Beginners guide to a property joint venture
Have you seen a property development just out of your financial reach? Have you got the skills to create a much sought after property development but perhaps lack the finances? Would you prefer to spread the risk of investing in high-value property amongst other partners?
These are probably the main questions you will ask yourself if looking for a joint venture partner in the future. However, there is much more to joint venture property investment.
What is a joint venture?
While each individual property joint venture is different in detail, in simple terms a joint venture is a situation where partners wish to maximise their funds, particular skills set or spread the risk amongst other investors. There are many different types of joint venture which we will cover below but in simple terms you are either maximising your resources or you are spreading the risk.
What types of joint ventures are available?
There are many hybrid joint ventures available but in simple terms they can be broken down into the following:-
- Joint venture with a business partner such as family member, friend or colleague. Each partner will invest on an equal footing thereby not only spreading the risk but also increasing the capital available to acquire assets.
- Investing with a skilled partner such as builder, architect or developer. This type of joint venture will see one partner investing capital while the other such as a builder, architect or developer is in essence investing their own time, skills and resources. It can sometimes be difficult to agree an equal split of funds, time and resources but investing with a skilled partner can be extremely productive.
- Joint venture loan provided to a successful and experienced property development company. In simple terms you are investing in the experience, contacts and the knowledge of a successful property development company. You will provide the capital to fund the project with a split of projected profits agreed before any work begins.
- Joint venture with an investor who will invest in your property project where perhaps you do not have the financial resources available to fund yourself. The investor can take the guise of a hands-off member of the project or perhaps they also have some skills and resources to inject.
Each of these joint ventures can be structured via a partnership, limited liability partnership or a limited company depending upon the specific circumstances.
The benefits of joint ventures
As we touched on above there are some very obvious benefits of joint ventures which include:-
- Spreading the risk
- Greater combined financial resources
- Maximising your specific skills set
- Raising additional capital
- Maximising return on your available investment funds
There are so many different types of property investment available such as buy to let, office premises, commercial property, etc that it is vital that any joint venture agreement reflects the underlying investment asset.
What are the risks?
We all appreciate that with any potential investment return comes a specific degree of risk. There are further factors to take into consideration with regards to joint ventures which include:-
- Potential maximum liability per member
- Watertight legal agreements
- Exit strategies
- Arbitration option upon shareholder voting deadlock
- Choosing reliable and experienced joint venture investors
Finding a reliable and experienced joint venture investor may come through personal experience, recommendations or because of their past reputation. This is a vital part of any joint venture investment, finding the right partner.