What is a joint venture (JV)?

Joint venture advantages and disadvantages

Property joint ventures benefit investors looking to diversify their portfolio with multiple streams of income in the form of monthly rental yields and lump sums; Developers looking for investors to raise equity and make a profitable exit without dipping into their own pocket.

Benefits of a joint venture

Low risk access to new markets & networks

You can experiment and expand far more comfortably when you have an industry expert on your side.

Joint ventures are especially useful to make sure you’re not going in blind if you want to expand into a new area.

Creating a JV partnership is great for expansion with the peace of mind that all local logistics and regulations are taken care of by your local experts.

All new expertise

A joint venture offers a great opportunity to expand upon your partner's specialised knowledge.

You can increase your technical expertise while offering them your own. Joint ventures enable you to gain access to new staff, equipment and capital.

Joint venture partnerships can even help you understand how to utilise new trends inside the industry - for example, joining forces with a proptech company will help you get on board with industry growth and help you revolutionise your property development brand.

Flexible

A joint venture can be hyper-specialised with a limited lifespan. So you don't need to worry about an extensive commitment - when you and your partner create your SPV together, it will be a separate legal entity created in order to fulfil a specific, time limited purpose and isolate financial risk.

This means that your partnership will be time sensitive, and easy to exit should the need arise.

Further meaning you can enjoy fantastic flexibility with reduced risk.

But if you love your partnership, you can use it to build great long term relationships between your companies.

Synergetic

Great partnerships bring the best of both businesses. Great things can come from the combination of company cultures and ideas, but there's more!

Joint ventures bring in financial synergy that lowers the cost of capital.

They also bring operational synergy that makes everything efficient.

Increase your customer base

You’ll be able to market your property development to a wider customer base thanks to your joint venture partner. You’ll each benefit from being able to offer your partner’s services to your own existing customers.

Build up your brand

Collaboration creates increased credibility. If you're just starting out, a well known and respected brand for your joint venture will prove that you're one to watch.

Joint ventures are a great way to gain trust from locals, potential customers, and industry insiders.

The best part is that increased credibility = increased market visibility.

You’ll be in it together

So, you’ll be sharing talent, industry know-how and expertise.

If that’s not enough for you, you’ll also share the costs and responsibilities. Should the worst happen, this means you’d share the losses and the costs of failure too.

But don't be pessimistic.

A joint venture lowers your risk. This gives you more opportunity to explore the market and expand your property development business.

Best of all, you won’t have to worry about finding the money all by yourself.

Drawbacks of a joint venture

As much as it sounds like the perfect recipe for a long and successful partnership there are downsides to consider when entering into a joint venture project.

Many believe if you are a first time investor then entering into a joint venture partnership is ill advised as your first project. It would be sensible to gather and hone in on your experience to build up a proven portfolio of success.

It could perhaps be cheaper hiring in the help of tradesmen who have the skills you need than entering into a joint venture partnership. Some may even choose the option of a bridging loan which can be a more profitable venture, whilst it requires more risk and potentially more things to go wrong.

How does a joint venture work?

Here's a summary of what you've got to do to enter into a joint venture and make it work, explained in the way that JaeVee sources developers and protects investors:

• Find joint venture partners: As a joint venture company, JaeVee is an asset and project manager who facilitates partnerships between a network of experienced property developers, private equity investors and introducers (property deal sourcers).

• Source developers: Our team of investment analysts ensure that proposed schemes are feasible through a process of due diligence, while reviewing the experience of a developer and their background in completing similar projects.

• Raise equity & senior debt: There are over 1,000 investors signed up to JaeVee’s platform who choose one or more projects to add to their portfolio by pooling together 10% of the required equity. Our team of mortgage brokers secure the best terms for the remaining 90% by combining mezzanine & senior debt.

• Joint venture property agreement: A newly formed UK limited company (SPV) is solely set up to own the title of the property. When you invest, you own shares in the project SPV with your rights secured by a shareholders agreement and subsequent rights. Matters requiring consent are set at 81%, which means all joint venture partners (Developer, investors and JaeVee) have a say. The lead property developer provides a personal guarantee for the senior debt, (which is capped) being that they're responsible for delivering the project and ensuring the exit is achieved. 

Find out more:

As an investor

• How to invest in joint venture properties
• Risk mitigation and due diligence
• Safeguard
• Investment opportunities

As a developer

• How it works
• How to find private investors for 100% development finance
• Funding criteria
• Calculate how much you could earn via a joint venture

How to find joint venture partners?

Look no further, JaeVee is your collective of joint venture property development partners. With us you can find deal(s) to invest in right now, and over 1,000 private equity investors interested in experienced property developers.

Types of joint venture partnerships

There are many types of joint venture partnerships, but the main two which are used the most are:

• Profit share joint venture partnership

• Fixed interest joint venture partnership

Profit share joint venture partnerships

This is generally what you would expect a joint venture property partnership to be.

You split the profit upon exit in pre-agreed shares, for example, a shareholders agreement stating 50/50 would leave each party with 50% of the profits.

Fixed interest joint venture partnerships

This structure will apply if one of the members finances the project and the other provides the skill. The other party could agree to pay them via a fixed rate of interest rather than the traditional percentage split which most joint ventures consist of.

Top tips for joint venture partnerships

Make sure you pick the right partner and build up your relationship. It may be you enter into a joint venture partnership with a friend, family member, via an extended network or a property partner such as JaeVee, and make sure all worst case scenarios are discussed.

Summary

Decide on what structure you would like your joint venture partnership, and clearly set out both of your roles at the beginning of your partnership.

You will also need to agree whether to opt for a percentage split, or fixed interest rate which should be set out in a legal agreement.