Joint venture partnerships, commonly known as JVs, are formed between two or more people to invest in a specific investment opportunity, often between someone who lacks the time or expertise to invest in real estate, often referred to as the money partner, and an expert, often referred to as the real estate investor, who is looking to leverage his or her experience by providing the knowledge, skill and work needed to create a profitable investment in real estate.
JVs do not have to be long term or involve each party in all deals but can be done on a per deal basis. The money partner may be silent and simply provide the capital needed to get started while the real estate expert conducts all the research, property souring, deal negotiations, tenant screening, and day-to-day property management. JVs are a good way for less experienced real estate investors to start. The risks are reduced and beginners can grow their money while learning how to invest in real estate, making a decent profit in the process. In many cases, you will find tired landlord or retiring real estate investors will be great joint venture sources. Many times, they will not want to do the day to day work of putting the real estate deal together, instead they will guide a new real estate investor through the process in exchange for a piece of the rate of return on the deal they structured. It is a great way to shorten the learning curve for a new real estate investor, landlord, or rehabber and gain information and knowledge from someone who has made money investing in real estate in their own back yard.
Credit partners are also good people to enter into joint ventures with as well. When you work with a credit partner you have them qualify for a loan, and once you find and structure the deal, you use their credit to obtain financing for the purchase of the property. You then both agree to split the proceeds after the sale of the property or arrive at an agreement as to how money will be distributed within the joint venture. .
How joint venture partnership investments benefit a money partner or private investor:
- Joint venture investments help the money partner realize more value for their money and time because they can leverage the knowledge and expertise that an expert brings to the table. Real estate experts can define a location and strategy for their investments and analyze the market to suit the money partner’s future needs.
- Joint ventures provide a sense of security: if the joint investor is an expert with a solid, reputable background in real estate investing and a good investment portfolio, this reduces the level of risk.
- Before a private investor invests with you, they will expect to see an exit strategy. Don’t be surprised if your investor wants a time-frame set for them to get their money back. You will want to spell it out very clearly in any contracts that you both sign.