Investing in property can significantly boost your pension plan, supply you with a full-time income and pave the way to a work-life-balance that most people can only dream of.
But there is a high barrier to entry. It costs a lot of money, yes?
There are mortgages and deposits, money for refurbishments, a cushion to cover void periods. There can be tenancy issues and acts of God; a broken roof, a flood, a boiler breaking down.
Building a property business requires a lot of money.
But that doesn't mean it requires your money.
If you bring the right skills to the table, then all kinds of partnerships are possible.
Knowing how to work with OPM (other peoples' money), otherwise known as JV finance, can be a legitimate and lucrative way of getting in on the action, requiring none of your own capital.
And that's what we are going to look at today, how to build a property business starting with a shoe-string budget, building partnerships.
So, if you are excited by the idea of building a property portfolio but you've little-to-no money to put down, don't worry - there are ways to get started/
What Is JV Finance?
Property joint ventures and JV financing involve a coming together of different parties to work on a collaborative project on a property (a JV deal). Often, each party will contribute something different, whether it's capital, skills, contacts or resources.
Risk is often shared.
> The pitfalls and upsides of Joint Ventures
> Where you can make the money
> Is this strategy right for you, your personality and your situation
> & real-life case studies on how Property Joint Ventures work in the real world
[00:30] What is a Joint Venture?
[01:50] How many Joint Ventures are setup
[02.45] JV Basics
[04:22] The Key to getting started
[04.54] Where the Money Is
[06.08] Assets That Will Help You Succeed
[07.00] The Time-frame to get up and running
[08.58] Examples of how a JV deal or Partnership can work
[10.52] Real Life Case Studies - How NOT to do it!
[14.04] Top 3 Things I Would Do Differently
[15.32] A Real Life Case Study - When it Goes Right!
I believe much more can be achieved in life and business if you focus on what you enjoy. Work with partners to bring skill-sets together. Property is no different
According to Wikipedia:
“A joint venture (JV) is a business agreement in which the parties agree to develop, for a finite time, a new entity and new assets by contributing equity. They exercise control over the enterprise and consequently share revenues, expenses and assets”
Most property joint ventures that I have been involved in (and have seen), have one partner contributing the funds/finance and the other partner contributing their sweat equity/time and skills.
If your personalities compliment each other and you set up the agreements right from the start
Then you can get some very successful property joint ventures.
This is how even most of the big players in commercial property invest (and I mean big....100’s of millions of pounds), by Joint Venturing with major banks and lenders and splitting shares and equity.
You don’t have to be that size though to benefit from this powerful strategy.
For beginners to property, where I think this has the most value, is in starting & then slowly building your property portfolio...
- If you have the cash to invest, by doing a joint venture with a hungry partner, you can rapidly increase your results, especially if they have experience, contacts and knowledge to bring to the table, and all without you needing to do the day to day work.
- If you are ‘time rich but cash poor’, then instead of the money, you bring to the table the contacts, knowledge and time to do the work.
You can then start to build your own property portfolio, without the need for your own starting pot of money for deposits and without needing to get your own mortgages.
Joint ventures won’t suit everybody, but if you both bring added value to the table then it opens up a lot of options.
This strategy starts with you, focusing on what assets you have...
Then consider what assets you are missing...
And then look to seek out partners with personalities and an ethos that you like and can get on with, could work together with and who have the ‘opposite’ assets to you.
This will allow you to complement each other's skills.
Where the Money Is
This depends on your J.V agreement but it’s not uncommon to see a 50:50 split on equity and rental income, after the funding partner has covered their initial investment
Situation it’s Best For
Cash Rich & Time Poor & Cash Poor & Time Rich
This strategy works for both types of investor.
Regardless of your situation, it is likely you will have skills, or assets missing that somebody could offer you, which would rocket your results.
Consider what these missing assets are, and look to use this J.V. strategy alongside another of the core property strategies that best suits your personalities and situation
Assets That Will Help
- Cash funds to invest or Time & Ambition
- Good credit history to get mortgages
- Contacts, Experience & Knowledge are always a helpful asset
- 3-12 months for an initial property
- 3+ years for longer term portfolio building
This is quiet an open ended timeframe as it all depends on what strategy you look to combine Joint Ventures with, and if you want to stay in a long term agreement.
One thing I want to make clear though is finding the right partner isn’t as simple as some people make it sound, and you shouldn’t just jump into bed with anyone.
If you are looking for a partner with money there are lots of investors out there with the means to invest.
If you are looking for a partner with ambition, time and experience, there are lots of people out there who will be happy for you to leverage their time and contacts.
But to find the right balance of personalities to work with you, this is key...
Finding the right partner can take time, so if you’re interested in this as a strategy, it’s important to get started now and start getting out there and meeting more people.
Make the effort, network, outreach to like-minded investors, make it known what you’re looking for.
Often you will find joint ventures in the most unlikely of places, so keep an open mind, know what you’re looking for, and make a plan on how to find it.
Remember what your potential returns on these were.
If your Cash Rich & Time Poor...
Would it be worth giving a portion of that away if you could be completely hands-off and have someone do all of the work for you?
Especially if you knew the person doing the work was only rewarded if the property was a success and achieved what you agreed at the beginning?
Reduce your risk.. Take back your time and still benefit from property with great (possibly infinite)returns.
If your Cash Poor & Time Rich...
Would it be worth speeding up your portfolio growth and working for free initially if you were rewarded for your skills and success with a massive upside?
If it would take you 1-2 years to save enough for a deposit to buy your first property, to then run out of money and have to start again... would you consider giving your time instead, and working to grow a joint portfolio, where you split the benefit and you can grow much quicker.
A Real Life Case Study (how NOT to do it)
I’ve done a couple of joint ventures with property and I have a couple up and running now.
Not all have been successful, and I’ve learnt lots and what to look out for as I’ve made mistakes.
After looking back, all of my previous joint ventures that haven’t worked out seemed to have been because I was too similar to the other party AND our skills were too similar.
When I first started out I had a joint venture with a friend of mine. This was with sourcing property leads.
From the start, you could see it was always going to be tricky as we were both bringing the same assets to the table – time.
But I had a little more property experience than my friend as they were completely new to it.
This meant it was difficult to split roles, as I had the experience, so I would take on most of the work, and they had to learn everything as they went along so it was a steep, long learning curve for them.
This uneven split can easily breed resentment and frustration, and as property was new to them they soon realised it wasn’t necessarily what they enjoyed.
Luckily we were good friends, and we realised quickly that it wasn’t working out, and we should separate and do our own things.
In all, it probably wasted around 6 months of our time and a starting investment of about £1,000. It was a good first Joint Venture in a way, as it was a relatively painless end, and neither of us had committed too much apart from time.
But I learned that having similar personalities is not necessarily a good thing. Often it can be helpful when people bring separate and distinct assets to the table. This way, there is a real benefit all round.
Top 3 things I Would Do Differently
- Check and Double check you have the right personalities and different assets to bring to the table. Meet each other a number of times before you do a deal where possible and don’t rush into things.
- Doing J.V.’s with friends is fine, but it’s still important to make sure you have the right agreements set up from the beginning
- Make sure all parties know their roles from the beginning and set markers to make sure they are kept to and achieved. This will help you analyze if the J.V. is going in the right direction and help you steer it back on course if you need to
A Real Life Case Study (when it goes right)
The first joint venture I did with a partner to purchase a property was in 2009, and it is still going strong to this day.
As I was sourcing properties for my own portfolio and for other investors, I was in the unique position of seeing the very best deals as I was direct to the source.
I would often come across deals that I wish I could purchase myself, but I had run out of money or I wasn’t in the position to buy
(Note: it doesn’t matter how much money you may have to start with –eventually you will run out – this is why Joint Ventures are so powerful if you are continually looking to grow)
I started off selling the deals to other investors as ‘packaged deals’ and I would get a finder’s fee for sourcing them.
The finder’s fees at the time were good, around £2-3k per property so it was a good return and use of my time, but my personal plan was to buy and hold properties. I wanted to grow my portfolio, and I was regularly passing up great deals because I couldn’t buy them.
One of the original investors I was passing deals on to at the time, asked me to meet up as they were planning their strategy for the year ahead.
At the meeting, they asked why I sold on these properties and didn’t take them for myself, and I explained, that I would but I had run out funds, and I now had quite a few mortgages and lending restrictions were getting harder.
It was then that they suggested a joint venture. I had never even considered that as an option before.
We agreed that they would provide the finance if I would source the deals for free, and put the best deals I sourced into the partnership. We would then split the rental profits and equity growth on anything over their initial investment.
To this day I manage the properties as part of our agreement and when the time comes to sell the properties or refinance, I will benefit from any capital growth and the equity that I negotiated on the discount.
One of the properties was valued at £75k and we purchased it for £45k.
Now I’m not saying all deals are like that, but you can see why I was glad I wasn’t just passing that on for a £2k fee!