Robinson, head of Verico Best Interest Mortgages, is offering a list of the top five warning signs any investor should look for when evaluating a prospective JV deal. There are actually six, says the property investment specialist, but you should already know about the perils of swampland in Florida.
"It is important to note JVs can be a wonderful thing, and I use them on a frequent basis," says Robinson. "Here are a few things to help ensure you avoid the bad ones -- what I call Five Red Flags over JVs."
1. A highly exciting pitch. My personal favourite is when right at the end of the pitch, the presenter says something along the lines of “now any of you thinking they need to go and talk to their spouse or partner about this deal is a not a serious investor ...” Seriously, if you hear that RUN!
2. Promises of very high returns & high commissions. Find out how they can provide the stated returns and follow the money! If they can pay 25% in commissions and 25% to you ask some very detailed questions, and only accept a clear explanation -- one your accountant would buy.
3. Convoluted ownership structures. If you can't explain the offer to someone in less than a minute, forget it, period.
4. Refusal to share the downside. If they don't believe in their own system and aren't prepared to take a hit should things go pear-shaped, why should you?
5. “Just trust me ...” Lack of paperwork and/or refusal to disclose personal or corporate financials is a clear sign you should run. If they can't manage their own fiscal house how can they manage yours?
Just because you may encounter one of the above does not mean the opportunity is a scam, it just means you have to ask more questions. Always get your lawyer and accountant to review the documents. An advisor who can tell you when a deal is a bad one is money well spent.