How To Make Joint Ventures Work For You

There have been a lot of questions from students recently about joint venture (JV) partnerships as a way to break into the property market.

I’ve no doubt the rising interest is tied to the exceptionally high property prices in some markets, making it increasingly difficult to come up with the hefty deposit required to buy property.

My view is that if you can find a viable way to get that first foot on the property ladder, or to afford a property deal that you know is a financial winner, then absolutely, it’s an avenue worth pursuing. And that goes for joint ventures. However, it’s critical that you:

  1. have a watertight legal agreement in place that has been drawn up in consultation with a solicitor experienced in JVs; and
  2. make sure you’ve done all the necessary due diligence on the property in question to make sure the numbers stack up.

Definitions vary, but in a nutshell, a joint venture is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task, to their mutual benefit. When that task is buying property, the “mutual benefit” generally refers to profit.

As property is often a long-term proposition, particularly if you plan to hold and rent it, a lot of things can change over the course of that property ownership: people get married, break up, fall out, get sick, lose their job, run into financial difficulties… the list goes on. And then suddenly someone wants to cash in their asset. If you’re in a joint venture with that person and you don’t have a comprehensive legal document in place that covers all of those possible scenarios, you’re in big trouble.

For every JV arrangement I hear that’s a great success and delivers the kind of profits that simply wouldn’t have been available to those people if they hadn’t pooled resources and found the right property, I hear of the disasters: the deals done on a handshake and a promise, that fall apart when the parties fall out. Or have a legal agreement with so many holes it turns out it’s not worth the paper it’s written on.

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A successful property JV is generally based on leveraging your different skill sets and the assets you can bring to the table. For example, you might earn $150,000 a year, so you have good ability to service a loan, but maybe little in the way of savings. The other party might not earn much, but is sitting on a property they have substantial equity in. So there could be a scenario whereby one party comes up with the deposit (the one who can draw equity from their existing property), and the other takes out a loan on the new property.

As far as the skill set goes, one person may have expertise in project managing a renovation; another may be a whiz at managing budgets. There are many different scenarios that apply to joint ventures; it’s a matter of working out which one works for your unique situation. And you need to have a firm goal in mind of what the end game is. Are you buying to renovate and sell, or to renovate and hold? It all needs to be crystal clear at the outset.

At its minimum, the legal document needs to specify:
  • Roles and responsibilities of all parties
  • Who’s contributing what
  • Financials and profit-share
  • All “what if” scenarios
  • Timelines

For the benefit of my students, I’ve had a general joint venture agreement drawn up that can be downloaded from the “Graduates only” area of our website. It covers all the basics, but it is intended as a document that you then tailor to your own specific circumstances, in consultation with a solicitor. I can’t stress how important it is to get this document watertight, so make sure you engage the proper legal expertise to get it right, so that you’re fully protected in all scenarios.

In an ideal world, you want to finance your own property deals, as that gives you ultimate control and autonomy over the project. However, as a way to get a foothold into a market that would otherwise be impossible for you to break into, a joint venture can be a win-win situation for all parties. As they say, 50% of something is better than 100% of nothing!

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