negative2positive Joint Venture Example
We use a Joint Venture (JV) agreement to detail the negative2positive process. In overview it works like this:
1. We agree on a minimum price you need to receive from your property, e.g. $300,000.
2. We agree to share any profit above the agreed minimum price, i.e. in this example, we agree to share any profit above $300,000.
3. The property is then sold for a higher price with an Instalment Contract. The government recognise an Instalment Contact sale as a real sale and pay the FHOG to eligible first home buyers. This gives our buyers confidence in the whole process.
4. This Instalment Contract sale is structured so it generates, say, $500 per month positive cash flow, after all expenses on the property are paid.
5. It is expected that the vendor finance buyers will refinance into a traditional home loan in two to four years, thus completing the sale.
There are three points in this transaction were our Joint Venture would receive money:
a. The vendor finance buyers must pay a deposit, usually somewhere between $10,000 and $20,000. This is split 50/50 between you and us.
b. The $500 positive monthly cash flow. This is split 50/50 between you and us.
c. The back end profit. This is the difference between your minimum price (in point 1) minus the vendor finance selling price (in point 3). Less what the vendor finance buyers pay off their home loan, while they’re with us. This is split 50/50 between you and us.
The National Credit Code came into being on 1 July 2010. The new Code requires these transactions to be administered as per the Code throughout the life of the transaction and this administration is quite detailed. As a result we administer the complete transaction through our associate company Vendor Finanace Management.