“You want to learn from experience, but you want to learn from other people’s experience if you can.”
STARTING THE JOINT VENTURE
We dropped him out leaving three of us to complete our company incorporation. For our protection Ann and I held 51% of the voting shares between us since we were the only ones with anything to lose. We each placed $40,000.00 in the corporate bank account for the $70,000.00 down payment, plus legal and other expenses. Neither of us had additional funds that we could easily contribute.
- When taking on a partner do thorough due diligence into the person’s background and references before agreeing to anything. Do not presume the person is an expert.
- Talk to a lawyer to determine and set up the method by which you will become partners.
- Obtain titles to all properties before or as soon as you make your conditional offer.
- Verify with the lenders on title all amounts due and whether all mortgages or second mortgages may be assumable.
- Do not trust a vendor’s verbal rent statements. Get proof.
- Request copies and review actual rental lease agreements for length and terms.
- Obtain written, signed verifications of rents and utilities from each tenant. When tenant signed verification of rents are not forthcoming in a reasonable time the vendor may have something to hide.
- Prepare a spreadsheet to list anticipated expenses and revenue, updating it as new information becomes available.
- Obtain an insurance quotation to build the numbers into your spreadsheet.
- Limit exposure to expensive lawyer’s fees by doing as much ground work as you can.
- Do you have enough contingency funds to proceed? Costs could be considerably greater than you expect.
- Conduct thorough inspections with written repair lists and obtain repair quotations to eliminate surprises prior to being committed to the purchase. Hire an inspection firm to review the property if you have any doubts at all.
- Verify through inspections whether older properties require expensive repairs.
- Obtain thorough background and credit checks of tenants with signed lease agreements or you may inherit potential problems trying to collect the rent.
- Make certain that condition reports were prepared with the tenants when they moved in. You will need these for damage verification when tenants move out or you will have to pay yourself for any damage restoration expense.
- Get assistance from a mentor if tackling something unfamiliar.
- In addition when you make a purchase offer:
- Be sure you list all of your conditions and terms to be provided by the vendor in your offer to purchase.
- Allow yourself more time than you think may be necessary to obtain the required information or to remove the conditions when buying a commercial property.
- If financing is to be obtained allow sufficient time to obtain mortgage approval. A commercial property or an apartment building will require considerably more time to remortgage than a residential purchase. It may take several months time because of the required inspections and reports.
- Let your lawyer review your agreement before it is presented to the vendor or make one of your conditions a legal review.
- Don’t be afraid to challenge your lawyer’s fees if necessary.