The beauty of setting up a joint venture is that it can provide you with additional cash with which to invest, as well as knowledge. And often the more cash you have, the bigger the potential profit.
It could be the case that one partner provides the majority of the financing and the other the expertise. Then again, perhaps there are three of you, with each the same amount of money to invest, and the reason you are creating a JV is to combine resources and skills, making you a stronger and more powerful single entity as a result?
In terms of profit split, it can be achieved as 50/50 straight down the middle, or as a percentage of the sale. This should obviously be negotiated right at the start to keep all parties happy.
Why set up a Joint Venture?
The main reason people decide to draw up a Joint Venture agreement is because they can’t get funding from traditional high street lenders or the interest on borrowing is too high. The type of Joint Venture scenarios in property include:
▪ A refurb project where one person has the know-how to renovate, but not the finance to finish it, while the wealthier individual is interested, but doesn’t have the time. When the property is eventually built, it can be sold and the profit shared along the lines drawn up in the JV agreement.
▪ You have the skills, but not the refurb property you need to turn around within a specific time in order to fund another venture on the go. Here, you can team up with a sourcer and investor who can help you by finding and then funding a renovation.
▪ A development project, where you have the money and have purchased the land to build a handful of flats, but you require the skills of both an architect and a builder.
Where to find JV partners
So how do you track down a partner for your next Joint Venture deal? Well, the most obvious answer is within your own family or with a good friend. Just beware though, that if the deal goes wrong it could lead to some unpleasant fall-outs…another good JV partner could potentially be a builder, architect, investor that you’ve already worked with on other projects in the past. Or it could be a professional friend of a friend that you’ve heard about – and gotten to know – through a property networking get-together.
What to be mindful of with JV deals
Of course, JV’s, like any other type of deal can go wrong too. It could be that several months into the project you find you just can’t work with this other individual you’ve teamed with. It may be that he or she isn’t being transparent enough in terms of what’s happening with the project, or it could be that they’re never around. That’s why it’s good to team up with someone who has entered into a JV before, who understands what’s expected of them.
Likewise, if it’s your first project, then you may want to make those rookie mistakes on your own…
Always ensure you have an exit strategy i.e. set up the deal for a particular amount of time – two or three years, whichever seems reasonable, in which to get the project completed. Not only does a deadline focus minds, but it means you’re not involved in something that years down the line becomes a burden.
Author
Chris Kirkwood
