Please Help On This Development Deal!
I have recently came across a development deal that we have in the works. My partner and I have been contacted by an individual that wants to develop his acreage into buildable lots. He has 5 acres that we think will be prime for 5 1 acre lots. (One lot will have his original house on it). So, 4 new lots. He is going to put up the land, and we will carry the loan for the development from the bank. We will also be doing the majority of the developing and all the building on the lots. My question is, how does one go about finding a percentage of the profits each party will receive in a joint venture like this?? We are in the process of writing up a proposal but we are not sure what percentage each party should receive. Has anyone done a development deal similar to this? If so what agreements did you decide on and how?
Thank you
We have done this before with our company doing the infrastructure and the landowner putting up the property. Ours was a 50/50 split but our infrastructure cost were about the same as the land cost. I guess you have to look at the deal according to which party is putting up the most money & risk.
I would set it up as an LLC- the landowner contributes the value of the property as their capital contribution, the developer contributes the money. Labor is paid out of the initial profits, the balance is split based on the capital contribution of the respective members. The operating agreement spells out the details. It can be member managed so all parties retain control, or the developer can be named manager and the property owner can take a passive role and receive passive income from the project.
This is something that an attorney with tax and real estate experience should be consulted on- generally the initial consultation is free. A complex LLC agreement will run about $3000, whith most cases being considerably less. Money well spent in my opinion- an experienced attorney can forsee problems you never dreamed of and resolve them in advance.
Chris
Chris
We have a similar situation now. The developer who created the design of the project technially does not own but controls the property. He believes the land owner will put up the land for the deal. Basically, this developer, who has good experience doing mixed use developments will stay in the deal, offer expertise and act as the go between in the community. He swung the neighborhood in favor of the project.
I have private funding for construction. My question is:
if the owner puts up the land, I assume we would create a contract that allows us to take out the lots in phases, or develop and take out in phases. The land owner would retain a portion of the profits based on his land value.
Any help here would be appreciated.
KHutson
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I work for Development / GC company and we do alot of self storage. In order to answer correctly I need to know a few other things, location, zoning, etc.