No Money Down Joint Venture Property Deal Case Study (Ep289)
Ben Everingham is currently working on a no money down joint venture property deal where he hopes to make $140,000-$200,000+
Hey guys, Ryan here from onproperty.com.au, helping you find positive cash flow property.
Today, I have with me Ben Everingham from Pumped On Property, who is my number 1 recommended buyer’s agent and he is financially free. He was financially free before he was 30 through property; runs a successful business and has now done a very interesting deal where he’s actually put no money into the deal and he’s got a joint venture partner and they’re doing some development. This is going to be a very advanced strategy but something that I’m really excited to learn about and I think you guys will enjoy as well.
Ryan: Hey, Ben. Thanks for coming on today.
Ben: Thanks a lot, Ryan. Cheers for having me back.
Ryan: Alright, so, you sent me a picture of this contract that you signed. And you’re like, dude, I’ve got this deal in the works and it’s really exciting. Why don’t you outline for the audience, what is this deal? What are you hoping to achieve out of it?
Ben: Yeah, sorry about the selfie pic but I was pretty excited as you said. Basically, this deal is a duplex on the Sunshine Coast. We found an existing property which ticked certain criteria for a duplex deal. Basically, it looks like on paper, an existing 3-bedroom, 1-bathroom house on a pretty solid piece of land. We’re going to renovate that existing house, cut the block in half, build a 4-bedroom, 2-bathroom house on the back of the block. And then, after they’re both completed, strata title that deal and that’s basically called a duplex deal.
So from a numbers perspective, I think, worst case scenario, there’s about $140,000 in the deal on completion, net profit. Best case scenario, there might be sort of upwards of $200,000 on that one.
Ryan: That’s not too bad when you say the worst case scenario is going to be $140,000. With a deal like this one, before we get into how you manage to get a joint venture partner and stuff like that, how did you go about finding a block that you can do this? Did it take a lot of research? What does the block size need to be? What sort of things did you need to look for?
Ben: I basically reached out to a builder in my network. It was actually on the way back from the [inaudible 2:21] conference. And just said to him, I’m looking for a deal to do where I can make over $100,000 equity on completion. Do you know anything on the Sunshine Coast that would fit that criteria or in any other market? Because he works across [inaudible 2:38] markets in Queensland. And basically, he said, there’s a particular type of duplex on the Sunshine Coast.
I won’t go into absolutely all of the detail of that. But in a nutshell, it was a block over 800 sqm with an existing property on the front 400 sqm of the block. The only other criteria was basically, which he said to me was, you needed to be able to sell the existing house for within after – say it was a 800-sqm block and you cut it into a 400-sqm block. You needed to be still able to sell the existing house on the front of the block for within $100,000 of the price that you originally paid for it. So, say I paid $400,000 for it, I had to be able to sell that house with half the land size for within $300,000 to $400,000.
Based on this deal, we were actually able to sell the existing house for almost exactly what we’re going to buy it for. Which means, it’s just a bit more fat in this deal.
Ryan: So how do you work that out? Okay, I understand like the criteria, like 800-sqm block, that makes sense. The existing house needs to be on the front 400 sqm, which you could work out just by using something like Google Maps, Google Earth or whatever from the satellite view. But then how do you work out, if I go ahead and sell this property, how do you work out that it’s going to be $100,000 less or it’s going to be the same amount as what you purchased the entire block for?
Ben: So, basically, he uses that as a rule of thumb. So, all the way across this industry, as you know by now, basically, people do preliminary feasibilities just to – as a rule of thumb, to wipe out the 99% of properties that don’t actually fit the criteria. So he just calls it the $100,000 rule of thumb and if you can basically sell the existing house you picked for within $100,000 and a 400-sqm piece of land in the area might be worth $250,000. You know you’ve just made $150,000 straight up on the land. So that’s just his general rule of thumb for, I suppose, assessing sites.
Ryan: How do you work that out, though? How do you work out, if I sell this property, I now it’s going to be worth this. Do you go to a valuer?
Ben: Oh, sorry. So, in terms of that, we basically just jump straight on to RP Data or Real Estate Investar and we’ll actually look at all recent sales, histories within a 500-meter radius of that particular property. So, again, you can just see what similar style homes, similar renovated homes, similar houses on similar pieces of land have sold for in the last 2 years. I like to look at data from the last 6 months. And then, we’ll also reach out and call maybe 5 or 6 local agents and go, based on us doing this to this property, what’s the existing property going to be worth and what’s the brand new build property at the end of completion going to be worth? And we’ll use a combination of that data to actually formulate a worst case scenario and that’s how we do our feasibility.
Ryan: Okay. So you’re using Real Estate Investar, which is a paid tool or what was that other one?
Ben: RP Data.
Ryan: RP Data to look at the similar properties that have sold in the are on similar blocks of land to get an idea for what it sells for and then you’re also contacting real estate agents to say, hey, if we split this block and if we did this renovation that we’re thinking about to this property, how much would it sell for? And that’s how you work out that $100,000 rule and how you work out, I guess, your whole situation.
Ben: Exactly. For people that don’t want to pay for RP Data or Real Estate Investar, you can jump on things like On The House and, obviously, find that information for free or you can even jump on realestate.com/soldhistory and have a look there as well.
Ryan: Yeah, but I think, if someone’s going to be doing an advanced deal like this, trying to make $100,000 or $200,000 and you’re going to skimp on a couple hundred for the monthly fee for one of these services, I think you’re in the wrong head space. Yeah, I want to make $200,000 but I do not want to spend $200. That’s just way too much for me.
I think if you are going to go down this advanced route, there are monthly options for a lot of these services that you can pay if you don’t want to sign up long term. So, definitely consider that.
Ben: They really help.
Ryan: Yeah. They’re good. Okay, so, now let’s talk about – this deal just goes over my head so I’m just trying to understand it. But let’s talk about how you went about financing the deal. Because from my understanding, you put little or no money into this deal, is that right?
Ben: Yeah. Correct. So, basically, this is what I’d call sort of a no-money-down deal. I’ve literally haven’t pulled a cent out of my own pocket. The way that I was able to make that happen was to identify a high-wealth individual on the Sunshine Coast that builds a significant amount of property and I reached out to him to ask him what sort of deal he would do if he was looking for something over $100,000. And then at the end of the conversation, I said, look, I’m obviously learning to cut my teeth on something like this, would you be interested? I was just a bit jokey and said, would you be interested in financing the deal if I can find the right opportunity and basically bring it to you and just hand-feed the deal to you? And he said, if you can bring me a deal where I’m to make $140,000 to $200,000, he said, I’ll happily finance it for you if I don’t have to do any work.
So, based on that conversation, he told me exactly what to look for, which was the duplex opportunity. And then, it took me 2 weeks to find the deal. So, I basically emailed about 60 real estate agents on the Sunshine Coast. One of them came back with an off-market opportunity. Unfortunately, it was a couple that were getting divorced and were really, really motivated to sell the property. And we probably picked it up for $50,000 below what it was actually worth.
Ryan: Okay. So, did you guys go – If someone’s going into joint venture deals – because a lot of people are interested in no-money-down deals. They are interested in pursuing these joint venture opportunities. If you’re not putting in money – you’re putting in, obviously, skills and sweat equity and stuff like that. How do you work out the end result? How do you work out the financials? What are you liable for? How do you account the profit? How do you know what you’re going to get? All that sort of stuff.
Ben: Really good questions. Obviously, I bought property before and built property and sold it before with friends and things like that. But I’ve never gone into a deal like this where it’s purely a business relationship. So, basically, we sat down together and just said – he basically said straight to me, he’s like, I don’t need you to do this deal in any way. He owns a building company, he’s got all the money, he’s got all the contacts. He said, what I’ll do –
Ryan: So you weren’t in a strong negotiating position then?
Ben: I was in no position to negotiate and he basically said to me – I basically said at the end of the conversation, what percentage, what are we going for here? And I thought he was going to say, I’ll give you 20%, I’ll take 80%. But he said, we’ll just do 50-50 if you find the deal for me.
So the first step on any one of these sorts of opportunities is to basically sit down with the person, go, what are you going to do and what am I going to do in the deal? So he is financing the deal, I was finding the deal. He’s building the deal, I’m helping project-manage the deal. He is obviously controlling the cost on the job and I’m helping sell the properties at the end of the process.
So from that perspective, it’s not a balanced relationship in any way. But I was still looking for ways that I could take some of the load off him and actually support him. And then, sort of was already begin positioning after the first deal that, you know, is this something you’d be interested in doing again? And, how can we make this work as a sort of business type thing? So, he’s taking me under his wing a little bit and training me through the process.
So, I suppose that’s the first step – identifying roles. Second step is definitely sitting down together after you’ve found a deal that’s worth actually looking at and doing a full feasibility. So we got together, we got a basic spreadsheet together, all of the cost in. Based on my research, what I estimate the projected profit margin to be, we agreed on that. After we’d agreed on that, I went to a solicitor and basically said, here’s an informal agreement based on our roles, based on the feasibility, based on the property we’re going to purchase. Can you just write up a simple agreement in legal terms? Which we both signed off on. After I had that document signed off, we went and put a contract on the property. Obviously, using his money and it took about a week to negotiate with the agent back and forth on price and terms. Because we obviously wanted favorable terms as well.
Ryan: Okay, so let’s go into like – so you’ve gone 50-50 on the deal and you’ve got a solicitor in order to negotiate this. What happens, like let’s say that the area tanks or something like that and you can’t sell the properties for a profit and you’re going to make a loss. What happens in your worst case scenario when you’re not actually going to make money?
Ben: So the worst case scenario for us, like we’ve basically identified criteria that we will want to move in to a deal on. So for us to go in to a deal we need the project to make at least the 20% net profit margin. So we will scrap any deal below that. And that’s from if the market’s buoyant and we can re-sell the property, there’s 20%. If the market’s not buoyant, basically, there’s a rule of thumb that the combined rental yield on the combined loans on the properties has to be above 7.5%. So that gives you your 5% that you’re paying to the banks plus 2.5% of holding cost. So that’s the rule of thumb that he uses and that’s what we’ve gone into this project with so that this project ticks both those criteria. Worst case scenario we get caught holding both properties, there’s a 7.5% rental yield on them anyway. Which is extremely solid on Sunshine Coast.
Ryan: And then what do you do with that rental yield? Do you split that 50-50 or like, I guess, it pays for cost and goes into a holding account until you sell the properties or something?
Ben: Exactly, yeah. This is probably bad but I don’t see it going down that path. That would be a worst case scenario.
Ryan: Yeah. I don’t think anyone would go into a deal like this and foresee it going down that path. It’s more just trying to work out. Because I think for a lot of joint venture deals and stuff like that, if they go well and they go as planned, no one’s going to have any issues. But it’s kind of when things don’t go as planned that people are going to have issues and you’re going to lose friendships, end up in court or something like that if you don’t work this stuff out first.
That’s what I was trying to work out, okay, what do people do if the S hits the fan and the properties are worth less than what they paid for it, what do they do? That’s a good idea, to get enough rental coming in in order to support the properties until the market bounces or whatever.
Ben: I think that’s a really important point you just made. The money is made on this deal is made 100% on the way in. And every single good development deal, the money is made the day you go in. So we estimated that we could re-sell the existing property renovated for $380,000, which is $20,000 below market value. We estimated that we could sell the brand new property for $450,000 where the agents recommended that we could sell it for $550,000. So we’re looking at the numbers based on if we have to fire sale this property, what’s the minimum number that we’ll actually take on board. And so, through both of our channels, we’ll obviously marketing the properties well before completion and give ourselves a good 3-month period because the average days on market in that suburb is about 55 days. So we’ll give ourselves double that time to move the properties on.
Ryan: Yeah. Okay. So you’re going into it with conservative outlook. You’re not one of those people who’s going in saying, yeah, like here’s the top of the market and we’re going sell for this price above the top of the market. You weren’t aiming like real estate like [inaudible 15:39] shows and stuff like that, they’re always talking like that. Like, I’m going to sell it for more than any house has ever sold on this street. That’s good to see.
When it comes down to managing the project and doing the renovation and stuff like that, the joint venture partner you got is from a building company. So is he going to run all that?
Ben: Basically, yeah, he will. From the point that we formally settle on the property, he will take control. So, he will get the engineers involved; he’ll obviously get the town planners involved; he will do the build and we just negotiated that he will do the build at cost plus 16%. Which is about 10% less than he would do a regular build for any mum and dad. So, there’s obviously still money for him to make from that side of things as well. And that was one of the sweetness in terms of him obviously getting that build for us.
Ryan: So it’s even a better deal for him because he gets a building contract out of it, which helps his business as well.
Ben: Exactly. It’s $250,000 home and he’s making 16% and now on top of his $100,000 he’s putting on his pocket, he’s also getting the cost of the build.
Ryan: Sounds not too much of a bad business.
Ben: Yup. On the flip side, obviously, I’ve got my real estate license. So, it enabled me to – I’ll sell properties and we’ll also put $30,000 fat into the back of the deal as house commissions as well. So, if S really hit the fan, as you said before, we could potentially look at wiping out the sales coms, wiping out the building coms and there’s an easy way to find an extra $70,000 or $80,000 in the deal.
Ryan: Yup. Okay. So, the other thing that if someone wanted to do this deal that they would need to go through is actually the subdivision of the block. I actually get asked about subdivisions a lot; how to do them, how much they cost and that sort of stuff. Do you have experience with subdivisions?
Ben: I don’t have any experience with subdivisions. That was why I reached out to a money partner with actual tangible skills as well so he can hold my hand through it.
Ryan: Yeah. I’m just amazed you got this deal through. Because most people would go – you’re obviously a seasoned property investor. Generally, someone would expect if you’re going to do a joint venture deal that you would go to someone with money, without property experience and say, look, I’ve got the property experience. I’ll find the deal and manage it and you put in the money and we’ll go 50-50.
But you just flipped it on its head and gone to someone else who has property experience. He knows how to manage the whole thing and you somehow convinced him to go 50-50. I’m very impressed.
Ben: Thanks. But yeah, he’s just a good bloke and he was a young guy once as well. He made a lot of money in the early 2000’s because of a really buoyant property market. And now, he’s sort of close to 40 years of age. I think at that stage of life where he likes working with other young guys that are sort of happy to help out and happy to learn the process. Because he knows if we do one or two of these deals together, I’ll learn and I’ll be able to manage them for him and then he’ll just be making a passive income or another passive income stream from somebody else working for him.
Ryan: Yeah. I guess from his standpoint, researching the deal and all of that sort of stuff, he might not have time to do that; which means it wouldn’t get started in the first place. So him aligning himself with you does make a lot of sense. I think you’re going big places. So anyone that aligns themselves with you is going to do really well.
I don’t know if there’s anything else that we need to cover in this. Look, this is an advanced strategy, you do need to know what you’re doing in order to get into this because there is a lot more risk than other things. You need to get a solicitor involved to ensure that you know what’s going to happen if things go well; if things go bad. And then you also would need experience – a standard person would need experience with subdivision; with building a property and stuff like that.
What would you say to people who don’t actually have experience in subdivision and building if they wanted to pursue a deal like this? Do you think it’s possible?
Ben: To be honest, with you, this is the 8th and 9th properties I’ve bought in a 5-year period of time. So, I would say to people, go and cut your teeth on some high growth quality properties that are neutrally [inaudible 20:02]. Learn the process, learn about the contracts, learn how to find good deals. I also renovated 3 properties before I did this deal. You know, do something that’s less risky, build up a strong equity position because you obviously need money or need a money partner to do something like this.
And then after you’ve cut your teeth, maybe bought and renovated a couple of properties and built a property; once you’ve got $200,000 equity, maybe this is the right sort of strategy as a next step to begin making chunks of cash and also higher rental returns and things like that.
Ryan: So maybe this is a strategy for people who have equity that they’re willing to spend rather than people who want to cut their teeth on a joint venture.
Ben: Yeah. This is definitely more of that sort of strategy.
Ryan: What about the liability on the loan? Who does that fall to? Because you’re not putting any money in, are you also taking on that liability?
Ben: No. 100% of the liability, he’s getting the loan 100% in one of his trust names. So the liability for the loan and the serviceability falls 100% with him. All we did there was he’s getting money for 4.5% and he’s charging us 6.5%. For the deposit that he’s putting in, he’s also charging us a further 6%. These are all little ways to make it more meaningful for him throughout the deal as well. He gets his little bits and pieces all the way through.
Ryan: What do you mean charging you 6%? I don’t understand what that means.
Ben: So, part of the deal, obviously, he’s got to come up with the deposit. He can come up with that deposit as equity or cash. He’s coming up with it as cash. So if he’s putting down a 10% deposit, say, on a $400,000 deal or $40,000. Basically, until the completion of construction and we sell the deal, he would charge us –
Ryan: Charge you.
Ben: Yeah, charge like from the net profit in the deal, 6% on that $40,000 per annum. So, if it takes us 12 months to do, he will get his $40,000 back at the end of the deal plus he’ll get 6% on top of that.
Ryan: So it’s kind of like a loan but not really.
Ben: It’s exactly like a loan. Like a bank loan except an informal one between him and I.
Ryan: So in terms of the contract, are both your names on the contract? Or have you set it that a trust has purchased this property and you’re both beneficiaries of the trust or something?
Ben: Basically, his trust has purchased this property. In the agreement that was written up between our solicitors, his trust will just distribute money to one of my trusts and that money will be 50% of the net profit at the very end of the deal.
Ryan: Okay. So, if anyone wants to do that, see an accountant.
Ben: See an accountant.
Ryan: Because a good property accountant should be able to help you setup those structures and to make sure that everything goes through.
Ben: So easily.
Ryan: Yeah, well, that’s awesome! Thanks for sharing this with us. I’m keen to get you back on once it’s been done.
Ben: I might be crying.
Ryan: How did it go? What went well? How did you end up? Because I think even though this is an advanced strategy, for someone who owns property, who has equity and who wants to get some chunks of cash or who wants to do something a bit more advanced, then something like a duplex deal could be really exciting to them. And buying an existing property, subdivide it, build on the back, I’d love to get your experience on the matter once you’ve done it.
Ben: Awesome. No problems, mate. I look forward to hopefully having a good story to tell you.
Ryan: Yeah. And it’ll be good to tell your clients as well. Like, when you do strategy sessions with people and say, look, he’re what I’ve done, and stuff like that. Let’s just talk quickly about your buyer’s agency service for people who don’t know about it and who are looking for a buyer’s agent. You’re my number one recommended buyer’s agent. And I do always recommend people to you. As a lot of people know, this industry can be really dodgy so I’m very happy to have someone that I trust. Do you want to talk about your services and what you’re offering at the moment?
Ben: Yeah. Basically, we offer buyer’s agency service. We help a handful of clients a month to either purchase quality existing properties in decent areas. Or we help people build brand new properties in quality areas. So, the sweet spot for us is really properties in the $500,000 with neutral or neutral from a cash flow perspective. We really just sit down with you, identify where you are, exactly where you want to go and then give you a map for the next 5 years of exactly how to achieve what it is you’re looking to achieve. So, it’s a lot of fun. Obviously, we don’t take ourselves too seriously and we have a good time doing what we do. Similar to Ryan, we sort of created a community of like-minded people that all want to basically replace their income through property investing over the next 10 years and that’s what we really specialize in doing.
Ryan: So, at the moment, are you specializing in just the buy and hold strategy for people? Like buy a property in a good area with a good rental return and then sit on it and buy another one later?
Ben: That’s exactly the strategy that I specialize in for my clients and that’s the strategy that myself and my fiance, Lis, personally use to actually achieve what we’ve achieved over the last 5 years as well. So, it’s something that I’ve definitely rinsed and repeated until basically we were I believe at age 29. And it’s something that I want to help other people do. I’m passionate about helping young people actually achieve that financial independence. So that they can do cool stuff that we’re both getting to do.
Ryan: Yeah. I think it’s good because the last episode that we did together, we talked about income replacement and that giving you the freedom of time to then go and pursue real wealth and go and pursue businesses or other deals. It’s interesting to see now you’re doing that not just in your business but in property as well. You’ve achieved this baseline financial freedom through a fairly, I would say, conservative strategy. It’s not super risky strategy, going after big bucks or anything. It’s just buy, hold and increase in value over time. You’ve achieved that baseline and then now you’re going out and doing these bigger deals and stuff like that.
I think that’s a good model for a lot of people. They may look at this and go, oh my goodness, what he’s done, sounds really exciting. Or they might say it sounds really hard. For people who haven’t yet done a few deals, haven’t yet achieved financial freedom, a more conservative strategy may better for them.
But they can check you out. You guys can go to pumpedonproperty.com and you can get a free strategy session with Ben or his team over there and he’ll talk you through how you can get from where you are now to where you want to be. He’ll talk about their services and stuff like that. And if you let him know that you can from Ryan at On Property, I will get a referral fee for that. Just so that you guys know.
Alright, let’s close it out there. We are going to be back talking about dual occupancies and how to go through the process of doing a dual occupancy. So Ben’s done this a couple of times. I’m excited to talk about that.
Ben: Thanks so much, mate. Have a great day.
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