Sick of your money sitting on the sidelines?
Joint ventures can be an effective way to get in the game.
The joint venture is one of the most underutilized tools available to business owners and investors that can provide big results.
But what is a joint venture? What are the advantages and disadvantages to joint ventures? And how do you vet a joint venture opportunity to ensure you’re not taken to the cleaners?
Read on to learn all about joint ventures or click one of the links below for a specific topic.
A joint venture is a mutually beneficial agreement between two or more parties that have complimentary resources that want to undertake some kind of business venture.
The resources that each party contributes can be anything from products and services to capital and experience, but each party (also known as a venturer) must make some kind of contribution that promotes the enterprise.
If you’ve explored this website then you know that I invest in mortgage notes.
Since a mortgage note needs to be purchased with cash I would run out of money pretty quickly if I only used my own money. This is why it’s important for me to find capital partners to fund my deals in the form of a joint venture.
The joint venture deals I participate in are mutually beneficial because both parties provide resources to do a deal with the end goal of earning a profit; the capital partner funds the deal and in exchange I find the deal, perform due diligence, negotiate the deal, and manage the asset after closing. Once the deal is complete the capital partner’s investment is returned and we split the net profit per the joint venture agreement.
In my opinion the two biggest benefits that come from participating in a joint venture are the potential to 1) earn more money 2) in a shorter period of time.
Because a joint venture involves two or more parties with complimentary skills or resources, each party is able to fill in the gaps where the other venturer might fall short. It also means that the venturers can enter an attractive space that would have otherwise been accessible.
For example, if I find a really good note deal I’ll bring it to a capital partner to fund in a joint venture. The capital partner doesn’t necessarily know the ins and outs of how to find, analyze, and manage a note deal, but they do have the capital to fund it. On the other hand, I might not have the capital to fund as many deals as I need, but I do know how to find, analyze, and manage note deals.
In this example, both parties are filling in the gaps where the other venturer falls short: I need money to close deals and the capital partner needs to put their money to work. At the same time, the joint venture allows both parties to access a deal that wouldn’t otherwise be available if they didn’t come together for