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Joint Ventures (JVs) In The Real Estate Investing World

A Joint Venture is simply when two or more people purchase an investment property together. It can be a flip or a property that you hold for the long term. A Joint Venture Agreement (which should be reviewed by each individual’s real estate lawyer) captures the details of your relationship.

There is a common JV structure that most real estate transactions use. It is not the only one (you can get as creative as you want) but the following setup is the one that I have seen the majority of the time – it includes an Active JV Partner and a Passive JV Partner.

Key roles and responsibilities (which are clearly laid out in the JV agreement):

An Active JV partner is the experienced real estate investor that finds the property (hopefully at under market value), negotiates the purchase, coordinates permits and renovations (if necessary), finds tenants, oversees tenants, and maintains the property during the life of the JV agreement. The Active JV partner should have a real estate power team and can share as little or as much of the entire process based on the passive investor’s desired involvement.

A Passive JV partner is sometimes referred to as the “money partner” or the silent partner. This person typically provides the capital (down-payment and renovation funds) and qualifies for the mortgage. They can be entirely passive or can ask to be coached and kept in the loop by the active partner.

Profits from this JV partnership are typically split 50/50 and a standard term is at least 5 years.

One of many goals of a good Active JV partner should be to return as much, if not all, of the Passive JV partner’s capital through one or more refinances during the time that the investment property is owned.

If the right property is purchased at a good price and renovated to its highest use, after some time it is possible to own that property “for free” (i.e. all of the down-payment and renovation costs have been returned to the Passive JV partner), while the property still puts money into your joint bank account each month.

There are many benefits of entering into a Joint Venture Partnership. Remember, it has to be a win/win; each side brings something to the relationship.

The Active JV partner:

Can continue purchasing rental properties without using their money or credit, while owning 50% of each additional JV rental property

Is able to scale their portfolio by doing many JVs with many different partners or focus on a few select partners on all JVs

The Passive JV partner:

Can invest in rental properties while working their full-time job, spending time with family, etc. and does not need to have any expertise in real estate

Can learn how the entire process works if they choose to purchase future rental properties on their own

Can be introduced to the Active JV partner’s power team and systems/processes

A few words of caution:

Don’t try to force a JV partnership if it does not feel right and if you are not aligned with the other partner(s). Enter into JV deals individuals that you know, like, and trust.

If you believe in real estate investing but are not sure whether you want to do a JV and split the profits, educate yourself and try to do it yourself. Ensure to be realistic on whether you have the time to become an expert in the field of real estate investing.

Ultimately, a Joint Venture should be an enjoyable experience and opportunity for learning for both sides.

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