What is Joint Venturing in Real Estate

I’ve always been intrigued by the fact that you can achieve so much by joining powers with other people. It’s surprising how many new investors don’t even consider joint ventures or they’re not familiar with how the concept operates. However, a joint venture could easily be the best option on your table, whether you’re just getting into real estate or you’re looking to expand your portfolio. Here’s a brief overview on the benefits of joint ventures and how you can go about making the next deal.

What Is a Joint Venture 

Before we dive into detail, it is important to understand what the concept of joint venture includes. Most simply put, a joint venture is a business partnership where two or more parties agree to share their resources for the sake of a common goal. For example, in the real estate world, two investors could make a deal to pool their resources to secure a larger property and split the profits. That would be called a joint venture.

You’re likely to find yourself in different circumstances when making a joint venture deal. In some situations, all parties participate in the financial aspect of purchasing the joint property. However, there are cases where only one member of the joint venture provides funds while the other member or members take care of other sides of the business, e.g. the legal administration, property management, renovations, etc. 

With that said, there is no fixed rule as to what a joint venture needs to be. It can be anything you and your JV partners decide. As long as you sign a legal document, you’re good to go. Overall, the joint venture strategy is a great way to increase revenue and expand your portfolio while also splitting the risks and costs of an investment.

The Benefits of Joint Venture Deals

The most obvious advantage of JV deals is the fact that you can do much more in terms of real estate investments if you have extra resources and time. Imagine if you could double your resources and start investing in multiple directions without using all of your money. That’s what you can achieve by creating a JV alliance and relying on other trustworthy investors to do their part of the deal.

However, there are other benefits to joint venture deals other than increasing your revenue and expanding your investment portfolio (what more could you want, right?). Well, by partnering with one or more investors, you will automatically expand your reach and gain access to new markets and networks. All your partner’s connections will suddenly become your connections and, as you probably know, networking can take you really far in this industry. 

On top of increasing your capacity, you will also be sharing the risks and fees involved with your shared investments. This is one of the greatest benefits of joint venture since you won’t be diving into a large investment on your own. The access to greater resources that include more than just finances (there are also technology and knowledge resources to consider) will allow you to grow exponentially and open new doors in your real estate investment journey. 

JV Partnership Red Flags

Before you join forces in the research and purchasing of properties, there are a couple of things you should keep in mind. For instance, you shouldn’t be too quick to jump into a joint venture if you’re unsure of how well you know your potential partner. After all, this is a serious partnership that can go both ways - you want to make sure it’s set to succeed.

One thing you need to learn is how to stay away from potentially bad partnerships. If it’s your first time joining a JV, make sure to choose a reputable partner who is well known in the industry and has connections that can back him up. Don’t just sign a deal with the next person who offers you money to invest in properties. 

When starting a partnership, think about the long-term situations - you are going to be working quite closely with this person. Ask yourself whether your goals are aligned, do they have a positive and growth-oriented mindset, and, most importantly, check whether you are on the same page in terms of your goals and expectations. 

There are typically two types of “wannabe investors” that you should stay away from. These are people who don’t want to share their investment goals (or they don’t have them figured out yet), and people who don’t bring what you need to the deal. Keep in mind that you should partner with someone who has set their long-term and short-term goals that are aligned with your vision as well.

If the person is unwilling to share their plans and expectations, this can be one of the early red flags in the JV partnership journey. Moreover, you should set your own expectations as to what you want the other person to bring to the table. Make sure both sides (or all sides if there are multiple parties involved) bring some sort of value to the deal, whether it’s finances, knowledge, experience, or connections.