Real Estate Investing: How to Make a Joint Venture Work
Whether you don’t have the capital for your first (or next) income property investment or you’re not ready to jump into it on your own, a joint venture deal is the best option to consider. Most simply put, a joint venture, or JV for short, is a business arrangement where two or more parties agree to pool their resources to accomplish a specific task.
In this case, the task would be investing in an income property with the goal to split the responsibilities and, obviously, the profit. I won’t get into too much detail when defining joint ventures right now because I’ve already covered that in one of my previous blog posts.
Real Estate Investing Strategy: Joint Venture Success Tips
If you were to make a joint venture deal with another party, both of you would be considered responsible for profits, losses, and costs associated with the venture. In other words, you would be equally responsible for the outcome of the partnership as the other party.
With that said, it is only obvious that your goal is to make this partnership as successful as possible. Here are a few joint venture success tips that will boost your profits when using this real estate investing strategy:
#1 Choose Your Partner Wisely
Before you jump into a joint venture, make sure the person you’re partnering with is the right match for your business and goals. While signing your first partnership is a huge milestone, you should dive into it without proper and careful planning.
Therefore, make sure the person sitting across you has enough resources to bring to the table, whether those are financial resources, knowledge and expertise, or any other type of resources that could be useful in a real estate investing venture.
#2 Build Trust
Once you find the right partner for your next venture, start building trust in order to set a strong foundation for your partnership. A good way to build trust is to position yourself as a trustworthy person - share information openly, especially when it comes to profits and finances.
Be open about your past experiences and background information, as well as anything else that is related to your partner’s interests or your shared venture. By being proactive in the sense of communicating openly, you will encourage the other parties to act the same way.
#3 Communicate
Make sure to set your expectations at the very beginning of the partnership and communicate them loudly and clearly. Don’t assume your partner or partners know what you’re planning or thinking about doing with the venture. It all needs to be stated clearly and as directly as possible.
Poor communication can not only lead to misunderstandings but it can cause the entire partnership to fall apart and even cost you money. With that in mind, make sure that everyone involved is ready to communicate openly from the very beginning.
#4 Monitor Performance
As your joint venture takes off the ground and you start building a stronger partnership with the other parties, you will have to keep track of your overall performance. Measuring key performance indicators and keeping track of progress will allow you to improve your venture and move in the right direction.
It is important that all members of the team are aware of what your goal is and what you’re trying to reach. Putting effort into measuring your success with real estate investing will help you steer the ship in the right direction.
The 4 Ms of Joint Venture
Here’s what you and your partners have to bring to the table in order to turn a joint venture into a success:
1) Money - 25% equity
What you’ll need to keep in mind when it comes to money is far more than just the down payment. Other costs to consider include the closing fees, security deposits, renovation costs, and insurance fees.
2) Mortgage - 25% equity
When it comes to mortgage, you’re going to need the lending capability for a 80% - 95% loan to value mortgage from a bank (either A or B lender).
3) Management - 25% equity
Don’t forget about property management, renovation management, and financial management, that is the administration and bookkeeping for your property.
4) Off-Market deal - 25% equity
Lastly, you should be looking for an off-market deal to find a discounted income property that checks the boxes for both yourself and your joint venture partner.