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Tag Archives: Joint Venture

Legal Entities

Cthulhu Rising Painting

“Here there be monsters” and because of that you must learn the right way to work with other people and cover your assets. The right way for you.

Given the subject of this post, it’s time for me to reiterate the standard disclaimer in the footer of this site. Neither I, nor any member of Hermit Haus Redevelopment, is a lawyer or a CPA. This site contains our perception of our experiences in the real estate redevelopment business. Nothing we say should be construed as legal or financial advice.

Last year, we (Hermit Haus Redevelopment, LLC) formed a joint venture with our friend Larry Andress’ company (Andress & Three, LLC) to work on the Ash House. Since then we expanded that agreement to renovate the St. John house, and we’re looking forward to doing more work together. Working with other investors splits the profits, but it also spreads the risks and enables both partners to do more deals.

Earlier this year, our accountant said we were doing enough work together that the JV agreement would no longer suffice, from their point of view. They recommended forming a general partnership because of the ongoing investment relationship. When I spoke with my attorney about this issue, he agreed but added, “The standard attorney response is that if you’re going to form a partnership and have an ongoing relationship, you should probably form another LLC to cover your assets.” That got me started thinking about the costs of forming and maintaining these various forms of entities. I’ve summarized my research in the table below as I’ve gone. (I’ve been working on this post for awhile.)

Comparison of Joint Ventures, General Partnerships, and LLC
Consideration JV GP LLC
How expensive is it to establish in Texas? < $500 TBD > $700
Does it shield the owners’ assets against liabilities incurred by the entity? No No Yes
Do it have its own set of books? Recommended Required Required
Can it have a separate bank account? Recommended Required Required
Does it have its own tax ID and tax filings? Not required TBD Yes
How difficult is it to terminate the entity? Specific use and usually self-terminate TBD Very
 Does it file its own federal tax return? No, pass-through No, pass-through Only if it files as an S-Corp

So what is the correct structure for you? It depends on what you’re doing and how long you intend to continue doing it. You need good advice for your individual situation. Talk to your lawyer and your CPA. In fact, talk to more than one of each and then make up your own mind.

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A Joint Venture in San Antonio?

Two Dumpsters in front of St. John

Yes, there are two dumpsters in front of the house. The GC for this project actually filled and hauled off three dumpsters before she could safely start work.

Yes, we work anywhere we can find the right deal. Even as far away as San Antonio—where the newest deal brought to us by our friend and joint venturer Larry is located.

St. John’s house isn’t really a hoarder house. It’s just been very neglected for a very long time. It may be the dirtiest house we’ve attempted to redevelop to date. I’m glad Larry is taking the lead on this one.

I should have more pictures later this week when I go to see it first hand for the first time.

This house is in an area that is undergoing substantial gentrification. Several houses with a few blocks and on the same street have been bulldozed to make room for McMansions. We won’t go that far with this house, but the house won’t be recognizably the same when we’re done.

So What Is a Joint Venture Any Way?

Simply put, a joint venture is a contractual arrangement between two or more entities (people, corporations, or some combination) to undertake a specific project through a Joint Venture Agreement (JVA). The JVA specifies how much each entity is responsible for the project in terms of money, time, or effort. In real estate redevelopment or construction, joint ventures often enable the venturers to pursue more or different deals than they could on their own.

fistbump

A successful joint venture is a win-win.

In this case, the joint venture is between Hermit Haus Redevelopment, LLC and Andress & Three, LLC.

When Hermit Haus enters into a joint venture with another company, we always spell out who is responsible for managing the project and who is responsible for managing the money. Since there is considerable overlap between these two responsibilities, we end up with some level of checks and balances.

We split the costs and rewards evenly between the venturers. The JVA states that the money manager has to publish state of the venture reports at least once a month. That way the venturers all have an opportunity to see where the money is going and with more eyes, the project, hopefully, has a better chance of success.

Is joint venturing with other investors the way to go for you? Maybe. There are a lot of considerations, and only you can decide for you. And as with any legally binding contract, have your own lawyer look over the contracts before signing.

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