Property Development Joint ventures 101
Last updated 14th September 2023 • JaeVee Marketing • JaeVee
Joint Ventures, specifically property development joint ventures, what are they and why do people enter them? Well, there are many reasons business owners enter into a joint venture.
A joint venture is a business arrangement where two or more parties pool their resources to accomplish a specific task. Ensuring both parties can carry out their ‘venture’ with only half the risk. Essentially, all participants are equally as responsible for profits, losses, and costs associated with the venture, but as it’s divided all of those factors decrease.
Why enter into a joint venture?
Joint ventures use, for example, one company’s well-established manufacturing process and the other company’s superior distribution channels to combine resources and create one ‘ultimate company supply chain’ and complete the venture at hand.
By using the above method, both companies can carry out their production at a lower per-unit cost than they would separately. This is particularly beneficial with technological advances that are expensive to implement and when investing in property which can come at a large upfront cost..
The two parties may have different backgrounds, skill sets, and or expertise, so, when these are combined, each company can benefit from the other’s talent. Commonly with property investment people with different areas of expertise in the area join together to invest in the project.
Property development as a joint venture
This type of joint venture sees people come together to invest in a property, because these people of businesses pool their funds they are able to achieve a higher investment amount than they would have had individually.
A legal agreement is concluded, meaning that any cost, risks, and rewards are shared between all involved investors. Which is why it is essential you trust and communicate with those who you are entering the investment with.
Investing in a property development is a very common joint venture. These can be entered for a number of reasons, including:
- Renovating a property to go on and sell it for profit
- Purchasing a property for rental income
- Investing in larger real-estate projects
- The chance to spread risks and work with experienced investors
- Quicker timeframes for a return on your joint venture investment than other investment types
- Investing in local developments that can make the area more attractive
What should you scope out before entering a joint venture?
Entering a property development jv has a lot of perks but it is important to scope out a few things before taking the final steps. Above all else, it’s important that parties engage in open, honest discussions to allow themselves the flexibility to maximise the commercial benefits of a joint venture. Some things to consider when doing this include:
Do your research
You will be tied to your new partner’s reputation. The wrong partner can undo many years of goodwill, so you should consider undertaking a check of the credentials of the business partners to ensure that there are no hidden time bombs.
Scope it out
The objective of the joint venture and the respective roles of each party should be decided before starting any work. Consider the scope of the business and territory, are there any exclusions that any individual party may retain for themselves? Once agreed, these terms should be documented in a written agreement.
Sort a structure
Each participant should have separate legal advice to choose the best structure as there will be issues regarding individual liability and tax. Discussions about how each member is allowed to use the joint venture to finance their own businesses, as well as how losses, profits, liabilities and responsibilities are shared.
Like any other business, the importance of maintaining organised and accurate records is crucial for audit and compliance purposes. Accurate records are also important when resolving disputes between partners.
Communication is key, especially once you are involved in the joint venture. Be sure to simply communicate your venture with key stakeholders such as financiers, other parties to the JV, experts and customers, and then keep those lines of communication open for success.
Exiting a Joint Venture
An exit strategy is extremely important, as it provides a clear path on how to dissolve the joint business, avoiding drawn-out discussions, costly legal battles, unfair practices, negative impacts on customers; and controlling for any possible financial loss.
In most joint ventures an exit strategy comes in three different forms: sale of the new business, a spinoff of operation, or employee ownership. Each exit strategy offers different advantages to partners as well as the potential for conflict.
Joint Ventures with JaeVee
The property platform here at JaeVee is revolutionising how people unearth
equity and create opportunities to invest in diligently sourced joint venture property developments in the UK, via our very own safeguard.
A Joint venture with our experienced main contractors will be simple and cost-effective, just take a look at how our processes work or find out more about the joint ventures we have available currently.