There will come a time when attractive property investment opportunities emerge which may well be out of your financial reach. This is probably the most opportune moment to look for a joint venture property investment partner but there are obvious pros and cons about bringing in other investors. In theory and in principle there is nothing wrong bringing in a third party but you need to ensure that all parties are aware of their role, the way in which the investment will be managed and ultimately there is an exit route.
Sharing the spoils
One of the main drawbacks to joint ventures for many people is the fact that they will have to share the spoils with somebody else. In many ways this is a shortsighted take on the situation because some of these larger investments, normally out of the reach of one person, could yield significant returns. At this point it is also worth mentioning that not only are you sharing the spoils but you are also showing the risks so there are pros and cons when looking at this particular element of a joint venture.
Keep it business like
Time and time again we have discussed the matter of joint ventures and individual roles within these arrangements. Even before you get anywhere near your first investment you should have a detailed and written understanding of each individual person’s role and the way in which your partnership will work. You may well know the other party from a personal point of view but this is irrelevant because this is business and business should always come before friendship. If you feel that your friendship could impact upon the way in which your joint venture is managed and ultimately how you get along then you really need to consider whether you are making the right move.
Financial headroom
In a perfect world joint ventures would buy and sell property, moving their way up the ladder and banking large profits along the way. This would be the dream scenario for many but unfortunately everyday life can get in the way. It is therefore highly advisable to leave your joint venture some “financial headroom” in the event of unforeseen cash calls or other issues.
There is also the question of buying out a joint venture partner if they wish to bail out early although in reality the terms and conditions of your arrangement should highlight specific times when individual parties reassess their situation and give sufficient notice of any change. It may be that you need to bring in a new partner or you may have the finances to buyout your existing partner. These are the situations which can make or break friendships and make or break businesses.
Stay focused
When working your mind should stay focused on your investments, investment proposals and any opportunities to bank a profit and move on. We all have things going on in our private lives which can impact our decision-making process if we let them. Stay focused, leave your troubles at home and remain focused on the long-term targets. There will be times when you may need to take time away from work but if these are unavoidable then contingency plans must be made to ensure that all parties are impacted as little as possible.
There are obvious pitfalls with regards to joint venture arrangements with parties you know from a personal point of view or someone you have only just been introduced to. The key is to talk and ensure that all parties know their roles, there are short, medium and long-term goals and if individual situations do change make sure these are discussed as soon as possible. Communication, or a lack of it, is the main reason why so many joint venture partnerships fail to stay the course.