Joint Ventures In Real Estate Development; So How Do They Work?
There are many reasons why you would consider joining with another person to undertake a development project in Joint Venture. Usually the most basis reason revolves around something you don't have. Some of them may be: 1. I own land ... have capital & capacity to borrow ... but no experience. 2. I have capital & capacity to borrow ... partner has land ... both have no experience. 3. I am 'time poor' ... work full time and can't be personally involved ... Let's suppose you want to find a land owner who will put their land into the Joint Venture, (JV) and their land will be their major contribution to the deal, plus some borrowings.
Let's consider the implications of entering into a JV in the first place. After all, in a JV you have to take into account another persons attitude, decision making process, (or inability to make a decision), whether they have a logical and sensible mind ... the list goes on. So, getting into a JV must have a good payback for you. Whatever you lack is usually the reason for entering into a JV. I have noticed over the years that JV's have a prime motivator, the driver of the deal (you), and the other person is along for the ride. For example: the other party may have a wonderful property (site) and wants to develop it, but does not have the knowledge. You "love" the site and know that you could make it a very successful and profitable real estate development. You approach the land owner. Another example: maybe two individuals who have saved their capital, however individually it is inadequate to undertake a project. Combining their capital and borrowing capacity will allow they to proceed. I prefer a JV where both parties are equally motivated, have different skill bases, but each regards the other as contributing equally.
You know the feelings that can occur, "I'm working harder that you ... all you do is the phone and number crunching work ... I'm always out and about on site dealing with the real work."
Don't forget why you got together in the first place. So there are many reasons for JV's. However, you must be clear as to why you are doing it, and it must be secured by a legally prepared JV Agreement. A lot of 'practical people' hate legal documents ... a JV Agreement is a legal document and both parties must understand what it says. If one of you is a bit slack on this point, it is up to the other to sit them down and go through it ... it's important! Why? Suppose the JV deal hits a rough patch and your partner says, "I didn't know that ... why didn't you tell me ... I left all that legal garbage to you ... blah, blah." Got It, have the arguments at the beginning of the deal ... not later. A JV Agreement sets out what each party will contribute, both money and effort, and sets out each parties obligations. It also sets out what happens if the parties 'fall-out' with each other as well as the division of profits or losses. There is a lot more at stake if you JV with your brother-in-Law, other relatives etc ... the term 'on-going-nightmare' is a phrase that readily comes to mind. And if one of those family JV's brake down, it doesn't matter how many pages are in the JV Agreement, or what the words say to prove that you are "RIGHT," ... as far as YOUR Brother-in-Law is concerned, you are a 'expletive deleted.' Just thought I'd get that out of the way!! OK? One more thing ... doing a JV with a rich person, when you are many levels poorer then them, is also not smart. Why? Well, in simple terms, when 'push comes to shove' money rules ... The golden rule says, He who has the GOLD, RULES. Also, if the rich guy tell you not to bother with a JV Agreement ... he appears to be saving you money ... tempting eh? ... what he's really doing is taking away your legal rights. Yep, you'll have less rights than an employee. If that's the deal ... better to be an employee! In my my ebook I emphasize the importance of getting the Structure Work of the business organized - you will build a much better development business from a secure foundation. When you are doing your interviewing of the associated professionals, try to see if they, personally, have any entrepreneurial tenancies. They may have land, houses, houses for renovation etc but don't have the 'TIME' or 'SKILLS' to do the work themselves. Don't come out and ask them straight away ... follow my ebook, do the work you want to do; that is assessing them ... but keep your antenna out for any signs of a common interest. OK, back to getting hold of some land. Get to know the local real estate agents; I mean know them well. Remember what I say in the ebook. Call in and buy them a cup of coffee, take them out of their work place; what about dinner after work; really spread yourself around. Invest your Time in finding good, well informed, dedicated agents. Believe me they are in your business community ... it's your job to find them. Appreciate that Agents are essentially self-employed, irrespective of whether they work in a Real Estate Agency ... their 'mind set' is independent. They back themselves and their abilities to provide a sales service at a level that "consistently" provides them with a 'good income. That 'good income' by the way, will leave most of their 'client's' income looking a little anemic. The 'good agents' are busy; their 'time' is money; literally. So don't mess them around. Don't talk to them as though you are the Aga Kahn! You're Not. There's always a guy richer than you ... maybe the Agent! Why am I making such a big point about agents. I believe "people" get the agents "they deserve." I have heard people talk to Agents as though they were some grubby leech on society and are doing them an honor even to talk to them. To be a successful agent these days you have to be very good. Many are highly educated and choose real estate as a career for the freedom, individual reward and great returns. What comes out of your mouth + body language tells an agent a great deal about you. They then wonder why the Agent never calls then ... Dong!!! Keep your 'ego' under control. Their sales success rests on their ability at 'reading people.' Remember what I say in my ebook! When you are in the development business, you are in the business of:Google Plus www.brtFinancial.com
Getting People To Do ... What You Want Them To Do Within The 'TIME' and COSTS You Set.
That means that you have to be in control of 'How You Treat People.' Agents know a lot of people ... maybe, they even know those people who want to JV with you. While you are doing this "work" don't forget to do what my ebook tell you to do about research. Last idea for finding JV people - talk to your friends - put an advert in the local newspaper seeking expressions of interest from people interested in doing what you want. OK, you've found a partner who has the land and you are comfortable with the relationship after several meetings. Important question! What value does your prospective partner put on his land that will be put into the JV? Just throwing a few figures around to give you an example. Let's say that market value for his land right now is $300,000. But he wants to put into the JV at $400,000. So if your JV Agreement involves you gaining a share of the profit, your share will be $100,000 less. Got It? Now let's say that part of your skills contribution to the JV includes a rezoning of the land to a higher level and you achieve that for the JV. That rezoning may take the land from a single unit (house) dwelling zone to a six dwelling unit zone. Your efforts have increased the land value significantly ... no, not six times, as house properties are valued differently to multiple unit properties. But it may have increased by 3 or more times, depending on your market. Once again the $100,000 will come off your share. Now that may be OK by you, because you are just starting out on your first development ... it is always better to KNOW what you are agreeing too. I hope this information helps you in your consideration of entering a JV. but please remember, don't just read my eBook ... study it ... take notes in a special hard cover Development Copy Book that you will buy. Writing things down is an aid to learning and remembering. My LAST DON'T ... Don't start any of this JV stuff until you know my eBook inside out. You must not just be able to 'talk the talk' - you must know what you are talking about. What I am all about, is helping you to do residential development with the RISK reduced. If it takes four years study to get a basic Degree and say another five years to get some experience, why would you think that you can enter the development business with little study -- no experience and expect to be profitable?
by Colm Dillon,
