- Joined
- Sep 25, 2009
- Messages
- 7
Hello all,
I am in the very preliminary stages of putting together my first rental purchase, and could use a little advice on the topics of joint venture structuring, and what amount of reserves may be considered adequate. The deal will be 3 way, as capital is very low and so 3 partners are needed in order to manage a purchase. The three partners bring this to the table.
Partner 1: 10K cash, will manage property
Partner 2: 10K cash
Partner 3: 15K cash, will assume mortgage, will be occupying residence.
If it seems like we are all spread fairly thin, it is because we are! Partner 1 and 2 are still students, and Partner 3 is the only member with long term employment. All members are tired of having their cash sitting in one year cashable GIC`s and earning .05 percent per year, and so are willing to get creative at any measure to get their money moving. We will not be looking to start submitting offers until this summer, as not all cash previously mentioned will be available until then. That being said I will be working diligently in between now and then to figure out the best way to make this work for all members. Any advice I may receive here will be priceless and greatly appreciated.
Firstly I suppose our one benefit is that Partner 3 will be looking to occupy the property, and so we should be able to leverage ourselves a little further considering the more favorable financing for owner occupied CHMC insured loans. I am not clear on whether CMHC will accept our (partners 1 and 2`s) cash for the down payment (on the basis that it is for investment purposes), so this may be one of our first sticking points. I am almost positive that our property must be owner occupied in order to make this purchase work, as with the recently announced changes to mortgage lending standards will push non-owner occupied properties max LTV to 80% in the very near future (I was told this just his morning while in correspondence with a CMHC representative).
Next, there are two key issues we must address, which are how to structure the returns to each partner given their unique stake in the deal (in regards to equity, cash flow, possible negative cash flow, exit strategy, and refinancing)
Next one our agenda of concerns is working backwards to figure out which price range we should be in. Assuming that we are able to secure a 95% LTV loan (which may not necessarily be the case) we be able to look comfortably up into the $300,000 range, as with $35,000 cash on hand, this would leave us with $10,000 cash after a 5% down payment. My question is how much we should consider leaving on reserve for vacancy, damages, and unforeseen costs? We of course want to be slightly conservative but do not want to use any of our useful cash unutilized...what amount of reserves should we be considering? The answer to this question will more or less dictate our price range.
Our only other concern is whether to look into higher priced properties with more units, requiring minimum improvements, OR to look in the lower of our price range and consider using a portion of the cash for property improvements.
All that is being considered above is assuming that we are able to obtain financing (hoping a cosigner on the mortgage does not have to enter the picture), and that our down payment sources will be accept by CMHC (as while we are all looking to invest, the property will still be the principle residence of Partner 3).
Any details that I have left out and make this situation difficult to comment accurately on, please just ask and I will try to fill in the gaps. We are very eager to learn all we can, cover all the gaps,,, and make this happen! Feel free to comment on any of the above mentioned topics of concern. I will keep posting as workings of this deal progress, as slow as it may be, so that you all can see the progress.
Thanks so much!
I am in the very preliminary stages of putting together my first rental purchase, and could use a little advice on the topics of joint venture structuring, and what amount of reserves may be considered adequate. The deal will be 3 way, as capital is very low and so 3 partners are needed in order to manage a purchase. The three partners bring this to the table.
Partner 1: 10K cash, will manage property
Partner 2: 10K cash
Partner 3: 15K cash, will assume mortgage, will be occupying residence.
If it seems like we are all spread fairly thin, it is because we are! Partner 1 and 2 are still students, and Partner 3 is the only member with long term employment. All members are tired of having their cash sitting in one year cashable GIC`s and earning .05 percent per year, and so are willing to get creative at any measure to get their money moving. We will not be looking to start submitting offers until this summer, as not all cash previously mentioned will be available until then. That being said I will be working diligently in between now and then to figure out the best way to make this work for all members. Any advice I may receive here will be priceless and greatly appreciated.
Firstly I suppose our one benefit is that Partner 3 will be looking to occupy the property, and so we should be able to leverage ourselves a little further considering the more favorable financing for owner occupied CHMC insured loans. I am not clear on whether CMHC will accept our (partners 1 and 2`s) cash for the down payment (on the basis that it is for investment purposes), so this may be one of our first sticking points. I am almost positive that our property must be owner occupied in order to make this purchase work, as with the recently announced changes to mortgage lending standards will push non-owner occupied properties max LTV to 80% in the very near future (I was told this just his morning while in correspondence with a CMHC representative).
Next, there are two key issues we must address, which are how to structure the returns to each partner given their unique stake in the deal (in regards to equity, cash flow, possible negative cash flow, exit strategy, and refinancing)
Next one our agenda of concerns is working backwards to figure out which price range we should be in. Assuming that we are able to secure a 95% LTV loan (which may not necessarily be the case) we be able to look comfortably up into the $300,000 range, as with $35,000 cash on hand, this would leave us with $10,000 cash after a 5% down payment. My question is how much we should consider leaving on reserve for vacancy, damages, and unforeseen costs? We of course want to be slightly conservative but do not want to use any of our useful cash unutilized...what amount of reserves should we be considering? The answer to this question will more or less dictate our price range.
Our only other concern is whether to look into higher priced properties with more units, requiring minimum improvements, OR to look in the lower of our price range and consider using a portion of the cash for property improvements.
All that is being considered above is assuming that we are able to obtain financing (hoping a cosigner on the mortgage does not have to enter the picture), and that our down payment sources will be accept by CMHC (as while we are all looking to invest, the property will still be the principle residence of Partner 3).
Any details that I have left out and make this situation difficult to comment accurately on, please just ask and I will try to fill in the gaps. We are very eager to learn all we can, cover all the gaps,,, and make this happen! Feel free to comment on any of the above mentioned topics of concern. I will keep posting as workings of this deal progress, as slow as it may be, so that you all can see the progress.
Thanks so much!
