Lets Talk About Property Joint Ventures

Property joint ventures sound like a great idea. They provide the opportunity to pool resources with one or more business partners so that all can benefit.

But they can go wrong. There are some pitfalls and challenges that come with the territory, and you should be well aware of these possibilities before you embark on such a venture, so that you are prepared in case something goes wrong.

What is a Joint Venture Property Investment?

Put simply, a property joint venture involves two or more parties pooling resources and working together for the development, acquisition and/or management of a property.

These are often inequal agreements, in that it is not expected for all parties to bring the same monetary investment to the table. Instead, it might be a joint venture between an experienced property developer and an investor, combing industry knowledge with cash to bring a higher return than if those parties attempted to work separately.

A property joint venture can involve numerous partners, especially if the project is a large commercial or residential development, though it can also be as small as two individuals working together to manage a single property.

Property joint venture projects usually revolve around buying a property, refurbishing it, and selling it on. This allows a visible return and a short-term goal that keeps the venture simple. Long term arrangements do occur (such as buy-to-let) but joint ventures are less preferable than setting up a limited company (consolidating) in these instances.

Benefits of Property Joint Ventures

The benefits of joint ventures are likely what you would expect. Entering into a joint venture gives you the ability to pool resources and undertake a larger project than you would be able to try alone.

It also lets you combine experience and knowledge from different sectors. If you have the cash, but are not an expert in property, you could partner with someone who is very knowledgeable but does not have the money to proceed. In this way, you can both benefit from what each partner brings to the table.

It is a popular arrangement. People with lots of experience will seek investors to fund the venture. The experienced partners will do most of the day-to-day work, and then the funding partners will receive an agreed percentage of any profits.

As mentioned above, many joint ventures are shorter term, used for buying, refurbishing, and selling on properties. This means the return on investment has a fairly quick turnaround, and you should see your full profits in under a year.

It also secures you against a bad venture. If you start a joint venture with a partner who promised more than they can deliver, or you simply clash personalities, you can end the venture after the first property and move on without being caught up in any long term arrangements.

Potential Drawbacks

No investment is without risk, and joint ventures have some pitfalls and drawbacks you should be aware of.

Let’s get the worst problems out of the way first. What do you do in the event of the death of one of the venture partners?

This is devastating on many levels, as the person could well be a friend or even a family member. It might be a little surprising, but many joint ventures don’t factor this into their planning.

In this instance, there are choices to make. Does the deceased’s place in the business transfer to their next of kin, or is the business taken over by the remaining partners, with the bereaved family receiving financial compensation instead? There are other solutions as well, but regardless, they should be arranged when the joint venture is established, so that everyone is certain of all eventualities.

Similarly, long-term sickness should be planned and accounted for. Perhaps an ill partner will want to leave the venture, in which case there should be plans in place for transfer of funds or property ownership. They may want to take some time away and then return to their duties within the venture.

Contingencies must be made for these things.

If the joint venture is between friends or family members, what happens if there are issues outside of the venture. If two venture partners are married or in a civil partnership, what happens if they divorce or separate?

What Should You Do?

The best step you can take is to have legal agreements in place that cover these eventualities. This is especially true if various partners are contributing different amounts, so that ownership and profit share might also be different.

Roles and responsibilities should be clearly defined and stated in the legal agreements.

You will find that everyone is happier and more confident of the joint venture when they all understand their roles, their contributions, and their profit shares from the start.

Overall, remember this is a business venture. Even if your property joint venture is between friends or family, things will run far more smoothly if everyone understands it is a business with rules and regulations.

And to make sure everything is correct and nothing is missed, you should seek the advice of a solicitor who will help you create the agreement and ensure you’ve covered all eventualities.

Investing in property, similar to any other form of investment, involves inherent risks. Our website, services, or products do not constitute financial, tax, or legal advice, and should not be relied upon as such. Before making any investment decision based on the content provided on our website, products or services, we strongly advise seeking independent specialist advice from appropriate professional advisors.
Your capital is at risk. The value of your investment can go down as well as up. Historic performance and forecasts are not a reliable indicator of future performance.

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