I have got some proposals about teaming up with one or two pals in my Real Estate business but am a bit skeptical. I need some urgent advice/ information that will enable me take a wise decision.
There are many (good) reasons why you would consider joining with another person to undertake a development project in Joint Venture.
Usually the most basic reason revolves around something you don’t have.
Some of them may be:
1. I own land … have capital & capacity to borrow … but no experience.
2. I have capital & capacity to borrow … partner has land … both have no experience.
3. I am ‘time poor’ … work full time and can’t be personally involved …
Let’s suppose you want to find a land owner who will put their land
into the Joint Venture, (JV) and their land will be their major contribution to the deal, plus some borrowings.
Let’s consider the implications of entering into a JV in the first place.
After all, in a JV you have to take into account another persons attitude, decision making process, (or inability to make a decision), whether they have a logical and sensible mind … the list goes on.
So, getting into a JV must have a good payback for you. Whatever you lack is usually the reason for entering into a JV.
I have noticed over the years that JV’s have a prime motivator, the driver of the deal (you), and the other person is along for the ride.
For example: the other party may have a wonderful property (site) and wants to develop it, but does not have the knowledge. You "love" the site and know that you could make it a very successful and profitable real estate development. You approched the land owner.
Another example: maybe two individuals who have saved their capital, however individually it is inadaquate to undertake a project. Combining their capital and borrowing capacity will allow they to proceed.
I prefer a JV where both parties are equally motivated, have different skill bases, but each regards the other as contributing equally.