Joint Ventures – Be Aware Of Pitfalls

pblogs1A discussion on PropertyTalk on joint ventures this week suggests there are many property investors whom have heard of the joint venture strategy but have very little knowledge or experience of how it works.  Entering into joint venture deals lightly can be thwart with obstacles that can turn a deal bad.

Joint ventures are used by property investors for various reasons but mostly they are driven by an investor who has hit a financial roadblock and no longer qualifies for further funding to purchase more property.   The RBNZ 70 % LVR restriction on Auckland investors is hurting some investors so they’re considering other options to continue to invest in the Auckland region. Recent talk of further restrictions on property investors including fixing of the income to debt ratio will only heighten property investors’ curiosity of joint ventures.

The discussion on PropertyTalk commenced with this question:

“I’m wondering what experience and advice people have for structuring a property joint venture. In this case I’m going to provide the capital and my business partner the labour (builder). Essentially I will fund everything: deposit, holding costs and provide the capital to renovate the property. With the aim of selling the property once renovated.

The one thing I’m unsure about is how to agree the value of what we are each putting in.”
Joint Venture

Investors participating in the joint venture discussion provoked further thought around how the joint venture would work for the parties involved and how the risk would be shared equally. Questions asked included: Is it important to know the other party well?  Do they need to have a financial risk component?

Joint venture property investment deals do work extremely well and there are many examples of property investors growing their property portfolios using the strategy.  This eBook has examples of JV property deals that have worked out well.  However they weren’t entered into lightly.  Like any partnership all parties involved need to be understand their role, and commitments as well as their reward and a legal agreement underpins all of it.

While the reward determines the viability of joint venture arrangement, it’s the legal agreement that underpins it’s success.

This blog article was written for PropertyBlogs by Mobilize Mail.

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