Getting Rich with Raw Land (Morning Day 2)
Agreement - Profit Participation
Agreement - Sale & Purchase of Improved Land
Agreement - Sale & Purchase of Vacant Land
HUD 223(f) Document
Letters of Intent
Joint Venture Main Points
Here are the main points of the joint venture agreement.
- I will put up the money to do all due diligence reports, attorney fees, and documents needed to determine the highest and best use for the property. This is usually between $50,000 and $100,000. It will include a feasibility study, survey, and appraisal in as is status and value after the city approves new zoning. The seller can approve the new plan before submitting to the city for approval. I’ll know within 60 days if we should move forward or not. If we don’t, all the reports are at my expense.
- The seller retains title through the entire process. There is no purchase and sale agreement. I’m not buying the property. We work from a joint venture agreement I’ll send once we agree on the details. We both get paid when you sell it at its improved value, as you do.
- Compensation – we agree upfront on an all cash price the seller receives from the sale. He/she gets 100% of all sales revenue until paid in full after which an additional 25% of the net profits until the property is completely liquidated. This will drastically increase the seller’s income from the property. I will be reimbursed for my capital invested for all the upfront expenses upon the first sale of part or all of the property. *It should be noted the intent is to at least double the property value by identifying its best use and getting city approval. It’s not uncommon to triple it. *See Example
- Once the city approves the zoning the property will be listed and sold in parcels or all to one buyer.
- Realtor commission will be paid by seller upon sale for the cash amount seller receives. After the seller’s original strike price is paid, commissions for all sales above that will be considered an expense of the joint venture before profits distributed.
- Property taxes will be paid by the seller until receipt of the full strike price. Afterwards, taxes on all remaining parcels become an expense of the joint venture.
- All proceeds will be disbursed to the appropriate party by the closing agent with sellers pre-approval of disbursements.
Those are the basic points of the agreement. The details can be ironed out in the final agreement with seller’s attorney’s approval.
If we agree a property would sell now for $1,000,000 that becomes the strike price the seller gets before any profit splits after my costs are reimbursed. Before it goes on the market, I’ve raised the value to $2,500,000 and that becomes the listing price. It may be sold in parcels or all but all net proceeds go to seller until he/she receives $1,000,000 less costs of my expenses, commissions, and property taxes due.
Assume the buyers will want to negotiate and we allow 15% discount making the sales price $2,125,000. At a 6% commission of $127,500 the balance is $1,997,500 less my front end cost of $50,000 or $1,947,500 gross profit less closing costs.
Seller Gets- $1,000,000 strike price plus 25% of $947,500 ($236,000) for a total of $1,236,000.
Upside – seller gets about 25% more money with no risk. Agent gets double the commission.
Downside- seller must wait until property is sold to get paid, exactly like he/she is doing now. It’s fair to assume the property will sell faster at its higher use and close even before a current sale as is. I’d estimate a 6 month period to get it on the market.
Note- If I can’t at least double the value, I won’t take on the project. We’ll know the new value within 60 days.
Once we are in agreement on the numbers I will prepare a joint venture agreement and send it for your attorney’s approval.
I can be reached on my cell below to discuss further.