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Should You Consider Joint Ventures?

Joint ventures are a strategy worth considering whether you’re time rich or poor, writes Hamish Anderson.

By: Hamish Anderson

30 September 2019

A “typical” joint venture (JV) in real estate involves two or more people pooling their resources and expertise.

Most often one partner contributes the cash or equity and the other partner contributes their time and skills.

The joint venture partner who provides the equity in the deal (the money partner) will usually be responsible for funding most, if not all of the equity, however, they will be responsible for little to none of the day-to-day work required.

Conversely the property developer or renovator (the developer partner), will usually have very low or even no equity input into the project, as their time and skill will be their contribution.

Joining forces is not only a great strategy for the basic renovation, modest subdivision or small-time development, but surprisingly you will find JVs are popular among some of the biggest players in residential and commercial property. These days we see many experienced developers using other people’s money (OPM) to get their vision off the ground - but the benefits of JVs don’t stop there.

Why Would You Become A Money Partner?

If you’re cash-rich and time-poor or simply lack the experience, then by doing a JV with a driven development partner you can quickly speed up your success. It’s not uncommon for a money partner to gain a higher rate of return on each deal due to the fact they can directly leverage off their partners’ knowledge, time, and cost efficiencies achieved through years of experience.

Why Become A Development Partner?

If you’re time rich and cash poor or simply looking to expand your operation by using other people’s money then a JV with one or more money partners can allow you to implement deals that are maybe financially out of reach, or even run multiple projects at a time allowing for higher turnover and a lower risk profile.

What If I Already Have It All?

If you already think you have the expertise, time and equity then don’t automatically count this strategy out. The right money partner/s will allow you to expand your operation from say one deal at a time, to maybe three or more, allowing you both to grow and expand faster.

What Is The Right Split Between JV Partners?

The profit split depends on your arrangement and should be clearly stated in the JV agreement. Most of the time we see a 50:50 split on equity and/or rental income which usually means each party is evenly exposed to any downside risk while partaking evenly in the upside gain.

Can I Charge A Management Fee?

As part of a joint venture agreement, a project management fee can be charged by the developer which will be paid before the split of any profits. This is not always the case and depends on the agreement between the parties.

With larger developments, you might see a project management fee being paid to outside project managers, where the developer has engaged a professional project team, while the developer’s role shifts to more of a high-level management role. This commonly occurs with bigger more complex projects where the stakes are high and planning is paramount to success.

Look For The Right Partner

Complimentary skills, good communication, similar morals, and having aligned goals are all elements that make for a strong and successful joint venture partnership.

Regardless of your situation, it’s likely the right partner could help you achieve your goals and rocket your results. Consider your weaknesses and fill these gaps; remember that the right partnership is one that’s greater than the sum of its parts!

Along with Selling Real Estate in Auckland, I deal with investors wanting to be a part of a joint venture including subdivisions, townhouse developments, commercial buildings, and retirement villages and present their opportunities.

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