Real estate investing is one of the most popular methods used by people looking to inflate their income or try to build for the future or retirement. While commercial property investing is often considered a safer investment and more of a sure thing there are still numerous risks and hurdles that need to be accounted for and taken care of. Many investors turn to joint ventures to help them find an investment property worth the time and money. Before you enter a joint venture or if you are considering investing in a commercial real estate opportunity then make sure to familiarize yourself with these important things regarding joint ventures.
What is a Joint Venture?
A joint venture is a business arrangement or agreement taken by two or more parties who agree to combine their resources to accomplish a specific task. In real estate investing it means two or more people will combine their assets and capital with the hope of investing in a better property or minimizing expenses that they have to face. This is typically done by parties forming a separate business entity in which the owners all contribute assets, agree on how to manage the entity and have equity.
Do All of Your Homework
When developing a joint venture it’s important that all parties and developers involved understand all of the details. Make sure that the terms you’ve agreed upon work for everyone. Do all of the necessary homework and research and pay close attention to three crucial areas in the deal: control and reporting requirements, economics of the investment and joint venture and all tax implications.
Joint venture partners should always agree on an exit strategy at the start of the investment as well. Making sure you are on the same page with exiting an investment and when will help you avoid major problems and conflicts a few years into the investment should one of you look to sell while they other wants to hold long term.
Focus on the Economics
When working with developers and joint venture partners it’s only natural for all parties involved to want to negotiate an agreement that benefits them. Pay attention and understand all of the economics in the investment and the partnership so that the transaction is beneficial for all parties involved without being a burden to one side. Do this by focusing on key things like:
- What is the return your joint venture partner will want?
- Will the developer receive the same return as the JV partner?
- Will both JV and developer equity receive the same priority?
- Watch out for joint venture partners looking for 15% priority returns. This can reduce or completely eliminate any incentive for the developer and can cause the equity levels to shaft unfavorably in one partners’ favor.
Schedule Meetings Regularly
While this is more important in joint ventures with more than two parties involved you should always make sure to schedule meetings regularly even when there’s not a lot to talk about. Regular meetings will help make sure that everyone involved is kept up to date with all events and that communication can happen easily among all partners. Writing down everything discussed and agreed upon in the meeting will help you settle disagreements or disputes later on should they come up.
Helping All Parties Involved Regularly
Whether you’re in a joint venture partnership or are looking to create one the experts at Landwin will help you find the most successful investments for your venture. For over 30 years we’ve been industry leaders in LLC meaning we protect more investments and help more joint venture partnerships than any other companies.
Landwin works by finding the most risk-free investment opportunities and then working closely with you to manage your investment. If you are considering entering commercial real estate and are forming a joint venture partnership with friends, family members or associates then call Landwin today. We’re here to help you with any and all questions and to help you maximize your returns on investment with each and every project.