I Lost $100K, 2 Friends, and 18 Months of My Life on My First Property Deal (How Not To Do It)
Today I’m going to show you how NOT to do a JV / Partnership deal.?
This partnership was my first taste of property investing and I jumped feet first into the deep end having no idea if I could swim...
If I knew back then what I do now, I would never have entered into this agreement…
Well...actually I probably would...?
But, I would make sure I fixed up one little thing that ended up losing me $100,000, two friendships and 18 months of my life.
I hope you never make the same mistake I did.
First, if it’s ok with you, a little back story of where it all started...
My Introduction To Property
I bought my first property when my oldest son had just turned one.
I had it in my head that you buy a house, raise your family in it, pay it off as quickly as possible and then live there forever.
Is that what you were always told too? Yes. I thought so...
Society had won!
I scrimped and saved all I could to get the deposit for the house.?
I sold things I didn’t need.
I moved back in with my mum.
I joined the Army reserves for extra cash.
I was determined to buy that house so I could raise my family in it.
...So when I did finally buy my first house, I felt like I had made it
Then life happened…
We ran into money troubles, our relationship broke down, and ultimately we had to sell the house.
In the four years that I owned that house capital growth had kicked in nicely and I walked away with a nice pot of cash.
And a lightbulb went off...
I had just made a heap of money by doing nothing more than buying a house, sitting on it for a while and selling it.
This really got me thinking...
I quickly realised that life isn’t what society says it should be and you don’t have to live it according to their plans.
My sons were everything to me (oh, I had another son in that fours years too) and I wanted to spend as much time with them as I could.
This is the moment I decided to do whatever I could to stick it to the 9-5 job and get into property investing.
I mean, I’d just made money on my first ever house, so how hard can it be, right?
….The overnight property mogul
My friends had just bought a house as an investment property.
Their plan was to buy, renovate, flip and make a “tonne of money” in the process.
They approached me to see if I wanted to get in on their deal.
This sounded quite attractive to me because I thought you had to keep the house for a while before selling and making money off it.
Also, I was interested in learning about buying low, adding value and then selling.
Initially, I wasn’t sure why they had approached me but I thought it had something to do with the fact that I had owned property before...
Turns out they just needed a cash injection for renovations and knew I had a bit lying around from the sale of my house.
Their proposal was this:
It seemed like a pretty good deal to me.
And I knew the area was good so I thought the property would probably make money when sold…
(I really had no idea but this was what I told myself to justify going in with them)
So I said I was in...
We all shook hands and that was that, I was now a real life property investor.
Little did I know that that handshake would be the beginning of the end.?
...Things start to get a little bit rocky
Record keeping (or lack thereof) was where things first started going downhill.
There were disagreements over how much time each of us were putting into the renovations.
I was accused of not working as many hours as the other two, which I obviously disputed, but with none of us actually keeping track of when we were working or for how long it was really hard to argue for or against.
And now, because tensions were rising, we started getting into disagreements over everything...
....whether the house would be sold or kept as a rental….
...whether we’d use high-end fixtures and fittings or standard…
...when we were wanting to put the property on the market (if we were)...
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Everything started to unravel.
I could see this freight train barreling towards me and felt like there was nothing I could do to stop it.
And I hesitated...
While I was busy doing nothing, the other two parties sought legal advice and had come up with? a new proposal for our deal (aka an agreement between the two of them).
They had decided that I would no longer be part of the deal and they wanted to get rid of me.
After all the money, time and effort that I had put into this property, they wanted me out.
They ignored everything good that we had done so far and allowed their perception of how much I worked to cloud their judgement.?
Their new proposal was this…
They would return my initial capital of $70K, plus interest, plus compensation for hours worked on the renovations…
Can you see the issue with this? Yes? I knew it…
The $70,000 was the easy part, it was quantifiable.
The interest charged, hours worked and hourly rate of pay were not quantifiable (according to them).
So yet again, we were back to disagreeing.?
...the light at the end of the tunnel...kind of
We couldn’t agree on anything and it was very much two against one so we had no choice but to go to mediation.
After 6 months of backwards and forwards through mediation, we all agreed on the interest rate, the number of hours I’d worked, and an hourly rate.
This was the worst 6 months of my life!
During this mediation process, I continued to tell them that the money wasn’t a big deal for me.
I wanted what was owed to me but what I wanted more was to maintain our friendship.
Unfortunately, I was the only one that felt that way.
Once the mediation was over, I never spoke to either of them again.
...And I was out of the deal
I know, I know…..the $100K (bear with me).
Over the next few months I kept an eye on the property (well, I had to because they were paying what I was owed out of the proceeds of the sale).
They finally finished all the renovations and got the property on the market.
SOLD!
It didn’t take long for the property to sell which was great for all of us.
I got my money back, they made their profit and we parted ways...for good
So where is the lost $100K I hear you ask?
Well, the property was initially bought for $505K.?
I put a ballpark figure of $300K total renovation costs.
The sale price on the property was $1.1 Million.
This put the total profit on the property at around $300,000
A third of which was no longer mine.
It still hurts to this day...
...things I would do differently next time
Aside from the usual property due diligence that I didn’t conduct, there are two things I have made sure to do on each and every property since.
Firstly, I would (and now do) keep records of everything - hours worked, invoices, who purchased what - EVERYTHING
This means that if there are any queries around who has done what or how long so and so spent working on the property it can easily be found and accounted for
And secondly, the most important point, the thing that cost me the $100 000 profit,?
Make sure you sign a written agreement
?at the beginning of the project
This agreement needs to outline all expectations and scenarios so everyone is on the same page from the get go.
I cannot stress this enough.
Not having the written agreement cost me $100,000 in profits, two friendships and 18 months of my life (including 6 months of super stressful mediation).
...but...it’s not all doom and gloom
Although that was a very stressful time in my life and a painful lesson to learn it is what pushed me to learn as much as I could about partnerships.
Instead of swearing off JV’s and partnerships altogether, I took the time to learn how to do it properly so all parties are taken care of.
I took all my knowledge and experience and applied it to my next purchase.
And this time, we came out on top.
If you want to learn how I went from losing $100,000 in profits on my first property to growing a multi-million dollar property business Click to Download our FREE Guide: Property-CEO 'How to Build a Seven-Figure Property Business That Runs On Autopilot'.