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Re: Partnering for an auction purchase

Posted by Ward-CA- on July 14, 2001 at 6:34 PM

In Reply to: Partnering for an auction purchase posted by todd-wa on July 12, 2001 at 9:42 AM

: I would like to partner with a person to bid on a house that will be going to auction. we are each putting up money. She wants to keep it as a rental and I would like my profit out asap if we get it.
: There is a good chance that someone may outbid us or other reasons we may not get it.

: What would be a good way to partner to keep the costs down before the auction but cover each of our interests and to get our money back out if we don't get it?

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Todd, you pose an interesting question in that the two of you have divergent interests in buying a foreclosure. You typify the typical foreclosure “flipper” who wants to immediately resell whereas your partner is a long term keeper/operator.

I had a similar deal once. A friend of mine and I bought a foreclosure to flip. Once we owned it he wanted to keep it long term and I wanted to flip it. So we figured out what the real Fair Market Value of the property was and how much gross profit there was. He got a loan on the property and paid me half of the gross profit calculation and returned my original portion of the auction bid too. He was the smart one since the house in the last five years has doubled in value.

At the foreclosure sale we directed the title of the property to be held in a title holding trust, with me acting as the trustee. We were the beneficiaries with equal shares. When I sold out I deeded the trusteeship to him and assigned to him 100% of my beneficial interest in the trust.

I would use a simple joint venture agreement delineating the formulas for determining profit splits, work assignments, duration of holding period, etc. Each of you should retain your own investment capital until you jointly buy a foreclosure property. Then I would open a mutual checking account that would hold both of your contributions to the maintenance and improvements to the property and monies sufficient to pay the annual taxes and insurance.


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