Real Estate Investing Basics

10 Vital Aspects of a Bulletproof Joint Venture Agreement

Expertise: Landlording & Rental Properties, Business Management, Flipping Houses, Personal Development
39 Articles Written

Whether you are a new investor or more seasoned investor, the chances of entering (or being approached to enter) a joint venture relationship are fairly high. As we know with all partnerships, some work out wonderfully and some others are miserable failures. My husband and I have been involved with many different joint ventures over the years, and there have been various “learned lessons” we have picked up along the way.

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Let’s begin by defining what a joint venture even is. According to, “A joint venture (JV) is a business arrangement in which two or more parties agree to pool their resources for the purpose of accomplishing a specific task. This task can be a new project or any other business activity. In a joint venture (JV), each of the participants is responsible for profits, losses and costs associated with it. However, the venture is its own entity, separate and apart from the participants’ other business interests.”

There are many reasons that two parties enter into a joint venture relationship — all of which often include banking relationships, financial reasons, time, expertise, and the list goes on and on. Joint ventures can be great since the two parties join forces for a common purpose and share in both the risk and reward.

One of the most important ways to set yourself up for success in a joint venture is to have solid agreement in place with the other party BEFORE the project begins. Sometimes it is not necessary to form an entirely new company; however, it is essential to have a strong agreement in place that protects the two parties and also includes all the responsibilities of the parties, money outlay, contingencies, etc.

We are in the midst of finalizing a joint venture agreement for a fix and flip project in Philadelphia, so I figured I would share some critical aspects that you want to consider in your JV agreements. Before I list out 10 key areas to include in your agreement, I need to remind everyone that I am NOT an attorney. I share these ideas and tips with you from our experience as investors, not from a legal perspective! Of course, you want to consult an attorney that is familiar with your local laws before entering into a joint venture agreement.


Related: 4 Lessons I’ve Learned From My Made-in-Heaven Real Estate Partnership

10 Areas to Include in Your Joint Venture Agreement

Ten areas to consider including in your JV agreement include:

1. Purpose of Joint Venture

Are you buying, fixing, and selling a property together? Are you buying, fixing, and renting a property together? Get really specific on the purpose of this joint venture. That way, both parties are clear and comfortable.

2. Purchaser of the Property

Who is purchasing the property? Sounds a bit obvious — but can be overlooked in some joint ventures. The purchaser of the property is taking on more risk, so this arrangement should be spelled out in the agreement.

3. Term of the Agreement

If you are buying, fixing, and selling a property, you need to put in the agreement how you handle if the property does not sell. You also need to spell out if both partners will be part of the decision-making process of reducing the house price. It is really helpful to include all contingencies and worse case scenarios.

As I shared, we are in the midst of finalizing a joint venture agreement for a fix and flip project with another company. We have specified in the agreement that our partner will determine correct pricing of the finished property and will be in charge of the appropriate timing of reducing the price if need be. Our joint venture partner knows the local market much better than we do, so why would we want to micro-manage these decisions? The key to having a successful joint venture is to be crystal clear on the value each partner is bringing to the table and for the partners to not get involved in areas that are not appropriate for them to get involved with.

4. General Definition Section

Some would say this is just legalese; however, it is helpful to define the key phrases and terms you are using in this agreement. Remember, not everyone defines these common terms the same way.

5. Obligations of the Joint Venture

In my opinion, this is one of the most important aspects of the agreement. You have to spell out in the clearest terms what each partner is responsible for. This includes who will be responsible for obtaining the commercial loan and how much that commercial loan is for (if applicable). This also includes aspects such as:

  1. Financial: what equity each partner is responsible for
  2. Operations: who is running the day-to-day operations of the rehab and responsible for bookkeeping and record keeping
  3. Marketing/sales: who is responsible for marketing and selling the finished product

The key here is to spell out every single detail. Include everything. I have never heard partners complain about too much communication in a partnership.


Related: 4 Steps to Growing Profitable Joint Venture Relationships

6. Allocations

You might have covered this in another section, but make sure you include the percentage of profits each partner will receive after all liabilities and holding costs, etc. are taken care of. I have seen many joint ventures be 50/50, but sometimes they are 40/60 or 30/70. It completely depends on the value the partners are bringing to the table.

7. Termination

Remember, joint ventures are not meant to be long-term agreements. They are designed to be short-term with a very specific, defined purpose. There is a clear beginning and ending to all joint ventures. These types of details should be spelled out as well in the agreement.

8. Rights and Duties of Parties Included in Joint Venture

This is mostly legalese but helpful to include to protect all parties involved.

9. Payment of Expenses

You need to specify in this section who will be handling funds, who is in charge of the banking relationship (if there is one), who will be paying the contractors and service providers, etc. This should have been covered above in the responsibility section, but if you have not specified how much equity each partner will be putting in, this is another place to add this. Additionally, you should specify in which partner’s business checking account the funds will reside. Money allocation and disbursement is one of the most important areas to cover in these joint venture agreements!

10. Insurance

This is an extremely important section. Many times, joint ventures are not newly formed business entities. Therefore, you should be clear on how this project will be protected with insurance and which type of insurances are important to purchase and maintain during the project. In this section, you need to specify who is purchasing and maintaining the various insurances (worker's compensation, builder's risk insurance, property insurance, etc.). Again, I am NOT an insurance agent by any means; however, I know the importance of properly protecting the building and all the contractors that will be working in the building.

In summary, I don't know many real estate investors that have not at some point entered into a joint venture relationship. Therefore, you want to set yourself up for success from the beginning. Even if you are entering the joint venture with a family member or a good friend, you MUST put an agreement in place so the roles, responsibilities, percentage of profit, and money allocations are specified and clear from the very beginning.

For those who have entered joint ventures, please share your experiences. Are there any other areas that I am missing that are essential to include in an agreement?

Thanks for reading!

Liz Faircloth has been managing and investing in real estate since 2004, along with her husband, Matt. We have built our business from scratch and now own over five million dollars in residential...
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    Account Closed Architect from Houston, Texas
    Replied about 4 years ago
    Elizabeth, you and Matt create some of the best information and education on BP. This article is really helping me think about my first joint venture/partnership on my first small multifamily (which will be my first deal as well). Thanks so much for the detailed sharing, great content. If you don’t mind sharing, what have you seen as possible terminations for a hold project? Our joint venture will be another investor’s sweat equity plus my finance equity for a buy, fix, rent and refinance.
    Elizabeth Faircloth Real Estate Investor from Trenton, NJ
    Replied about 4 years ago
    Thanks so much Greg for the nice note! Matt and I really enjoy creating content for bigger pockets each week!! So happy to hear you find it to be helpful. Great question about the possible terminations for a hold project. I have seen partners want to be “bought out” of their equity in hold projects for various reasons. This has not happened to us, but I have seen this happen. Most often, I have seen these situations arise when partners go through a tough personal situation (divorce, etc) where they need to get out of the project because they need that equity back for various reasons. While I am not an attorney, I would suggest that since this is a “hold” project, you create a new business entity – etc – LLC, LP or something that is more structured than the JV agreement. We really like JV agreements for short term partners on fix and flips. For buy and hold projects, I would suggest creating a business entity. Again, definitely run this by an attorney but that is my two cents as an investor. Please feel free to message me if you need any additional support and all the best on this project!!!
    Sarah Simpson from Victoria, British Columbia
    Replied about 4 years ago
    Hi Liz, your article is very helpful and informative, thank you so much for you sharing, best wishes!
    Johanna R. Investor from Long Island City, New York
    Replied almost 4 years ago
    Hi Elizabeth Thank you, I was hunting all over the internet looking for this information then I found your article and you’ve answered my questions and more. I’ve found JV templates but none of them that have all these important contingencies you’ve mentioned, would you know if there’s a template out there or do I need to go to a lawyer? Best, Johanna
    Elizabeth Faircloth Real Estate Investor from Trenton, NJ
    Replied almost 4 years ago
    Hi Johanna: So glad to hear this was helpful. I would encourage you to go to a lawyer to draw up a good JV agreement that way you are protected on this first one, and you can then use this moving forward on your other JV partnerships! It is always helpful to protect yourself properly up front!! Hope this helps!! Good luck! Liz
    John Mathewson Developer from Hobart, IN
    Replied almost 4 years ago
    Great article thank you for sharing. We use JV agreements all the time, they are so important to our business.
    Elizabeth Faircloth Real Estate Investor from Trenton, NJ
    Replied almost 4 years ago
    Thanks John for reading and commenting! Glad you found this to be helpful!!
    Austin Curry Rental Property Investor from Oakland, CA
    Replied almost 4 years ago
    Hi Liz, Thank you for this great article. Listened to you and your husband’s podcast recently too – also super informative. One question for you: I see you recommend forming an LLC for buy and hold deals. In that scenario, is it standard then to spell out the ten areas you mentioned in the Articles of Organization? Or would you still recommend having an attorney draw up a contract and having all partners sign? Thanks, Austin
    Elizabeth Faircloth Real Estate Investor from Trenton, NJ
    Replied almost 4 years ago
    Hi Austin: Sorry for the delay! So glad you enjoyed the podcast!! We currently use both LLC’s and LP’s. It depends on the type of deal. For example, we raised capital last year to purchase a 49 unit apartment building. We formed a Limited Partnership for this type of project where we had both General Partners (us and others) and Limited Partners (our investors). We flipped a house last year with two different partners, and it was a one time project. So we formed a LLC with our 3 companies as members. It really depends on the situation to know what to form, etc. We have also done Joint Ventures where we have not created a separate entity. My suggestion is to speak with an attorney to get some guidance so you are protected. One important thing to assess is to determine is this partnership a one time project or are you forming a more expansive partnership. Hope this helps! By the way, we do a series on our YouTube channel called “Mentorship Mondays” so you are always welcome to email us questions to [email protected] and we will answer them on our channel during an upcoming Monday! Thanks!! Liz
    Kevin Baxter Rental Property Investor from Lynden, WA
    Replied over 2 years ago
    Elizabeth, Great information! It’s nice coming in on the post after so many replies have been made. Thank you for the 10 must haves for jv agreements and info about creating various entities catering to the scenario. What a valuable resource you provide bp and the REI community!
    Derrick Kusuda Investor from Mililani, Hawaii
    Replied over 3 years ago
    Hi Liz, Great article! I’m just starting to look into the joint venture adventure after talking to our possible partners today. I’m in Hawaii and our partners are in Washington state. Do you recommend hiring a lawyer to look at the agreement? As for the LLC, the properties are going to be purchased in Washington, Not sure how that works but I plan on checking out your youtube channel. Thanks, Derrick
    Jake Fugman Real Estate Broker from Chicago, IL
    Replied about 2 years ago
    Well written article on JV basics… thanks! Looking for further specifics on what happens if you are a limited partner in a JV and the general partner (who is also the contractor) goes extremely over budget on a repair/rehab? Are there any ways to make a GP accountable for mishandled duties beyond the hit that their own equity is taking?
    Matt Berklacy Investor | Realtor | Marketing from Jacksonville FL | Raleigh NC
    Replied almost 2 years ago
    thank you, Matthew