expert-q-a

Investors ask: Joint ventures

By Sam Saggers

Q. I am looking at getting into a joint venture with a friend. We both have $35,000 to play with. Is doing this together the best idea?

A. In real estate it is common practice to join together with a friend or family member or money partner to instigate buying property. Joint ventures typically arise as a result of combining the following elements:

1. The investor does not have enough deposit to put into a deal, or does not have the income to support a loan from a lender
2. The investor does not have either the time or the knowledge to structure the investment opportunity
3. The investor wishes to transact a more complex property investment and requires one or more investment partners

In each situation a joint venture is always different, as no two people or two opportunities are identical. I have found that there are some crucial things to keep in mind before leaping in, and common mistakes include:

1. No clear goal
2. No decision and action taking process
3. No legal documentation
4. No exit strategy
5. Failure to understand the ongoing cost of being tied together
6. Incorrect structures

Remember, if you buy a property together you may reduce your capacity to buy again on your own, as it will assume all the debt of your acquisition but on half the income.

Make sure you have the right structures in place, and be very rigid with these, especially if friendships are involved.

Sam Saggers, CEO, Positive Real Estate

Investors ask: Joint ventures
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