Why a Joint Venture can equal bigger profits and less risk

December 7, 2014 Sam Saggers

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Why Do A Joint Venture

The longer you invest in real estate the more you’ll realise that while going it alone can be thrilling, it can also be limiting.

You’re limited to the knowledge you’ve gained so far as a property investor, and restricted to the knowledge you’ve gained through reading books, attending seminars or speaking to “experts” at the family barbecue.

Don’t get me wrong – a solid education in property investing is vital. In most cases, however, its not until you get out into the marketplace and start putting your theories into practise that you get to see which theories hold up – and which don’t.

One of the best and low-risk ways of getting some “hands-on” experience is to do a joint venture.

Kinds of joint ventures

There are any number of joint venture schemes, but the two most common are:

  • Equity partners – people who provide the cash for the deal
  • Finance partners – people who get bank loans for the deal

Benefits of doing a joint venture

Your options are expanded. You can move beyond a single residential purchase and perhaps do a small development.

While your profits will be shared amongst the partners, so too will the risks.

Tips for a successful joint venture

The right partner(s)

Your joint venture partner(s) should have similar goals and a similar investing mindset, otherwise you could find yourself at odds with what you’re trying to accomplish.

Get it in writing

Misunderstandings happen – especially when we assume we know what the other person wants. This is commonly seen among family members and long time friends too. We know the other person well, but not to the depth we thought we did.

This is why it’s vital to have everything in writing and to have the goals and responsibilities for each individual clearly set out, defined and agreed upon between the venture partners.

Consult a solicitor who is familiar with all of the issues surrounding joint ventures and property investing who will put your agreement in plain English to ensure that all parties understand their individual responsibilities.

A well-defined joint venture agreement needs to include at least the following:

  • Who contributes what to the property purchase (is it 50/50 or will one source the property while the other pays the deposit)
  • What is to be done with the property once it’s been purchased?
  • How the project is to be managed.
  • A solid timeframe for getting tasks accomplished, including an ‘exit strategy’ should situations change.
  • Outline of what happens if plans go awry (e.g. over-budget)

Joint Ventures are great for you to accomplish a lot more in a shorter span of time – however, choose your partner wisely! They will be your business partner for the foreseeable future, and should have a similar risk profile to you.

For more tips and strategies to crafting profitable joint venture strategies, how to significantly improve your cash flow, slash your debt and much, much more, register for our next Property Investor Night.

Seats fill up fast for this free monthly event, so book yours now!

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