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7 questions to ask before any joint-venture deal

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guest | 26 Oct 2011, 03:52 PM Agree 0

(If a lack of funds is holding you back, I hope you’re coming to the Investor Forum because I am going to be sharing some tips to pretty much obliterate this obstacle forever.) Because financing is a major hurdle for many of us, we spend a lot of time talking about how to find the money. After giving a talk about this subject recently, I had a man approach me and ask for advice on how to start a joint-venture partnership.He said he’d really like to know how to find a good JV partner with deals and what he should do to screen them.I suggested he find partners by attending real estate conferences and local real estate investing club meetings. But before you even do that, here are seven questions to ask any JV partner or yourself if you’re going to finance the deal 1.    What are you looking for in a partner? Who is your ideal partner? Maybe you want to learn the business, so you might be looking for someone that will teach you. Or maybe you want to be totally hands off, so you’ll be looking for someone with great expertise and a track record. Possibly you want this to be a long-term relationship, so you’re looking for someone you can do several deals with. Whatever you’re looking for, you need to get be on it so you know from the start. Then you need to make sure this is in alignment with what your potential partner is looking for.2.    What value do you add to the partnership? Money is part of it for sure, but what else can you bring to the table? My husband, Dave, and I want hands-off partners, so we don’t expect our partners to bring any time or skills to the table, but we typically look for partners that can qualify for financing and that want to do more than one deal with us. As we grow our portfolio more and more, we don’t want a different partner on every property since that gets very complicated. We like most of our partners to do two to four deals with us. The same goes for you. Figure out what you want your partner to bring to the table?3.    What are your core values? I recommend you figure out what you value the most and only work with people who share those values. Think of it in terms of Dragons’ Den for example. Each of the Dragons is a money maker, yet they all have different value systems – profits are the main consideration but other things do come into play. It’s those other things you need to be in alignment on for best long term success. 4.    What is your time horizon for the investment? You want to know this so you can align yourself with people who have the same or similar expectations. 5.    What is your credit score like? You need to know your own credit because most investors will look to you to qualify for financing. Then ask your partner because credit is a huge indicator of how he or she will treat your investment. For me, track record is helpful, but I’d rather invest with a rookie investor with great credit than an experienced investor with crappy credit. If certain people aren’t careful with their own money, there’s no reason for me to expect them to love mine more. Of course, there’s more to working with anyone than just credit, but that leads to my next question. 6.    What and who do they know? Once again, I would rather work with a rookie investor who has invested in their education, put time into developing an experienced team and is going to work hard than an experienced investor who isn’t trying to improve. Focus on finding partners that are enthusiastic and energetic. Find out who is on their team and what experience those people have. Nobody ever has all the answers but the person with the best team around them can usually solve any problem quickly and affordably. If you’re looking for a hands-off investment, you need to be sure that the folks who will have their hands on got things covered.7.    If something goes wrong are you going to be able to handle it? Let’s face it – it’s real estate. Things happen. For example, sometimes a pipe bursts, a tree causes havoc with the foundation or a tenant destroys the property. These things are rare but do happen. If they do happen, are you working with someone that is financially and emotionally able to handle it with you. The managing partner is on the frontlines and needs to be able to calmly take the tenant troubles in stride. This partner also needs to be able to handle his or her half of the costs because typically you’re splitting the expenses and profits 50/50. Do you feel comfortable that this partner can foot their half of a $10,000 surprise? Do you feel comfortable that you can fund your half of that surprise?After one failed partnership six years ago and a snafu with a partner a few years back that nearly cost us two deals, my husband and I really spent some time asking ourselves these questions. We actually made of list describing who our ideal joint-venture partner is. We know not every person with money to invest is a good fit for us, in the same way that not any investor with good deals will be a fit for the person with money.It’s more work to try and put a deal together with someone that isn't in alignment with what you want to achieve than it is to just keep looking for someone that is a good fit. And the beautiful thing is once you find that great fit the deals get easier and the relationship can get stronger and last for the long term.
  • Andrew Thompson | 21 Nov 2011, 11:04 PM Agree 0
    Great article. It would be interesting to find out just what percentage of people use JV to buy their property in Canada. I heard that only 6% of Canadians own a rental property. I am not sure if that is correct.

    The rich get richer as they say.
  • Andrew Thompson | 22 Nov 2011, 12:04 AM Agree 0
    Great article. It would be interesting to find out just what percentage of people use JV to buy their property in Canada. I heard that only 6% of Canadians own a rental property. I am not sure if that is correct.

    The rich get richer as they say.
  • Julie Broad | 25 Nov 2011, 07:49 PM Agree 0
    Almost every deal my husband and I have done since we started together in 2001 was a JV of some kind or used private money. I can only think of a handful that haven't been ... 3 of which were purchases of homes we lived in ... so of the properties for sole investments I think we have only ever bought 2 that weren't either with a JV or a private lender!! But that is us ... I suppose CRE could do a survey and ask their readers - probably the only way you'd ever get a sense of that number.
  • Julie Broad | 25 Nov 2011, 08:49 PM Agree 0
    Almost every deal my husband and I have done since we started together in 2001 was a JV of some kind or used private money. I can only think of a handful that haven't been ... 3 of which were purchases of homes we lived in ... so of the properties for sole investments I think we have only ever bought 2 that weren't either with a JV or a private lender!! But that is us ... I suppose CRE could do a survey and ask their readers - probably the only way you'd ever get a sense of that number.
  • Irene | 09 Jun 2013, 10:22 AM Agree 0
    I think most people buy real estate with a JV without even realizing it! For example, many young buyers start with their parents' help - so technically they are a JV partner!
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