@JohnGesa Still not bad at Prime - .5 to .9 though. They are calling for rates to stay steady over the winter
While joint venturing can have unlimited benefits, it also has its risks. Before you begin a joint venture you will want to do two very important things to ensure its success. The first thing is your due diligence, which looks different in a joint venture than it does in the other areas of real estate investing (more on that later). The second, and possibly even more important thing you must do is learn the ins and outs of joint venturing. Because there are a number of risks involved with a joint venture, one really must learn from an expert the correct way to establish an effective, and legal, joint venture. Learning about joint ventures properly will ensure you avoid the risks included with joint venturing, which can include:
Lack of Trust
One or more parties involved in the joint venture does not trust the other(s), which can result in all kinds of problems. In a joint venture, one trusts the partner(s) to make payments on time, represent the venture in a professional way, be dedicated to the common goals of the venture team and even disclose all profit to the partners. If one partner does not feel as though they are receiving full disclosure or are not receiving a fair give and take, trust is broken. A lack of trust in any of these areas strikes at the heart of the partnership, and ultimately causes it to collapse.
Divergent Goals
In a joint venture, it's vital that the partners have the same goals. If not moving forward toward the same point, the partnership will surely break off to allow each partner to move in the direction they wish to go. A joint venture established on the disclosure of intellectual property for money where one partner does not want to part with their money, or the other their intellectual property is a messy dissolution waiting to happen.
Waste of Time
Naturally, with a joint venture you will put a lot of your time and effort into the deal. If the partnership goes wrong, all of your time will be wasted. Some people's time is worth more than others, and as real estate investors, we know that time is money. Wasted time can means thousands (and in some cases, millions) lost for an investor.
Loss of Money
Chances are, when forming a joint venture you will be investing some kind of money, to propel the partnership toward your common goal. If the partnership dissolves, you may lose your initial investment in some form.
Loss of Intellectual Property
Often, a joint venture partnership is formed to supply one of the parties with knowledge they don't currently possess. If intellectual property is shared and the partnership falls apart, the person disclosing their knowledge can find themselves uncompensated for their part of the deal.
Degradation of Character
Though comprised of thousands, the real estate investing sphere is very, very small. One ripple in the pool reaches far in this game, so your professional reputation is incredibly important to your success. Drop the ball in a joint venture and you could find it difficult to form other joint ventures in the future, as in doing their due diligence, other investors will look at the reasons previous partnerships fell apart before forming a joint venture.
While there are a number of risks in joint venturing, the benefits to a good partnership vastly outweighs the risks. For a number of other articles on joint venturing, visit The Versatile Investor Blog
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written by Mark Loeffler, February 02, 2010
Not only do we have to be honest to earn trust, we also have to be humble to gain the trust of our partners. Nothing ruins a great JV like someone's ego. When an investor's head is too big to fit through the door, no partnership collaboration can occur.
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Great article.
I really liked the perspective showed in this article on joint venturing.
One of the headings that I enjoyed was, 'Lack of Trust'.
I think that this is a really, really important factor. Trust has to be earned. If trust is broken, it if very hard to gain back. With some people, it may not even be possible to gain back trust once it is broken.
How can we ensure that our JV partners trust us?
I think that the answer to this is easy. We have to be completely honest with them on everything. We cannot withhold information from them. I have always believed that honesty is the best policy.
Also, I liked your point on 'Divergent Goals'.
This is important as well. In joint venturing, we have to examine what our own goals are as well as the goals of our joint venture partners. For example, one partner may have a goal of earning x amount of cash flow per month. Whereas the other partner may have a goal of buying properties for appreciation only. These are obviously 2 differing goals.
This can cause problems with the partnership if this is not discussed in detail.
Nice article Mark.
Regards,
Neil.