Joint ventures might seem intimidating at first glance, however if done correctly they can be a fantastic way to buy an investment property.
The two most common kinds of joint ventures are:
Finance partners – individuals who get bank financing for the joint venture
Equity partners – individuals who provide cash for the joint venture
Why a joint venture:
You have more options. Suddenly you can afford a share in a higher yielding property than you would have been able to purchase on your own.
Your risk is spread among more individuals.
Keep the following 3 tips in mind when setting up a joint venture to help eliminate unnecessary problems between you and the other partners.
1. Pick the right partner
As you’re going to be part of a team you’ve got to share the same goals and have a common outlook. Each of you will bring certain strengths and/or assets to the table and it’s important to have a similar investing mindset to avoid unnecessary conflict.
2. Write down your agreement
To avoid conflict resulting from miscommunication, put your agreement down in writing.
You should include the purpose of the joint venture, what your anticipated outcome will be (e.g. buy and flip, buy and hold, etc.) and the responsibilities of each member of the joint venture.
Some of the questions you’ll need to answer when putting together the joint venture include:
Who will be contributing to the purchase and what are their responsibilities?
What are the goals for the property (buy and hold, etc)
A timeline for tasks that need to be done.
An exit strategy.
How will the project be managed?
What to do if the project doesn’t go as planned? (e.g. over budget)
Consult a solicitor who is experienced with property investing using joint ventures. Ask that he put the documentation together in plain English to avoid any miscommunication between the parties involved.
Get emotional. Remember that this is a business venture – even if you’re doing it with friends or family – and you’ll make the right decisions.
Allow for every possible contingency you can. For example, what happens if one of the partners dies? Or becomes insolvent? How will one or more partners buy out that individual’s (or his heirs’) interests?
Forego the services of an attorney. Each joint venture partner should engage his or her own legal counsel before entering into the agreement to be certain that it fits their needs.
For more information about investing through joint venture, up to date market information and much more, come along to our next Property Investor Night. This FREE event will inform and inspire you to achieve your wealth creation goals… and more quickly than you might have dreamed!