About Joint Ventures
Hi Team,
I recently notice an increasing number of client who team up with fellow investors to create a Joint Venture, this enable all parties to pursue their financial goals. This encourage me to write few words about Joint Venture.
As a property finder I come across quite a few clients who use joint venture to achieve their real estate goals.
JV is very common in today’s market when finance is harder to obtain, many investors have issues with lack of income or deposit.
The key for investors who are interested in doing JVs is to find a partner who has what you lack.
If one is lacking a good steady income for loan serviceability he should team up with a high earner with good credit record. Or if one has good income but doesn’t have equity or savings for a deposit he should team up with an investor who can provide that.
It is very important to have written agreements and clear rules like: Deciding on the profit split (doesn’t have to be 50/50 at all times, who does what,
And the exit rules and strategy. – Sometimes people’s circumstances change unexpectedly and the what if scenario has to be agreed on in advance.
It is very important to receive specialist advice regarding the appropriate structure for the JV.
I also see JVs used by beginner investors who team up with more experienced ones for pursuing complicated trading projects like Subdivisions , Reno’s, or small developments, this helps the novice to take the next step up and gain confidence.
I work with time poor professionals, people with good income and equity who are keen to team up with investors/finders who have the time and knowledge to find great deal.
I once put together a land owner with a builder who carried out a town house development and split the profits.
Two examples for joint ventures:
Team of two investors decided to buy block of flat straight title them and sell for a profit.
Group: 1.
Investor #1 had the ability to borrow the funds and finance the purchase and subdivision. – But no time and knowledge how to find a suitable property at the right price.
Investor #2 had the knowledge and time but couldn’t obtain finance.
They agreed that investor 1 will come up with the finance, will receive an additional 2% interest on top of the borrowing costs and the split would be 50/50 after all cost is been paid back to investor 1#.
Group: 2.
Two investors team up to buy a property as a trade, Investor 1 had complete ownership and came up with the finance.
Investor 2 was in charge on cosmetically improving the property within an agreed timeframe. (The work and budget was pre agreed and paid by investor 1)
When the property was soled within 6 month timeframe the split was 80% for investor 1 and 20% for investor 2.
*Both groups have agreed in advance on a selling range, timeframe and exit strategy.
Regards
Hadar Orkibi
