If you are just starting to invest, the first thing you need to acquire is knowledge. You need to educate yourself as to what makes a good investment and how to find them. You must have this fundamental knowledge. I sometimes meet amateur investors who are running round with a “deal”, looking for a JV partner to fund it. The main problem is that the supposed “deal” is not actually very good at all, but the amateur does not know that. This is a waste of their time and energy and is usually due to a lack of understanding.
Unfortunately, many amateurs do not even have the required knowledge and so they have no chance of finding anyone to back them. If you are not prepared to invest in yourself then why should someone else invest in you? It is worth mentioning here, that over the past 5 years a number of individuals who wanted to educate themselves with me did not have the funds to do so, have been rather enterprising in finding JV partners to sponsor them onto my property Mastermind programme in return for finding deals for the sponsor who may be cash rich but time poor.
Once you have the knowledge, you need to apply it to get some experience. This is often when many newbie’s fall down. They can’t get the experience because they cannot fund their first few deals themselves and they can’t find a JV partner because they have no experience. A true catch 22 situation!
So what can you do about it? The best solution is to work on some deals with more experienced property investors to gain more experience, credibility and track record for yourself. Maybe you could find an experienced investor to mentor you or maybe you could shadow them to learn what they do and how they do it. Why would an experienced investor do this? Well maybe you can help them. Maybe they have too many properties such that they can’t get a mortgage but you can, which would be valuable to them.
Or perhaps you could introduce an investor to them for one of their deals and you get the credibility from being linked to that deal.
Once you have the knowledge and some experience you can set about the task of finding some potential JV partners to work with. Working with friends and family before approaching strangers is a good one, however if you are new to property it may be hard to convince friends and family that you know what you are doing.
One of the easiest ways for you to find potential JV partner is to tell everybody what you do. I mean EVERYBODY you already know and EVERYBODY you meet from this day forward.
As simple as that sounds, so many investors just don’t bother to do it. I am pretty sure that if you think about it, you will come up with some people you already know, who are not aware that you invest in property. I teach my students to say “I do two things: I help people solve their property problems and I offer fantastic returns for investors”. This simple phrase is enough to potentially unearth some motivated seller leads and or find potential JV partners.
Sometimes is can be easier with people who you don’t know so well. The best place to find these people are at property networking meetings and property seminars. At most good network meetings there should be all the resources you need in just one place. The skill is for you to get to know the people in the room and understand how you can help each other.
Remember that when you go to networking events, it is not necessarily just the people you meet in the room who will be able to help you but also the contacts in their extended networks. The best question to ask when networking is “Who do you know who …” and then fill in the blank with whatever you are looking for. So it could be; “Who do you know who may be interested in getting a 12% return on their money?”
You need to pick your JV partners very carefully. I have seen a number of JV partnerships have difficulties because it was not really clear who was supposed to do what. In my opinion you should not rush into a JV partnership. You need to build up a trusting relationship with potential partners, which can take time. I suggest when you meet potential JV partners at the networking events you arrange a follow up meeting to get to know each other and work out if there is a potential to help each other.
Find out what is important to you both. Do you have similar goals and values? This is very important but often missed. Do you bring out complimentary skills and resources to the partnership? You need to be clear on exactly what your commitments and involvement are going to be. I would strongly recommend that you put down in a simple letter of intent, in black and white, how the joint venture should work. With the best will in the world, property deal do not always go to plan and so you need at least a Plan B or even a Plan C in case things don’t work out as expected. A clear exit strategy is very important to every JV deal.
One of the questions I am often asked about Joint Ventures is: How to structure the deal? The answer is … it depends. It is completely up to you and your JV partner but it all comes down to what you want to achieve.
Let me start by giving you some general advice on structuring deals and then I will share two case studies.
First of all, I don’t think it is wise to financially link yourself to other people. For this reason I would not recommend that you buy properties in joint names. Instead I would put each property in one person’s name and then have a separate Deed of Trust to represent the true ownership of the property. If you intend to build a property portfolio with partner on a 50% shared ownership basis, then you need to carefully consider the long-term exit strategy. I think the easiest way to do this is as you add each property to the portfolio you alternate the name on the deeds. If you want to go your separate ways in the future, it is very easy to do so with half the properties in your name and half in your JV partner’s name. This avoids the cost and of complication of having to sell the portfolio and split the profits.
Source: Your Property Network Magazine
Issue 43 January 2012
Written by: Ant Lyons