The next couple of blogs will look at joint venture partnerships and ways in which you could raise finance for your property projects.
What is a Joint Venture Partnership?
There is a subtle difference between an investor and a joint venture partner.
A joint venture partner is likely to be more hands-on than an investor and will normally take a much larger interest in the property and the deal.
The standard definition of a joint venture partnership is “when two or more persons come together to form a temporary partnership for the purpose of carrying out a particular project.”
Doing a joint venture (JV) can be very easy or it can be very difficult. It really depends on how easy or difficult you want to make it and how easy or difficult your JV partner wants to make it.
You have probably heard lots of stories of successful JV partnerships and also partnerships that have not been so successful.
What Makes A Good JV?
A good JV is when people come together for the greater good and are able to focus on producing the results. The key thing in a JV is that everyone is a winner and there should not be any losers.
How Do You Set Up A JV?
It is important to remember that JVs and property in general are both people businesses. Sometimes that means that it takes time to build these relationships through networking and talking to people. Numerous coffees will more than likely be consumed during this process.
Setting up a JV is quite straightforward. The easy way to do it is to keep talking and keep communicating with each party involved in the JV and produce a heads of terms document.
A heads of terms document starts out as a blank piece of paper.
The heads of terms document will include information such as who wants what in the JV, what the purpose and the desired outcome of the JV is, and what the roles and responsibilities are of everyone involved in project.
Personal details and company information will be on the heads of terms document too.
Other key factors that you will need to put into the heads of terms will include what happens if the project goes wrong. Obviously you hope (and we certainly hope) that the project is not going to go wrong.
You do, however, hear stories of projects that have gone wrong and where the people within the JV have fallen out with each other as there is no clear Plan A, Plan B or even any form of exit strategy.
The last thing you would want (or indeed your JV partner would want), is for something to go wrong and for them to be without any form of contingency plan or understanding as to how to sort it out.
While these cases are fairly few and far between, it is important that you know your exit strategies for the project and also who is going to do what in the event of something going wrong.
Finally, once you have as much information as possible on your heads of terms, then you will need to take it to your solicitor who will write it up with all of the extra legal words and phrases to complement what you have done and you will have a JV agreement as a result.
Structure Of A Joint Venture
There are many different types of company structure that can be used for a joint venture. Each has their own tax advantages and some structures may be more beneficial to you than others.
It is highly recommended that you seek the relevant professional advice before deciding on your exact structure. Speak to a qualified individual such as a tax planner as they will be able to help you.
It is quite common to have a JV that is 50/50 which involves:
- Having one person (or more) putting in the time and skills and other person putting in the money.
- Having one person (or more) putting in the time and other person putting in the money.
- Two or more people putting in equal amounts of time and money into a deal.
You can JV on anything as long as everyone is happy and understands their roles and responsibilities. You may JV on buy-to-lets, HMOs, land development, commercial conversions, serviced accommodation and any other property strategies that you can think of.
The Secret C – Communication
Communication is fundamental to the success of a JV.
Property is all about people, building trust and working with others. It is important to be able to master the art of communication and to be able to communicate effectively.
Set out your communication channels from the start. How will you communicate? Phone? Email?
It is possible that there will be times in your JV where you must share some bad news or some news that may affect the outcome of the project. This will need to be communicated to the other parties no matter how bad it may be.
Do not fear sharing the bad news as it is life, it is property and these things are here to test us.
Communication is very important in these situations as trying to shy away from bad news will more than likely have a negative impact on everyone involved.
Nine times out of ten anything can be worked out with a quick chat, coffee and an open and honest conversation. There is nothing to be fearful of in these situations, as in a JV you are a team and most teams will end up working together for the greater good.
Key Tip – Communicate via different channels such as email, WhatsApp or even Facebook Messenger.
THE SECRET T – TIME
Setting up a JV can take time.
This is because it can take time to build up the relationships prior to entering into a JV.
You do hear stories of people who have just met and then decide to go into business and become incredibly successful very quickly. Fair play to them!
However, these stories are few and far between and time will more than likely be required in order to find the right people to work with.
Building relationships is important in general and it is the same when it comes to JVs. You wouldn’t necessarily jump into bed with the first person that you see on a night out, so you don’t have to jump into bed with the first person that you see when it comes to doing a JV in property.
Good things come to those that wait.
Building rapport with others does not happen overnight and it does take time. Just because someone has a complementary skill-set or money, it does not mean that you will end up working very well together. This is why regular meetings are important and why building the rapport is essential.