Week 38: The Adventures of Joint Ventures
Good day/evening everyone, hope you’ve all kept well. Can't believe we're already three weeks into September! Before you know it Christmas will be here and it'll all be hectic again, provided you can only have six to a table. Corona virus Christmas specials…..hahaha, (sorry bad joke). Anyway, this week's topic is about joining forces with people to help start, scale-up or smash those property goals. If I'm brutally honest it's not something I had envisaged for my company. After all, why would anyone in the right state of mind give half their profits away? In the property world this is widely referred to as; Joint Ventures (JV), basically partnering up with another party for mutual benefits. I was dead set against this idea as I am a bit of a control freak and want to be able to make quick decisions without having to go through the layers for approval or lengthy meetings. In my head I knew exactly what I wanted and how I would like to go about it. Advocates of JV’s will often say you share the risk, two heads are better than one and that you're leveraging someone else's experience etc. All this is very well and it has its merits but I am in-tune with myself and rather not faff around when my partner is not putting out the same amount of effort as myself. If I'm waking-up at the crack of dawn to check my mail and work on my to-do list, I can't impose this on my business partner, nor can I expect them to do the same. Hence, my rationale behind it. But each to their own and this set-up can prove very lucrative for some.
I'm not about to go into the pros and cons of joint venturing we're all somewhat intelligent people and can work that out. What’s crucial is to decide whether it's right for you. Sadly, some decisions are out of your control hence being an entrepreneur is not as fun when you have to do something you're not very keen on. But, because I am flexible and after reviewing my current situation closely I have decided to give JV a go for the short term at least. Reason being, no matter how enthusiastic you are at some point you will run out of cash for your prospective deals. There's only so many BTL mortgages you can have approved. What happens when you've reached the upper limit? I have come to understand that if I go it alone I could only do one or perhaps two live projects at a given time before funds will dry up. For this reason partnering up with someone is not such a bad ordeal. As you can work on a third or even fourth project on the go.
…...Needless to say it ain't rocket science, to figure out; I would rather own 50% of something than 50% of nothing…....
That being said and in light of the above this was a no brainer. Sometimes you have to quash your ideals and go with the flow, I couldn't really see anyway around it. But, the only way this will work for me is by having a passive investor who will put in the capital (with all legal contracts in place of course) and for me to project manage the whole deal from conception to completion. Yes, s/he will put all the money in which is risky for them hence the 50/50 cut but, at the same time they will benefit from all this without having to lift a finger. I on the other hand will do ALL the work in return for their risk and wire their share of the proceeds on an agreed date. This suits me just fine and helps me scale-up just that little faster as you have to work with the end in mind.
Tip: Don’t jump in bed with an investor on your first meet (a popular saying in property). Vet them, talk to them and see if the pair of you are commercially compatible and only do business with someone you (reasonably) know, like and trust. Hope this helps.