A lot of successful real estate investors build their wealth and income streams using other people’s money. It is possible to build your entire portfolio in this way.
Real estate joint ventures can be a smart way to achieve this. What is a joint venture in real estate investment?
Read on to discover all that you need to know about real estate joint ventures.
Let’s face it, in today’s market it can be a really slow and painful process to obtain mortgages and other forms of finance that you need for real estate investment. There is also the cost which can be high, and you are taking all of the risks.
Why are Joint Ventures Used in Real Estate Investing?
There are a number of reasons why joint ventures are used in real estate investing. There are a lot of people that want to invest in real estate, but are held back because they do not have access to the finances required.
Raising finance through banks and other lenders is becoming a real challenge, and a lot of potential investors find themselves turned down again and again.
If you finance your real estate investment deal yourself by borrowing from a financial institution, then you are taking all of the risk. Unless you have other sources of income, you will need to rent or sell your property pretty fast to keep your lenders happy, and that can be a challenge at times.
Any delays can result in you having too many debts.
With real estate investing joint ventures, it is possible to bring the right people together that have the necessary resources to successfully complete a deal.
Each of the parties will bring something to the table, such as the funds to finance the deal and the expertise to manage it for the best return on investment.
What is the Purpose of a Joint Venture?
As a real estate investor, it can make a great deal of sense to exchange some of your equity in a project to avoid you taking al of the financial risks. You can find the right partner(s) that has the money to finance the deal, and use your expertise to find the right property and manage the project successfully for the best returns.
It is a win-win for all concerned.
These are the most important benefits of a real estate joint venture:
- You will share resources
- You will gain access to the capital that you need
- You will share the investment risk
- You will share the investment costs
If you have been a real estate investor for some time you may not like the idea of relinquishing total control of a project. But with the right joint venture partners you should be able to achieve more than you can on your own.
What is a Joint Venture and how does it work?
A real estate joint venture occurs when two parties or more need each other to successfully complete a property deal. This can be a combination of different things such as financing, the relevant experience, the provision of assets and even the provision of credit.
Usually, an experienced real estate investor will have a potential property deal lined up that will provide benefit to all parties involved in the joint venture. They will seek a partner(s) that has the financial resources that they need to get the deal done.
The need for financial resources is not the only reason why a real estate joint venture takes place.
What is an Example of a Joint Venture Involving Real Estate?
Here are a few:
The Contribution of Land
A land owner may require the expertise of a developer to realize the true value of the land. Often, the owner will not want to sell their land directly to the developer as they know what its potential value is.
Instead, they will look for a joint venture with a developer and their contribution to the project is the land itself.
With this example you can see that the two parties really needed each other. The owner of the land can contribute their valuable asset to the joint venture project, and the contribution from the developer comes from their skills and expertise in developing the land to achieve its full potential.
The Credibility Real Estate Joint Venture
A real estate investor may have the necessary skills and experience to find the right property and manage a real estate project to deliver the best returns. But they may not have the necessary credibility to attract the right financial investors.
By creating a real estate joint venture project with a corporation or an individual that had the necessary credibility, they will be able to attract investors that have the capital required to make the project happen.
Credit Real Estate Joint Ventures
Some real estate investors will have the financial resources to make a down payment on their next real estate project, but they may not have the credit available to borrow the additional finance that they need.
By seeking a joint venture with an individual or company that has the appropriate credit, they can obtain the necessary finance.
A Real Estate Joint Venture Based on Connections
When real estate investors are just starting out, it is unlikely that they will have the necessary connections to make some of their property projects a reality.
Connections can be required for a number of different aspects of the project such as the acquisition of the right property to the financing of the project. This is where a joint venture based on connections can work.
A Construction Joint Venture
In this example of a real estate joint venture, a real estate investor has uncovered a great opportunity but they do not have the necessary skills and experience to manage the required construction work.
A joint venture with an experienced real estate developer who has the necessary skills can work out well for both parties.
How to find Partners to do Joint Ventures on Real Estate
You need to know how to find a joint venture partner for real estate. Here we will take a look at potential sources of people that would be willing to invest in you and your real estate investment projects.
You need to understand that finding suitable partners for real estate joint venture projects is not always going to be easy. Unless you have an ideal partner in mind, you are going to put in the necessary effort to find the right partner(s).
Look at who is Buying and Selling
One of the first things that you can do to identify potential real estate joint venture partners is to research public records to see who the buyers are in the market that you are operating in.
You can also use MLS listings to identify the agents of buyers and sellers that have been involved in recent property transactions.
Real Estate Investor Communities
A real estate investor forum can often lead to the discovery of possible joint venture partners. You can look at the REI Club, the forum within the Stessa Community and the Bigger Pockets investor forum.
Some Lenders or Mortgage Brokers will know People that want to Invest
Many lenders will often have clients that are looking to invest in a joint venture and have the financial wherewithal to do this. Are there real estate investment groups in your area? If so, be sure to check these out.
Use That Early Inheritance
If you know that you are going to inherit money from a family member then why not discuss a real estate investment JV with them while they are still here? You can both benefit from this and not wait to have to pay inheritance tax in the future.
Some of the money can be used now to fund your next project.
Business Networking Events
Find out where the nearest business networking events are and go along. Start to build relationships with the other business owners in the room. There are always entrepreneurs looking to invest some of their profits and real estate investment is likely to appeal to them.
Business Angel Networks
There will be a lot of rich people at these events and you will never have a better opportunity. These events take place all over the country and you need to attend some of these as often as you can.
Your networking skills will need to be good but it shouldn’t be difficult to get people to listen to you.
Functions and Charity Balls
This is probably something you would not have thought about but it is a great place to meet people with money. It shouldn’t be too difficult to work out who has the money at these events and when the drinks kick in the egos will come to the surface and you will be able to network.
Local REI clubs and Investor Meet-Ups
These events are held across the country and you need to be involved with them. There will be private investors there who know that property is a good investment and will be looking for people like you.
The only problem is that there is likely to be a lot of competition from people trying to do the same thing. Don’t let this put you off. Be great and you will find investors.
Family And Friends
Your personal circle of family and friends can also be a good source of potential partners for a real estate joint venture project. A lot of successful real estate investment JV’s are done with family members or friends. They are the easiest people to talk to and are likely to be open minded about the possibility.
The only caveat with this is that if the venture fails and they lose money you will probably never hear the last of it.
Country Clubs, Tennis Clubs, Flying Clubs And Golf Clubs
Members of these clubs usually have money to invest and if you can mingle with them then you will have opportunities to find potential partners . As with anything like this, you can’t go in all guns blazing. It takes time to build relationships, so you need to be patient.
Don’t forget other business contacts that you have as they could be interested as well. Some property owners may be interested in forming a joint venture partnership with you rather than just selling their property.
A share of the profits or interest on capital can be very enticing to the right vendor.
There are many other places and events for sure. You just need to go where the money is. Look for places where high net worth’s hangout.
You can even hire a specialist lifestyle management service that will get you into the best events and other social occasions where wealthy people will be in attendance.
Choose your Real Estate Joint Venture Partners Carefully
It is essential that you chose your real estate joint venture partners carefully. Never assume that having more people involved with your joint venture project will lead to bigger opportunities for you and higher returns. Things are never that simple.
If you chose the wrong joint venture partners things can turn out a lot worse for you. You can end up regretting the decision to go for a real estate joint venture and come to the conclusion that you would have been better off going it alone.
Real estate joint ventures can be very beneficial for you and the other parties concerned if you spend time thinking it all through.
I have benefited from a number of real estate joint ventures and these are the steps that I follow to identify the right partners:
- I always perform complete due diligence on any joint venture partner that I am considering
- I carefully define the roles that each joint venture partner will have and ensure that everyone is fully aware of what is expected of them
- I set out specific terms on the sharing of profits or losses for each partner and define the steps required to raise additional capital if this is necessary
- I hire an experienced lawyer to write up the joint venture agreement which uses language and terms that everyone will understand
- I usually form a corporation to protect the real estate asset such as an LLC – I will specify the buying out process for a partner and how the joint venture can be dissolved
As you can see from the above, a real estate joint venture partnership is not something that you can take lightly. You need to ensure that everything is written down and that all parties are fully aware of their responsibilities.
Real Estate Joint Ventures are worth it
The advantages of a solid real estate investment joint venture far outweigh the disadvantages. With the right joint ventures, you can be involved with larger projects that would take you a lot longer if you just go it alone.
By bringing together the people with the right resources, real estate joint ventures can be very rewarding for everyone involved. You need to accept that bringing others into a real estate project will often mean dealing with different opinions and personalities to achieve the outcome that all of the parties want.
How about you? Are you thinking of JVing with someone? Have you been involved in any real estate joint ventures before? I would love to hear your stories in the comments below.
Thank you and have an amazing day.