We have talked about using joint ventures for finance on here before at My Property Mentor. However, in this climate, which by all accounts is set to last a good few years, if you still want to do property deals but cannot leverage much of your own cash for finance, then a joint venture partner is the easiest way forward. There are a few things to think about before you head off in search of a partner.
Investors will need to see commitment and experience for a start and will expect you to shoulder some of the risk from your side to contribute to the deal. Think about what you need from an investor, AND, what is your own strengths and weaknesses. Ideally you want someone who will compliment your own skills and needs not just be a bucket of cash. Having said that it is always wise for any property deal to get the finance sorted first, and then look for a property. There is no point getting all exited about a deal if you can’t finance it. And good investors do not grow on trees!
A Few Simple Things Before You Start A Joint Venture
- What’s your own credit rating? – Will you need an investor to be on the mortgage papers, or is it cash only?
- For cash only deals you will need to demonstrate ability- what are your core skills and experience?
- Where and when will the profit be realised?
- Remember to factor in ALL costs, not just development costs. An investor will only take you on if you can show that you really understand the core principles.
- Be truthful! No point hyping your skills or costings, a real investor will know you are blagging.(tsk!)
- ALWAYS get a legal agreement drawn up with the specifics, so there is no arguments later. Even the nicest people can change when money is involved- and this includes friends and relatives.
- Test the water with new investors on a couple of smaller deals first. Generally a big mistake to go for the jugular on day one.
- Write a proper business plan for the deal so the investor understands your thought process. Our blog here can help you with that.
The point of getting in investors is to help you with a flow of cash, not to rip them off. Initially you may have to give them the larger share of any profits until you both feel comfortable working together. They can help you to bridge funding gaps and move forward.
Also, don’t forget there is property development finance you can get if you are wanting to try a JV. Check our property development page here for more info.