This is the first in a series of posts about Property investment joint ventures. A lot of successful property investors build their wealth and income streams using other people’s money. It is possible to build your entire portfolio in this way.
Let’s face it, in today’s market it can be a really slow and painful process to obtain mortgages and other forms of finance that you need for Property Investment. There is also the cost which can be high, and you are taking all of the risks.
Why Should You Consider Joint Venture Property Investment?
There are a lot of people that want to invest in properties, but are held back because they do not have access to the finances required. Raising finance through building societies and banks is becoming a real challenge, and a lot of potential investors find themselves turned down again and again.
If you do finance your property investment deal by borrowing from a financial institution, then you are taking all of the risk. Unless you have other sources of income, you will need to rent or sell your property pretty fast to keep the bank happy, and that can be a challenge at times. If there is a delay, you can find yourself drowning in debts.
What Are The Different JV Structures For Property Investment?
There are several JV structures that can be implemented for property investment and here are the most common ones:
Time Versus Money Straight JV
Here your partner will provide all of the finances and you will provide the sweat equity which is your time and effort. This is a very common arrangement, but some people worry that they do not have the experience to pull this off. If you have not invested successfully in property in the past, why would anyone agree to this kind of JV with you?
The answer is that it is all about you, and the drive and determination that you have to be successful. Most savvy investors will prefer a person who is totally driven by success, over a “know it all” property investor who relies solely on their track record. Do not be put off if you do not have a lot of experience.
Deed Of Trust JV
The idea here is to create trust. You find a person who is interested in investing, but is reluctant to use their own money. You get them to apply for the appropriate mortgage, and then you create a contract which confirms sharing of cash flow and losses, and the apportionment of equity.
Intellectual Property JV
With this type of JV you are trading on your expertise. You will be seen as the expert in property investment by the investor, and this will be your asset. Not for beginners.
A Roll Up JV
In this scenario you will borrow the necessary funds from the investor at an agreed rate of monthly interest. The interest is payable “rolled up” at the end of an agreed amount of time. You provide the investor with the security of first charge on the property.
Tenants In Common JV
This is a 50/50 investment where you buy the property together with your investor and receive a 50% entitlement of the title deeds, and share equally the rewards and the risks. This will provide a good level of trust to the investor.