Real Estate Investing Joint Ventures
Real estate investing joint ventures are really gaining ground
as a strategy to fund and expedite investments. Joint ventures are formed when two or more parties agree to pool their resources for the purpose of buying a property. When it comes to real estate investing, resources do not necessarily include only financial, but also participation in the form of skills (locating properties, analyzing deals, managing assets,) and it is called OPR (Other People’s Resources.)
Real Estate Investing Joint Ventures:
Real Estate Investing Joint Ventures are their own entity, separate and apart from the participants’ other business interests. It is similar to a business partnership, with one key difference: a partnership generally involves an ongoing, long-term business relationship, whereas a joint venture is based on a single business transaction. The main reason that investors choose to enter joint ventures is because they can share strengths, minimize risks, and increase competitive advantages.
How do real estate investing joint ventures work?
Since money is involved in a joint venture, it is necessary to have
a clear plan in place, where expectations are set with full transparency of procedures: honesty, integrity and communication are necessary. As far as expectations, is this a long or short term venture? What is the common goal? What back up plans are in place as an exit strategy?
Legal agreements are essential: personally I use a confidentiality agreement, a non-competing agreement, and a joint venture proposal, where all the details are laid out (pay out, exit strategy, time frame.) Fiduciary responsibility, even if just implied, is also very important: it is the duty to act for some else’s benefit while subordinating one’s personal interests to those of the other person.
Real estate investing joint ventures work very well when a self directed IRA account is involved, where there is a syndicator in place. The real estate syndicator is an experienced investor who basically does all of the work and the self-directed IRA funds the investment.
In a real estate syndication, the syndicator responsibilities is to identify the real estate opportunity, analyze the deal, negotiate terms, and complete the purchase using the funds from the self-directed IRA. Once the acquisition is completed, the syndicator is responsible for managing construction, if required, executing any property management duties and of course sell the property. Therefore via the OPR principle, the syndicator can profit into the joint venture’s profits by not investing any money per se, but just providing necessary services.
Where do you locate money partners for real estate investing joint ventures?
There are plenty of individuals or businesses with liquid funds available (or IRAs, insurance backed loans, etc.) For instance:
- Research recent cash sales in a specific area – these buyers might have other funds available and be open for investments;
- Referrals by real estate agents, mortgage brokers and title companies – they know people with funds who are active in the industry;
- Networking – social media and local REIA meetings.
Once as a real estate investor you are active in the field, purchasing properties, looking for buyers and sellers, word of mouth will spread fast and you will be approached by potential joint venture partners. You just have to go out there and be pro-active.