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The typical joint venture goes something like this: Investor approaches GAP FUNDING PARTNER and presents the investment opportunity and offers the GAP FUNDING PARTNER a portion of the profits when the property sells (sometimes this includes interest). The Investor will be in control of the project and will obtain a loan from the HARD MONEY LENDER. To memorialize the deal the Investor will present the GAP FUNDING PARTNER with a real estate joint venture agreement that explains the overall deal. Herein is where problems sometimes begin to arise.

Problem #1 – When investor attempts to borrow from HARD MONEY LENDER he is asked for proof of funds i.e., where did he get the money for the down payment. When HARD MONEY LENDER learns, the funds are coming from GAP FUNDING PARTNER, HARD MONEY LENDER requires GAP FUNDING PARTNER to go on the loan.

Problem#2 – GAP FUNDING PARTNER is reluctant to go on the loan because GAP FUNDING PARTNER is not on title. Typically title is held in Investor’s LLC or corporation so GAP FUNDING PARTNER is asked to take on full financial liability without any direct ownership.

Problem #3 – HARD MONEY LENDER will not allow Investor to give GAP FUNDING PARTNER a second deed of trust for his investment into the deal.

Problem #4 – GAP FUNDING PARTNER is typically in the dark as to what is happening with the project and if the project goes off track GAP FUNDING PARTNER will not find out until it is too late and HARD MONEY LENDER is foreclosing.

Problem #5 – Opposite of #4 because GAP FUNDING PARTNER decides to pull out of the project and will not commit to fully funding. The investor is then left in the position of not being able to complete the project.

To solve these issues dispense with the joint venture agreement and create a joint venture limited liability company. The JV LLC solves all of the aforementioned problems as follows:
Problem #1 – Funds are no longer an issue for HARD MONEY LENDER because Investor and GAP FUNDING PARTNER are members in the JV LLC that is purchasing the property.

Problem #2 – GAP FUNDING PARTNER is willing to go on the loan because GAP FUNDING PARTNER is an owner in the property through the JV LLC.

Problem #3 – No longer need a 2nd deed of trust because GAP FUNDING PARTNER is an owner i.e., he has security.

Problem #4 – GAP FUNDING PARTNER will be part of the decision-making process because he is a manager in the JV LLC and he is on the loan so he will get an immediate notice from HARD MONEY LENDER if a payment is missed or the project is not on track.

Problem #5 – Investor has less risk of GAP FUNDING PARTNER pulling out of the deal because if GAP FUNDING PARTNER puts the project in jeopardy he is personally liable on the loan.

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