By Michael Knights, CEO of Horizon Property Alliance
One of the great joys in my profession is building relationships that see like-minded folk come together with common purpose and create a successful deal for all parties.
Joint ventures (JV) are a wonderful approach to building wealth by leveraging off each other’s strengths, but there are crucial steps for ensuring success.
The get together
I was having coffee with a couple of clients the other day that I knew would make JV partners.
Both these blokes had small deposits, so they couldn’t get approved for finance on their own… but put their cash together and the combined team became a far more attractive proposition to the banks.
Best of all, their deal showed why duplex construction really comes into its own with a JV arrangement.
Their plan was to build a duplex and each live in a side each. This means they could not only afford to do the venture, but they’d enjoy privacy and independence too.
There was an added bonus in this instance too. By living in the home for the requisite period, they will be avoiding Capital Gains Tax on sale which made the whole thing even sweeter.
Keys to success
Joint Ventures (JVs) are great, but there are a few crucial steps you must take to ensure everyone comes out a winner.
1. Apply the ‘tool rule’
JV partnerships are like all successful relationship. They involve trust and communication.
Human nature is such that there will be times when you just don’t get along with someone, so you must spend some time with your potential JV partner and get to know them before going into business.
Have a few coffees, understand what they bring to the able and most off all, make sure you both communicate well with each other.
I have a ‘tool rule’. If you spend time with a potential partner and come away thinking they’re a bit of a ‘tool’, then do not go into business with them That’s regardless of whether it’s a friend, stranger or family member, make an assessment on how you feel about the JV and go with your gut early.
Better yet – have an independent third party like me help co-ordinate the arrangement. I provide my JV clients with constant, up to date information on their project so everyone is across all the factors without having to rely on each other constantly.
Perhaps we know your next perfect partner…
We can help you find that opportunity that you didn’t know existed..
2. Have a legal agreement and expert advice
JVs require all parties to be on the same page and having a solicitor draw up your JV agreement is just smart business.
The solicitor should run through the various pros and con of doing a JV project so you know what you are getting in to.
This is also the time to address the processes and triggers that will apply during the venture.
Dispute resolution is a big one. While everyone is in the friendly ‘honeymoon period’, it’s hard to image what will happen if trouble looms.
In truth though, your JV agreement must have mechanisms in place to sort out any difficulties.
In addition, you must run through the numbers on the buy-in, sell-out and ongoing costs, and the exit strategy for both partners. Things will come up, circumstances may change and one partner may need to exit early. Don’t argue at that point but rather have a plan to deal with the unexpected in your JV agreement.
Surround yourself with a team of people to help put this agreement together too. In addition to the solicitor, seek advice from experts in the fields of accountancy, property investment and mortgage broking. This sort of team takes the tension out of the deal for you and your JV partner.
3. Understand your profit
Make sure your knowledgeable and experienced accountant can help you calculate your true profit from a deal too.
There are tremendous financial upsides to living in your investment, and a knowledgeable account can help you take advantage of these. You need to know how much tax you’re saving and what other deductibles are available to you both, so you can make a well-informed decision about how to proceed.
This might also be a good time to talk about whether you intend to hold the property for a long time, or sell it for profit after a set period. Your account will be able to guide you through this process.
Make $100k uplift
Let us show you how..
4. Know the right agent
Sometimes it’s not what you know, but who you know.
Position yourself with an agent who can present you with the best possible opportunities – particularly those who can source off-market deals.
This is where some big money if made – on the buy in. By aligning yourself with an agent that can present pre-advertised ventures, you’re bound to be on a winner.
I’d also advise you to seek independent advice on all feasibility matters. Don’t just rely on the selling agent’s advice, but get others onside to help cover your back.
5. Take action
My final tip – don’t muck around. If you’re going to do it, then get in there and get started.
Opportunities whiz past if you don’t jump when the time is ripe. I have seen too many potential buyers wallow in regret about the deal that got away because they were too cautious to say, ‘Yes’.
JVs are a fine option for anyone looking to mitigate risk and bump up potential profit, but don’t blunder in unprepared. Look for an experienced professional who can help you find the right partner for your next venture.