What Is A Joint Venture?
Last updated 30th July 2018 • JaeVee Marketing • JaeVee
Fastly becoming one of the most popular forms of funding for property investors and considered mutually beneficial, let's take a look at the pro's and con's of a joint venture partnership.
A joint venture partnership can be defined as two or more people pooling their resources or skills together to complete a project.
Why enter into a joint venture partnership?
You may enter a joint venture partnership if you are in need of funds, or you could have the funds but require someone's experience and expertise for executing such a project.
Together you would create a joint venture partnership and execute the project as a team.
If you have hit a cash flow problem or have trouble financing a property development via traditional means, then a joint venture partnership may be the most suitable alternative to fund your investment.
This also works if you have the finance but lack the experience of the property market and the skills to refurbish a house or the knowledge of how to manage tenants if your model is buy-to-let.
Types of joint venture partnerships
There are many types of joint venture partnerships, but the main two which are used the most are:
- Profit share joint venture partnership
- Fixed interest joint venture partnership
Profit share joint venture partnerships
This is generally what you would expect a joint venture property partnership to be.
You split the profit upon exit in pre-agreed shares, for example, a shareholders agreement stating 50/50 would leave each party with 50% of the profits.
Fixed interest joint venture partnerships
This structure will apply if one of the members finances the project and the other provides the skill. The other party could agree to pay them via a fixed rate of interest rather than the traditional percentage split which most joint ventures consist of.
The downside of joint venture partnerships
As much as it sounds like the perfect recipe for a long and successful partnership there are downsides to consider when entering into a joint venture project.
Many believe if you are a first time investor then entering into a joint venture partnership is ill advised as your first project. It would be sensible to gather and hone in on your experience to build up a proven portfolio of success.
It could perhaps be cheaper hiring in the help of tradesmen who have the skills you need than entering into a joint venture partnership. Some may even choose the option of a bridging loan which can be a more profitable venture, whilst it requires more risk and potentially more things to go wrong.
Team work makes the dream work
If you work better on your own then asking for permission and running each decision by your business partner may not be for you, especially if there is no clear exit planned such as long term buy to let rental.
There is a saying that 'team work makes the dream work', and this is the underlying concept behind a joint venture partnership.
If you can't work as part of a team, meaning knowing when to lead and when to be led, then a joint venture partnership will not work out for you and you should consider remaining a sole trader.
The down side of this is the abundance of responsibility in case anything goes wrong and the lack of resources that a one man band can ascertain.
Top tips for joint venture partnerships
Make sure you pick the right partner, don't rush into it and build up your relationship. It may be you enter into a joint venture partnership with a friend, family member, via an extended network or a property partner such as JaeVee, and make sure all worst case scenarios are discussed.
Decide on what structure you would like your joint venture partnership, and clearly set out both of your roles at the beginning of your partnership.
You will also need to agree whether to opt for a percentage split, or fixed interest rate which should be set out in a legal agreement.
Why to joint venture with JaeVee
When you joint venture with JaeVee, you will discover how we're enabling property developer entrepreneurs by offering a revolutionary platform with 100% funding, training and project support.
Joint venture partnerships can be very lucrative for both parties so, if you would like to discuss this further contact JaeVee today.
What JaeVee offers:
- 100% funding: We provide all the funding, by arranging the senior debt and raising the equity via our investors. Then we support you from start to finish ensuring exits are achieved.
- Experience & knowledge: We are the UK's one and only facilitator, asset and project manager between property developers, investors and senior debt lenders.
- Sign up for your free developer account
- Sign up for your free investor account
- Our Online Property Courses
Please note this blog post is not to be considered as investment advice. We recommend you seek independent financial advice and conduct your own due diligence before making any investment.