When it works well a joint venture is a good way of diversifying risk and using each partner’s skills to achieve a profitable result.
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Getting in it together
A joint venture is where one or more people team up to invest in a property and share in the profits. Usually there will be one partner with more money than time who provides the financial backing and one with more time than money who manages the property – particularly if the investment involves doing renovation work.
Get the right structure
Your joint venture could be structured as a time-limited partnership, a trust, or a fully-fledged company. It’s essential that you go into your joint venture with the right structure in place and that you know what each person’s responsibilities are.
Put in place a good joint venture agreement
This is a legal document and should spell out each partner’s responsibilities and what they will get out of it. It should also cover some of the more awkward aspects of going into a joint venture – are all parties financially able to carry out what they’ve promised? Who covers extra time? What happens if one partner wants to get out early? Going to a lawyer with experience in joint ventures could save you a lot of problems later.
Don’t guarantee anything extra
If you’re putting in the money, make sure you’re only guaranteeing the mortgage for the project you and your partner are doing together, and not any other projects your partner might be heading into.
Manage the risk
As well as a strong agreement, each partner should take all the steps possible to manage the risks in the venture. This includes having adequate insurance in case the unforseen happens.
Find the right lender
A joint venture can be a turn-off to some lenders. Using an experienced mortgage broker will ensure you get the right lender and the right structure for your venture. Contact us for more about how we can help.