation, bubble, etc. always comes up and how can I protect the principal of the RRSP investor/lender if I am doing a TERM 2nd mortgage.  Well the simple answer to this is, I rarely go higher than 90% Loan to Value with a maximum of 95%, but more importantly, with principal reduction coving the majority of the interest owing, the property only needs to appreciate 0.65% per year for 5 years assuming I have a 25 year, 75% first mortgage at 6.5%. 

Best rate mortgage rate for investment property is currently floating around 5.5%.  Considering the average appreciation in Edmonton is over 10% and Hamilton, Orillia, Oshawa, and Kitchener/Waterloo is increasing well over 4 – 5% both my JVP and my RRSP lender are well protected against in proper management and over leveraging.

We love your questions so please feel free to ask.  Email them to info@rightsidegroup.com