Guidance for forming a Joint Venture?

Question

My accountability partners and I are looking to form a joint investing entity and want to learn from those who’ve done this successfully. We’re focused on understanding how roles, responsibilities, and exit strategies were structured before moving forward. If you’ve partnered before and are open to sharing lessons learned, we’d appreciate the insight. We are aware that AI can help guide us, along with the books and podcasts. We want to hear more personal stories. Listen to the lessons learned and such. As many folks know, the reality experienced is often different than text book procedure. Thanks in advance for any guidance!

Additional info: We have a pretty specific game plan in place. We are from 4 different parts of the united states, but plan on using a blend of flips and LTR properties to build our joint portfolio. Varying levels of experience, all military or veterans, focused on selecting a market, but we have run numbers on a few like my current market, Columbus, GA, or Huntsville, AL, or Greensboro, NC. Hopefully that helps paint a decent picture.

Ken M. · Answer

A Joint Venture can be whatever you want it to be of course, but I generally follow these rules.

Everyone in the JV has their own name or entity that is named as the participant. Each participant has their specific duties outlined. A goal for the JV is established and defined. Specific duties are assigned to clarify who is contributing money and under what circumstances, and who is contributing expertise, experience and management. A method of decision making has to be established. Working it out so that everyone has an equal vote is non-productive in a heated discussion, so some are more equal than others or a tie breaking technique needs to be defined.

Each property has it's own JV agreement.

A rule has to be established for someone exiting the JV (death, wants out). A rule has to be established for forcing out someone who no longer fits the group. A termination point has to be established for the JV, such as when will the assets be sold off and the JV be dissolved.

There are additional concerns of course, but if you have a group meeting, you can address those issues. Naturally, a means of amending the JV needs to be included and the JV needs to be treated like a business with regular, *short*, meetings (keep them short).

Ebonie Beaco · Answer

I have seen partnerships work really well in real estate, but I have also seen deals fall apart when expectations were not clearly defined in the beginning.

From my experience as both a real estate investor and someone who works on the financing side of deals as a loan officer, the biggest factor in whether a joint venture works long term is having clear roles, clear financial contributions, and a clear exit strategy before the deal ever closes. Many successful partnerships work because each person brings something different to the table. One partner might bring the capital while the other brings the deal sourcing, project management, or day to day operations. When those responsibilities are clearly defined, the partnership usually runs much smoother.

One of the things I always recommend is getting everything documented upfront. That includes who is contributing capital, how additional funds will be handled if something unexpected comes up, and what the profit split will look like. It is also important to outline decision making authority so both partners understand which decisions require agreement and which ones the operating partner can make.

Another important conversation to have early is the exit strategy. Whether the plan is to refinance, sell within a certain timeframe, or buy one partner out later, having that discussed and written down ahead of time can prevent a lot of issues down the road.

From the financing side, another thing to think about is who will be qualifying for the loan and who will be signing on the debt. That can sometimes influence how the entity is structured and how the lender views the deal.

The fact that you are asking these questions before forming the joint venture is a really good sign. Many investors skip this step and try to figure it out after the property is already under contract, which can create unnecessary stress later. Out of curiosity, what type of investment are you planning for the partnership, flips or long term rentals? The structure can sometimes look a little different depending on the strategy.

Michael S. · Answer

@Jonathan Sanders - from my own experience, here's a recommendation:

1. You can absolutely have too many cooks in the kitchen - it sounds like you are trending that way already. This is not productive and can lead toward major problems in the future.

2. Would recommend you have at most two individuals who are the managing partners - whatever terms you want to use. They are the ones who make the big decisions and delegate tasks to others as appropriate. One should be more the financial person, and one more of the acquisition / rehab individual.

We have done this model for several LLCs - and it has worked well without issues. However, the only way this works is complete transparency and trust among the owners. Everyone must have access to see the bank accounts and QBs. All major decisions should be discussed openly with all the shareholders, even if they are not voting or making the decision. The moment one owner doesn't trust another owner, the LLC is toast.

I'm sure folks have done things differently - and this is not the only way to set things up. But this has worked for me since 2017 over several different LLCs with different business partners. Good luck.

Jonathan Sanders · Answer

Phenomenal! Thank you so much for the feedback. This is exactly what we were seeking as far as experience goes. We'll take that advice and use it to help outline exactly what our overall operating agreement will look like. I'm sure each OA will vary based on who takes lead on a property. Thanks!

Guidance for forming a Joint Venture?

Guidance for forming a Joint Venture?

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