Addressing cash calls in your real estate jv agreement
How you deal with a cash call in your real estate jv agreement is super important.
Because sooner or later, there WILL be a cash call.
And because MOST of the “free” real estate jv agreements don’t address this situation…
I thought I’d share how I deal with cash calls in my personal real estate jv agreement.
WARNING: this is just my personal way of doing things. I’m not suggesting this is the ONLY way. But it should give you some ideas how to structure your own real estate jv agreement.
Before I do that however, let me bring you up to speed on what a cash call is if you’re wondering.
What Is A Cash-Call?
A cash call is simply a deposit of NEW cash into the property.
Normally to repair something – and that something is regularly substantial – like a roof or furnace.
It’s also common to have a cash-call when the property is vacant for a few months.
The mortgage and utilities still need to be paid right?
And most of the time, BOTH parties are responsible for their portion of a cash call.
So HOW do you deal with it?
Avoid Using A “FREE” Real Estate JV Agreement
In my opinion, the “free” sample real estate jv agreements on the internet are great to get your brain started.
They are NOT to be used as your final document.
That’s my personal opinion.
You can do what you want.
I thought long and hard about “saving money” and using one the many I found when I was creating my real estate jv agreement.
Looking back now, I’m SO glad I didn’t.
Because your real estate JV agreement is probably THE most important document you’ll ever sign in this business.
So make sure it’s RIGHT and deals with everything important to YOU and your co-venturers.
I spent $2,200 to create my real estate jv agreement. And it was the BEST money I’ve ever spent – because I never have to go back to it again.
It deals with everything from the death of a co-venturer to…you guessed it…cash calls.
NOTICE: don’t forget that you have my FULL real estate jv agreement as a BONUS if you’re a Joint Venture Presentation Formula owner. It’s in the resources section.
Even thought it’s rock solid, I would STILL pay a lawyer a couple hundred bucks to look it over for you.
How Do I Deal With A Cash Call?
“Joey, I don’t have money sitting around for a big cash call…so how do we deal with it?”
Let me remind you, this example is from MY personal jv real estate agreement…and I’m not suggesting it’s the ONLY way to deal with it.
That said, the first way I “deal” with this is to have my own personal “stash-o-cash” sitting around.
Before you say “yea, but I don’t HAVE a stash-o-cash – Joey”…
Neither did I.
My “stash-o-cash” comes from my personal HELOC.
That’s my home equity line of credit.
Here’s what this means.
Having a HELOC available like this does TWO things:
First of all, it makes me look even more professional to my co-venturers because they see I’m willing to put in “skin” if needed.
IMO, if you’re building a real estate business and want people to trust you so you can convince them to invest with you – YOU have to take some “risk” as well.
Second, it helps my co-venturer breath easier BECAUSE I can handle a “big” expense, lF for some reason they can’t come up with their portion right away. (which is usually 50%)
Wouldn’t you agree this gives me major brownie-points and helps move them along the path to working with me?
Now, I know what you’re thinking.
“Joey, if YOU put ALL the money in for the cash-call, what happens?”
In that “expensive” $2,200 real estate jv agreement I drafted, it’s addressed as a “loan” to the co-venture.
In other words…if we have a $10,000 expense and I pay for the entire thing up-front…
I’ve essentially “loaned” my co-venture his $5,000.
That means the co-venture owes me $10k on TOP of everything else I get.
When Do I Get Paid Back?
This is the next question I get.
And this all depends on how you’ve structured your real estate jv agreement.
For me, because it’s not REALLY hard cash out of my pocket, and all I’m paying is the interest on the HELOC, I made sure this situation is addressed and FAIR to all parties.
Because keep in mind this could easily be reversed – meaning that you co-venturer might be the one injecting cash into the deal.
So how I personally deal with this is the loan amount is interest bearing for the length of the loan.
That may be a few months, perhaps a year or maybe it’s not paid back at all until the property is sold or refinanced.
In that case, all the interest plus the loan amount is paid back to me at the end.
On TOP of my profit from the co-venture.
The interest is calculated however you want.
Either way, the money injected is doing BETTER than it is sitting in your bank account because it’s getting interest…
AND you’ve helped your co-venturer out of a jam.
You’re looking better now my friend!!!
So that does it…because I could go on forever here.
I hope I’ve covered enough about how to deal with a cash call in your real estate jv agreement here.
If you have any further questions, direct ‘em below and I’ll do my best to answer…even though I’m not a lawyer 🙂