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Why You Should Consider A Joint Venture As A Real Estate Developer

Published on Friday - September 30, 2016

As a real estate developer, otherwise known as a residential redeveloper, a joint venture can be an excellent opportunity to enhance the overall performance of your business. Whether buying, selling, or just getting started, this teamwork strategy is advantageous for several reasons, as it has the ability to combine complementary strengths for the greater good of a real estate business. If for nothing else, a joint venture will provide experience for real estate developers, which may be of assistance in future endeavors, or serve as what not to do. Although typically associated with large companies and international deals, the following explains how a joint venture applies to a real estate developer, and the various benefits related to utilizing one:

Key Elements Of A Joint Venture As A Real Estate Developer

Joint venture in real estate

The term “joint venture” can mean many different things and apply to many different scenarios, but it generally represents a collaboration of resources between two parties. In most cases, a joint venture is used to provide what would’ve otherwise been unattainable working alone.

In real estate, a joint venture is essentially used in the same manner, as investors will typically join forces to compensate for aspects in their business they’re lacking in. For instance, if a real estate developer is unable to fund a potential investment, which happens more often than not, they may decide to seek a joint venture with another investor who is able to obtain working capital. In essence, this real estate partnership will allow investors to find and close deals they would not otherwise have had access to. However, while a joint venture presents a unique opportunity to take your business to the next level, it doesn’t automatically equate to success.

When considering a joint venture, a real estate developer must first identify their strengths, weaknesses, and what they bring to the table. This is critical because it will not only define each partner’s role in the business, but what is expected from them. I firmly believe a joint venture has little-to-no chance of achieving success without these elements. As a real estate developer, you need to find a business partner who brings something new to the table that you don’t already have.

“The ideal business partner will not necessarily mirror your particular set of skills, but rather complement them,” says Than Merrill, my colleague at FortuneBuilders and CT Homes. “When you start vetting potential partners, you will first want to determine what it is they will bring to the table.”

In order to identify the right candidate for a real estate partnership, investors should pay special attention to the following:

Goals: The key ingredient of a joint venture is the shared belief in a common goal. Although many investors will have different ideas of how to obtain their objective, the importance of moving forward together with the same goal is vital, as a joint venture will have a difficult time working without it.

Roles: The importance of clearly defined roles within a joint venture cannot be understated. This will not only dictate the work allocation and who is doing what, but it will provide a structure to the process of achieving your goal.

Return: How much are you expecting in return from this joint venture? Like any partnership, it’s important to discuss what each party expects in return from the joint venture. Answering this question before getting involved with a partner will greatly enhance your chances of success.

Joint Venture: Advantages It Brings To A Real Estate Developer

Residential redeveloper

As a real estate developer, the benefits of a successful joint venture are second to none. To better understand the advantages it brings, the following highlights three reasons why investors should consider a joint venture:

Cost Sharing: One of the biggest advantages of a joint venture among real estate developers is sharing costs. In most cases, a joint venture allows a real estate developer to undertake investments they couldn’t afford independently. In addition, many of the expenses related to investing in real estate can be alleviated with the addition of a partner.

Risk Sharing: Why assume all the risk in real estate when you can soften the blow with a partner? Risk is a reality, but a joint venture can help to alleviate the uncertainty and pressure most investors face. Additionally, a joint venture can be a form of diversification for your real estate portfolio.

Talent Sharing: For a real estate developer, far and away the biggest advantage of a joint venture is shared talent. In addition to the possibility of building a dream team, talent sharing can assist real estate investors in overcoming deficiencies, as well as being more productive and efficient. In addition, this can lead to new opportunities in the form of financing, as another’s talent may be in the form of a extraordinary credit score, or connections with financial backing.

A joint venture can present immense opportunity to a real estate developer, but it’s up to them and their due diligence to identify the right partner. That said, not every joint venture will result in immediate success, so it’s important to learn from mistakes to ensure the next partnership has a favorable outcome.

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