The Hustle, The Muscle, And The Money with Co-Host Robert Orfino

TRE 62 | Joint Ventures


Some people think that going into joint ventures is a way around SEC. Think again. In this episode, Robert Orfino dissects the parts of a joint venture to help you fully understand the roles and responsibilities associated with being in one. He also touches on funding strategies, insurance, and getting things on paper. With an accurate mindset, you can appreciate why being in a joint venture is better than a partnership.

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The Hustle, The Muscle, And The Money with Co-Host Robert Orfino

The Hustle

We’re going to talk about joint ventures. You’ve got to be careful when you start saying joint ventures because some people think it’s a very clever way to get around SEC regulations. I’m going to take money from California. I’m going to put people to work here in Texas and I’m going to call them all joint venture partners. That’s not how it works. A passive investment is regulated by the SEC. There are three areas to JV partnership. I call it the hustle, the muscle and the money. The hustle is the guy or the woman who’s out there and they’re finding the deals. “I got a great deal. I found a perfect deal. This deal is awesome. I got it at $0.60 on the dollar. It’s going to crank and it’s going to make a lot of money. It’s a buy and hold. It’s great apartment deals, Airbnb or storage unit. We can do ground up or whatever it is. Someone’s out there hustling trying to find that deal. There are lots of people that do the hustle. We love those people. They bring us deals. They direct message us and they text us at (281) 401-9008. They email us deals, “We’ve got this. There’s a whisper price on this. I have this idea that this might be for sale. I’m pretty sure this is going to be coming up.” They throw it out there. That’s the hustle. We need them. Typically, they don’t have the other two bits or parts of this whole program. They don’t have the muscle.

The Muscle

The muscle is a person who’s, “I’ve done this before. I can carry this heavy load. I can lift this up. I can turn it from a piece of dirt into a $1 million town house. I’m the muscle. I figured out how to do that. I have the experience.” Those people are out there too but typically, they’re involved every day doing the deal. I’ve got a good friend, Travis. He’s the muscle. He builds houses. He runs construction companies. He’s at it every single day. He doesn’t have time for the hustle because he’s the muscle. I’m like, “What are you working on, Travis?” “I got seven new ground ups going and my three companies are still running.” The next month it’s the same, “What are you working on?” “I’ve got a little development I’m doing. It’s going to be a twelve-home gated community. I love it and it’s great.” He’s constantly building and doing. We have an arm of that within Mr. Texas Real Estate. You see us running around doing the Airbnb, scouting projects and doing construction. We’ve got foundation work happening and then next, the roof comes in. After that, we’ll finish out the demo and do a little bit of framing we have to do. We’ll move all this stuff. That’s the machine that keeps going. That’s the flipping part of it. That’s the building part of it. That’s the renovating. Even finding all the tenants, “I’m good at finding 30 great tenants for your apartment buildings.” That’s the muscle.

The Money

There’s the money. The money is the money. Typically, when we talk about joint ventures, we can go one of three or four different ways. The easiest is to find someone who has the money and loan it to you and that’s fine. If you have a private lender who does 100%, you’re good to go. I know that all hard money lenders will say, “We only need 10% down,” but that’s not what they’re looking for. They’re looking for about 30% of the deal. That’s the reality of it. They want to make sure you have funds, you have reserves, you can get the construction started and you have your taxes paid. 10% down on a $90,000 house and you think you’re only bringing $9,000 but in reality, you probably have to bring $40,000.

You’ve got someone who did the hustle. “I found this great deal. It’s in the Heights at $137,000. I got a construction guy who comes along and he says he can do that work.” It’s $100,000. You go to a hard money lender, he looks at it and he says, “This is a great deal, 65% ARV. We’re all good, but I still need 10% down. That’s a pretty big number on the construction. I’ll need to see at least $25,000 down.” That’s 25% of that. You’re now in for $35,000 and your closing costs, your taxes, your insurance and all that stuff. We’re looking at about $56,000 to do this deal. They just want to see if you have $56,000. They may not make you sign it over at closing. Some hard money lenders will make you sign everything over when you’re new, some don’t. The money needs to be there.

Some people think doing joint ventures is a very clever way to get around SEC regulations. Be careful. Click To Tweet

We’ve gone into hard money lending over and over on the show. We’ll do it again. It’s a very popular topic. You’ve got to get someone to do either the gap funding or come in for 100%. You need the money. There’s always money that needs to come. It will never all come from an institution. Call it skin in the game. You may find a private lender. They may give you 100%, but they want to see that deal solid. They want to know that the people that are doing the muscle part of it have experience. They could care less about the hustle guy. “I don’t need to know where this deal is. It’s in escrow. It’s on their contract. Good. I need to know about the muscle.”

Those are three areas that I consider important for a joint venture: the hustle, the muscle and the money. Each of those is very important. It’s like a relief pitcher. Why does a good relief pitcher get paid sometimes more than a starting pitcher, even though the starting pitcher is going to go six innings? There are two other pitchers in the middle that are going to go another two innings and then you bring in the closer for the final inning. Because you can’t win the game without all those guys. It’s the same thing here. You can’t get this deal done without the hustle, the muscle and the money. This plays an important part in getting all this together.

You’ve got to be a little bit wary. Here’s the big thing. We had Jillian on and she talked about being careful when you’re raising money. The money part of it becomes a little bit tricky especially if you’re bringing money in from other states, which is what this show is about. I’m Mr. California investor and Jason is Mr. Texas Real Estate. Our concept is to bring pipeline money from California into this marketplace that we can buy $100 million worth of property. The secret is out of the bag. That’s been the plan for about several months now. When you bring that money across state line, now you’re subject to federal regulations.

Some people call it a joint venture when they don’t know how to syndicate, meaning they’ll get three or four people together, put them all into an LLC and call it a joint venture. You have to be careful. There are a lot of rules and regulations and it has to pass the sniff test. If you’re soliciting for joint ventures, that’s weird because joint ventures are usually done by people with pre-existing relationships. It’s hard to go out there and say, “I want to do a joint venture with someone” and not know who those someones are or who your target is. You have to be careful. They have to be in your circle. It’s okay to do a joint venture with people you’ve met at the REIA clubs over and over, people that you’ve been in classes with. That happens every day.

Detail The Deal

When you go out there and you post something on Facebook, “Who wants to joint venture with me on a deal in San Leon? It’s only $50,000.” That’s a problem. You can’t do that, even though we see people do it all the time. Be careful on the money side. What’s it worth to bring the money? What’s it worth to be the muscle? What’s it worth to bring the hustle. It’s three easy things. To me, it’s a third each. If I bring the deal, I’m in for a third. If I bring the money, I’m in for a third. If I’m doing the deal and I’ve got the muscle, I’m in for a third. We also have to be careful and understand. “I’m the muscle. I have a construction company and I’m a contractor.” If you come to me and say, “I want to joint venture with you on a deal?” Does that mean that I do my construction at no profit? Do I reduce my overhead?” That’s a conversation you have to have.

TRE 62 | Joint Ventures
Joint Ventures: Hard money lenders always want to make sure you have funds or reserves, you can get the construction started, and you have your taxes paid.


I did a video. Go back on Facebook and find it. It’s called “Why your numbers are wrong.” We talked about the difference between a handyman, a paper contractor and a full GC. There’s overhead in those last two. Joint venturing with a handyman is easy. He’s used to giving his labor in and that’s good. You get a handyman and do a joint venture. I’m going to give you sweat equity and you’re going to bring the money. Maybe in that scenario, you’re 50/50. Here’s the deal. You have to discuss this and know it from the beginning. Go to dinner, go to lunch, sit down, bring out the notepad and write down what’s going to happen.

Typically, the muscle is saying, “I run a 23% overhead. I cannot go off that number. I’ve got people in the office. I’ve got trucks, insurance, an office and a warehouse space. Those are my overhead. If you’re asking me to take a pay cut, I’m not interested.” I think that’s fair. We do it sometimes and we say, “We got a friend of ours looking for $40,000 on this deal. Who wants to kick in $5,000 each?” That’s fine. Someone might want to get paid for organizing that or if it’s even a bigger one, someone does a syndication deal. They for sure want to get paid on that. It’s a lot of work and a lot of time required.

We have to be careful when you’re doing joint ventures to assume that people are going to do things for free because they’re part of the joint venture. That’s a conversation you must have. The other thing is to be fair on these things. If I’m the hustle, I find a deal and someone comes to me with the money, we outsource to the middle like we’re going to hire Fast Track, you’re 50/50. If I’m the hustle and someone’s the muscle and Jet Lending says, “We’ll do everything. It’s going to cost you $10,000 out of pocket,” then it’s 50/50.” Maybe you both pony up $5,000. It’s not a huge sum of money. When we talked joint ventures, we talk about who got the deal, who’s going to do the deal, who’s funding the deal. It’s the hustle, the muscle and the money.

It’s important to sit down and have those things. Here’s why I love joint ventures versus partnerships even though I am fully in bed with my partner at this point. We are 50/50 on a lot of things and 20/20, 30/30 all over the place with different other stuff. For these types of things, joint ventures from people that you’re going to meet, you’re going to work with and you may be testing, probing and figuring things out. A joint venture is a great opportunity because typically, a joint venture has a deadline. It has a completion date. We’re going to joint venture until we sell this house. After that, we’ll take our money and we go our own ways. If we liked working together, maybe we’ll work together with some more. If we hate each other’s guts then we’re done. That’s another important part when you talking about joint venture, when does this end?

Don't assume that people are going to do things for free just because they are part of your joint venture. Click To Tweet

I’ve made some mistakes taking on partners. I don’t want to do that anymore. Let’s joint venture. Let’s give this a two-year run and see what happens after two years. At that point, we can liquidate. You can buy me out. I can buy you out and have all these end-of-life clauses and now we can move on. We’ve defined who gets paid for doing what and how much you’re getting paid for doing it. We have an end date. That’s possible. Here’s the biggest thing, any partnership, any joint venture, anytime you’re working with anyone, you must have the conversation very early in the process. What happens when it hits the fan? What happens when it all goes sideways? You can argue, be angry, pester, cajole, threaten, you can do all those things. If it’s already in writing, then it’s simple. We said this was going to happen. We all agreed on this.

You’ve got to do your research on mediation versus binding arbitration. What happens on these small businesses is that we’ve got one small business and there’s nothing there. You’ve got a deal that you’re now $20,000 in the hole on. There’s nothing there. You hope there’s something there, but there’s nothing there. The last thing you want to do is go to court because the lawyers will make the money. You might want to go binding arbitration. You might want to go to mediation. You might want to pick a third party and say, “We believe in John. He has the wisdom of Solomon. If there’s a problem, we’re going to John and whatever John says we agree.” You’ve got to have that conversation. What happens when it all goes bad? That’s critical.

A third each and if you outsource any one of those, it’s 50/50. I had a friend of mine who brought me a deal and I was way too busy. I was very busy and I felt bad. He needed to close on this. He’s getting a little desperate. He wound up joining venturing with someone but gave away 70% of the net. This is not a newbie. This is a guy who’s got a lot of experience and brings a lot of skill to the table. When I heard that, I freaked out a little bit. When I realized who he was doing the deal with, I was like, “Does that guy really need the extra 20%?” I hear all kinds of craziness about JVs in the wholesale world. I can’t believe some of the stuff that’s happening there. There’s a guru who’s charging tens of thousands of dollars, plus he wants a piece of every deal. I’m not certain that’s legal.

Wholesale Scam

If you did sign that contract, I would get out of it. I’d say, “I’m canceling this contract.” If they say, “You have to do this, this and this.” No, I’m going to call the FTC, the Consumer Fair Board, the SEC. I’m going to figure out all this nonsense. What is this, a Joe Louis boxing contract? I love these other wholesale guys who are like, “Come work with me. We could do joint ventures together.” What they’re really doing is they’re making you a bird dog. They’re making you work for free. That’s not part of the deal. Remember we said, “If you’re good at something and you’re putting in time, you should get compensated in your time in the joint venture.”

There are at least two to three of these bad dudes in this town that are doing this, “Pay me money and I’ll teach you how to wholesale, but every deal we get, I’m going to take the lion’s share.” I don’t have enough time in the day or I’d be working with Charles to set up a bird dog program that compensates people fairly and freely. We are sitting right there at the wholesale table and he’s telling me about this group he’s in and I’m like, “You’ve got to be kidding me? That’s what we’re doing out there?” It’s one thing to come up to a guy, “Sam, I want to be a bird dog for you.” Sam would be like, “I don’t need you but if you want to do it, here’s what you do. Here are the door hangers. Go on out there, talk to people, come back with some viable properties. We’ll show you how to go ahead and do the skip tracing. Once we get the skip tracing, we’ll work with you on getting contact and hopefully that will produce an appointment that will sign a contract.” That’s one thing.

TRE 62 | Joint Ventures
Joint Ventures: A joint venture is a great opportunity because it typically has a completion date. After that, you can take your money and go your way.


I’d say, “You can come work here. We got it. We don’t have a lot of time for the mentorship part of it, but if you want it to go do door hangers and you want to do some of these things, we could work on that together.” That’s fine. I’ve got a fantastic closer in the back, just set him up and we’ll give you a piece of that,” versus “Pay me $1,000, $1,500.” I love these two guys out in California and one of them is an attorney. At some point, the state of California is going to look at this and say, “You owe them money. More importantly, we want taxes on that payroll.” I see it everywhere and I like them.

It’s not that these guys are not the guys here. I like those guys too. I understand what they’re trying to do. If you have people working for you for six hours a day, you’re either going to pay them a fair wage or you’re going to give them a nice piece of the commission. I’m not talking it up for the experience. Those are the joint venture deals to stay away from. I know you want the experience. That’s why we have the wholesaling networking thing. I know you want it, but it’s crazy when I hear people paying tens of thousands of dollars to be a bird dog or $200 to be a bird-dog. You come in every night and cold call. I get them all the time. I’m on a cold call list from New Jersey. The guy calls me all the time. I’m like, “Are you cold calling me? How much do you make?” “I’m training. I’m doing this. Are you interested in selling your house?” “I’m always interested in selling my house but how much are you making?”

“I have a commission schedule.” “You’re working commission only. Did you pay this person to teach you how to do this?” He gets quiet. “I’m calling to see if you want to sell your house.” “I want to sell my house, but I’m asking you a question. Did you pay this person to teach you how to call me? Did you pay someone to teach you how to be a salesperson for them?” “Yes.” Somewhere that’s illegal or at the very least unethical. If you’re going to be a salesperson for me, I’m going to train you to be a salesperson. There are some basic normal social contracts. If you’re going to be a salesperson for me, I’ll teach you how to be that salesperson or I’ll hire you based on your skillset and your experience and you get paid commission. There’s nothing wrong with that. You get paid on the sale, that’s great. If you’re paying me so that you can work for me for free, I have a problem with that.

I don’t think that is within the boundaries of a normal social contract that we’ve all agreed upon in this country, in this market as a form of capitalism. That’s something different and I find it a little bit disturbing. I wish I had the time. I would set up a bird dog program. We would train people. We’d get them to do calling. We’d get them to do door knocking. We just don’t have the time. Maybe at some point we will, but we don’t. Until then, I would tell you to be careful on those deals, especially if we’re talking about $10,000, $20,000, $30,000. I see a bandit sign when I drive out of the studio that says “Finance manager, $93,000 a year.” I’m like, “Who hires a finance manager of a bandit sign?”

Nobody should work for free. Click To Tweet

There are lots of scams out there. There are lots of scammers out there. Our director was telling us when she went on to Indeed to find a new job and eventually, we hired her, she got hit with more scams than real job offers. Be careful and if you’ve sat in that wholesale sweatshop, you know exactly what I’m talking about, and you’re told to dial the script and you paid someone for that and they didn’t pay you for your time, especially if you’re in California and that happened, report them. I bet for sure the state of California is very interested to find out who’s putting together these little wholesale sweatshops. If you go to their location, you follow their script and you’re directed by their managers, you are a W-2 employee. You are not a 1099 employee.

If it was straight up, “I went there and this was sales only as commission.” That’s fine. If it’s a real estate commission, remember, real estate commissions are regulated. This whole sweatshop thing has got to stop. That’s not joint venturing. We were talking about joint ventures which are good and then I got tied up in some other stuff. We’re going to get back to joint ventures. They can work. You’ve got someone’s hustling out there and finds a deal. You’ve got some muscle who can do the deal. You’ve got some people that can bring money. That’s a perfect little joint venture. That’s a three-way. Everyone gets a third of the net and get paid for your time while you’re doing this stuff. Nobody should work for free. We worked through the deal and we get the stuff done. It’s important to make sure that you have all your details lined up and who gets compensated for what and when.

Moving forward, you’re going to make sure that you talked about what happens when it all hits the fan. This doesn’t all have to happen in day one. Preferably you do all this before you start working, but sometimes we all agree there’s a deal. We’ve got to get $40,000 there to close on this deal and someone puts some money in and then we figure it out. You’ve got to do it early on and making sure that you have all the T’s crossed and the I’s dotted. If you don’t, you’re going to run into problems. It’s going to be problems all the time. When we do this, we’re very specific in what we do. Typically, we have a special purpose or single-purpose LLC, which we bring all the people in. The LLC will protect us. Outside, we make sure we have insurance. A lot of our deals get thin on the margin because we over-insure everything.

We want insurance. I’ve been in situations where partnerships and JVs have gone bad. We want to make sure we’re insured for everything. Who’s going to pay for it? When is it coming out? What’s it covered? If you think these joint ventures are going to be longer than a year, I would even go out so far to say, “We might need life insurance, key man insurance or at least life insurance, a quick little term policy on the three players.” If they play a critical role and one of them passes away or becomes unable to fulfill their roles, there should be a policy on them so the other two partners can get compensated. We can get into the details and you should.

The more times you do this, the more detailed this joint venture agreement will look. Usually on the first one he was like, “I have a handshake.” I have a couple of handshake deals out there, but the deal shifting is moving away from what we originally talked about. The question is, “Are you expecting me the honor of the handshake, even though you haven’t done what you said you’re going to do?” That’s my fault for not getting it on writing and getting it all laid out. We’re going to correct that. Joint ventures can be a good way to get started, especially if you’re the hustler. You can figure this stuff out. You can move forward, but you’ve got to make sure it’s an actual true joint venture. Everyone’s got roles and responsibilities. Even the money person wants to bring the money.

Usually I make them, “You’re in charge of the insurance policies. You’re in charge of the LLC documents and the state filings. You’re the secretary and I need all the paperwork for the origination of this LLC done through you.” That’s an active role, which means they can’t take passive money. They can’t take money out of their Roth or 401(k). They can’t bring that because they’re playing an active part. It has to be money from themselves. That’s a whole other hour. I’m sure Jason would love to do it. Talking about passive and non-passive investments and what vehicles you use them out of. In our JV, if you’re putting money in out of a passive investment vehicle, you’re probably are opening yourself up for problems because then it’s not a joint venture because the person who’s bringing the money is a passive investment and it’s not an actual partnership and sharing of the responsibilities.

TRE 62 | Joint Ventures
Joint Ventures: In a joint venture, everyone has roles and responsibilities. No one should make passive money.


If you have your life insurance policy where you’re borrowing out of it, that’s got fewer rules and you can overfund, you can do a whole bunch of great things with that. Be aware of this stuff. It does work but it has to be fair. That’s part of the problem with this entrepreneurial age where the hustle, “Look at me. I’m going to get over on. I’m going to kill him. I took that guy for a ride. I stole it from him. He doesn’t know anything. I got 70. He got 30. He’s an idiot.” You’re talking about your partner. You’re talking about the people you work with. What a piece of garbage you are. Joint ventures need to be fair. If they’re not fair, I wouldn’t do them even if you’re desperate to get a deal. If I found the deal and I’m going to do part of the construction and the management on that stuff, I certainly wouldn’t be doing that for a third.

You’ve got to be careful about these things. I know people want to get these deals done and the market is getting tighter. We’d talk about it all the time. I spent three hours with a professional real estate investor. This guy is a very accredited person out there. He’s very successful. He has a beautiful house. We spoke for three hours and he told me straight up, “This market is tight. I used to be able to find flips and rentals off the MLS. It’s getting tighter and tighter. Deals are moving faster and faster. Sellers are holding out for multiple offers.” He recognizes the change. If you’re brand new coming to this market, there’s going to be a sense of urgency, a sense of fear of loss. You might find yourself getting into a bad deal. Don’t do it.

I get passionate about this stuff because I was that guy. I can remember, it was in August. I went to my first REIA meeting and everything that was said there made it sounds like for sure, I was getting rich quick and that didn’t happen. I kept getting pitched, $997. I bought some of them. Some of them turned out to be fine and some of them turned out to be a pile of junk. I know those rooms because I’ve been in those rooms and a few years later, it is still fresh. People around me are looking for an honest and true change in their lives and they get preyed upon.

On top of it, to be introduced to that predator by someone you trust and like is the dark underbelly of our industry. “I own this club and you guys are fun. I’m fun and that is all good. Come to my club. Let me introduce you to the seventh lease option. Don’t worry he’s better than the last six. He’s got a secret little program.” There it is. You’re going to sign up. You’re going to find out. Sometimes it works, sometimes it doesn’t work. These wraps and title issues and stuff like that can be tough here in Texas. No one is looking to lease option their properties in California, and New Jersey is a lawyer state. That’s even harder.

You were introduced to this predator who’s going to sell you this $997 piece of junk by someone you trust. To me, that’s the hardest pill to swallow. Imagine being introduced to someone that’s going to charge you $1,500 and make you work in their wholesale sweatshop and being introduced to that person by someone you trust and like. That’s what fires me up about this industry. We try and do it a little different. We try to be as transparent as possible. I have a gray underwear on. I’ve shared everything. If you don’t like it, that’s okay. You don’t have to work with us. If you like it, you can work with. Everything is pretty much out there and it’s tough. Joint ventures are going to work. Doing it by yourself is even better, just beware. Hopefully, you learned a few nuggets and you can look at this stuff a little bit more clearly and move forward. Thank you, everyone, for your support.


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