Joint Ventures: When two or more heads and wallets are better than one
A joint venture is when resources or skills, or both, are pooled together on a particular project.
The objective of combining finance and/or talent is to make a wider range of property investment opportunities available than you’d have access to if you operated alone.
But as well as sharing the risk, you share the profits.
Types of joint ventures
A joint venture could be based simply on pooling your financial resources. For instance, you may decide to purchase a property on an equally shared basis. Or, if refurbishment is involved, you may seek a partner who’ll be able to handle the building work in exchange for an interest in that property.
Land deals can sometimes be too complex or expensive to handle alone. By joining forces with others, you may be able to unlock the potential of a site. And, in the eyes of the people you’re negotiating with, you may seem a stronger proposition as a team rather than as an individual.
Even small sites can be extremely expensive to develop; therefore, pooling resources is less risky. Plus, if you’re new to this area, it helps to have a partner with a track record – not only will this give you valuable experience to draw on, it may help you to raise funds.
Essentially, whether it’s a house purchase, land assembly, or building a buy-to-let portfolio – you’re stronger as a team.
Gain access to knowledge and skills
Putting money aside, you may want to join up with someone who has skills you’re lacking.
If you’re looking to convert a property into flats or have a proposal for land development, it’s going to be useful to have a builder and/or architect on board. Or you may want to team up with someone who spends their time scouting out new investment opportunities. They can find projects that align with your business strategy and budget.
There are also many landowners out there who are looking to join up with a group of people with the combined skills to unlock the value their land holds.
Simply put, when it comes to property investment a vast and diverse array of skill sets can come into play. One person is unlikely to have all of these talents, which is why it makes sense to bring together people from different professions.
Define the nature of your agreement
The structure of your joint venture will be specific to the project and can differ for each investment. Therefore, it’s crucial to draw up an agreement that defines roles and the rights of each person on each project.
Failure to draw up a legally binding agreement can leave you in a risky position if things go wrong or people change their minds. Key factors include profit share arrangements and responsibilities for each area of a development, purchase or renovation.
Agree an outcome and exit point
On each project, there should be a clear objective and a defined exit point. This could be the sale of all properties on a development, the sale of land that now has planning permission, or the completed renovation of a property.
If the project is ongoing, for example, you jointly own a property for rental income and long-term growth, there needs to be a clause that stipulates what happens if one party wants to leave. For instance, you could specify that if one party can’t buy the other out a replacement investor must be found, etc.
Once these details have been worked out, joint ventures are a highly lucrative way to take advantage of the myriad of property deals and opportunities that are available to all kinds of investors.
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Dates: 26th and 27th April 2019
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