One of the first books that I read about real estate investing was “Real Estate Investing in Canada” by Don Campbell. I recall skipping the parts in the book about “Joint Ventures” because it sounded too complicated
Years later, after learning more about real estate investing, I realize now that a “Joint Venture” is not that complicated and is one of the most effective investment strategies out there for those who want to invest in real estate passively.
Why would an active real estate investor want a Joint Venture Partner?
To understand Joint Ventures, you have to first understand the mindset of an active real estate investor. I use the term “active real estate investor” as a broad term for somebody who has the knowledge, skills and team (including real estate agent, contractors, mortgage broker, lawyer etc…..) to successfully execute a real estate investment strategy, of which there are many to choose from, such as rent-to-own, flipping, wholesale and BRRR strategies. In my and others’ opinion, the BRRR strategy is the most effective strategy for building long term wealth, which I will focus on in this post.
Keep in mind that real estate investing is the “Wild West”. There are NO diplomas/degrees or certifications that you can ask of the active real estate investor to assess his/her credentials. You have to do your own due diligence to determine if the investor is credible, honest and professional.
If you have met, read or listened to an active real estate investor’s story, it will go something like this:
They have read up on books, gone to seminars/courses, maybe even hired a mentor/coach. They decide to take the plunge and execute the strategy that they have learned and purchased a property on their own. They learned from mistakes but are continuously learning, and realize that they enjoy the process, although it is time consuming and at times, arduous. Rinse, repeat.
At a certain point, they realize that they want to do this full-time (and have the ability to live off their rental cash flow), so they decide to quit their day job to do real estate investing full-time.
They continue to invest with their own money, until they have either maxed out their own money or maxed out the number of mortgages that they can apply for at the bank.
Now that they are experienced, successful active real estate investors, they will then seek out Joint Venture Partners who have money to bring to the table in order to keep growing their real estate empire.
They usually start off by asking their friends/family members, but will then have to go outside their social circle to seek out new money.
At the beginning, they will feel very uncomfortable about asking other people to invest their money with them, which makes sense. It is a delicate subject, such that there are books/courses/seminars dedicated to this topic for real estate investors.
This is where somebody like you may come in as a Joint Venture Money Partner.
Why would somebody become a Joint Venture Money Partner?
In my opinion, to become a sophisticated, successful, active real estate investor, you need to do this job full-time.
If you are a busy professional, like a physician, it would be extremely hard to find the time and energy to acquire the skills and expertise to be a successful active real estate investor, without sacrificing your day job and family life. If you can do this, then congrats to you! I realized early on that I did not want to spend my time and energy becoming an active real estate investor, but I also realized that there are lots of opportunities out there as a Joint Venture Money Partner.
As a Joint Venture Money (Silent) Partner, you are bringing your money to the table, and your ability to apply for a mortgage/and refinance the rental property.
As a Joint Venture Real Estate (Active) Partner, they are bringing their knowledge/experience and team (real estate agent, mortgage broker, lawyer, contractors, property managers etc….) to the table.
There are multiple different ways to structure a Joint Venture Partnership, but one of the most common type is the 50/50 partnership.
1 Money (Silent) Partner and 1 Real Estate (Active) Partner.
How is this 50/50 partnership structured?
The Money Partner will fund the purchase (20% downpayment) for the rental property along with mortgage from bank or private lender.
The Money Partner will fund the renovation costs.
The Real Estate Partner will find the right property at the right price, co-ordinate the renovations to forcibly appreciate the property value, find the appropriate tenants and manage the property. Basically, execute the strategy (i.e. BRRR) successfully.
After the property is renovated and rented out, the partners go back to the bank to refinance the property. In the ideal situation (not always the case), the refinance allows for the withdrawal of 100% of the Money Partner’s funds, and the equity left in the property is split 50/50.
All proceeds (cash flow, mortgage paydown and appreciation) after return of the Money Partner’s funds are then to be split 50/50.
With the refinance, the Money Partner’s money is back in his/her hands. Rinse, repeat with another rental property, and both parties benefit by growing their own respective real estate empires.
As you can see, a successful Joint Venture Partnership can be a lucrative “win-win” situation for both parties.
Are you part of a Joint Venture in real estate investing? Have you had a good or bad experience?