A joint venture is a type of business agreement between two or more individuals with a shared goal, who agree to work together to achieve their goal. Each individual brings a resource or asset such as money, property or knowledge/experience to the table to help achieve the shared goal. In property, joint venture arrangements are typically offered by property professionals to give investors a return on their investment.
Who is a joint venture for?
This type of business arrangement is normally used by investors. An independent property advisor (IPA) will put forward an investment proposition for an investor to invest their money and make a return on their investment.
Joint ventures are a mechanism to combine resources used by individuals who are missing a key resource such as: money, time, property or property (investment) knowledge/experience to achieve their specific goal. Therefore, if you have an asset such as money (or a property) but don’t have either the time or knowledge/experience to invest it yourself, it is likely a joint venture arrangement would be suitable for you.
Common joint venture scenarios include:
When an individual has money to invest but either doesn’t have the knowledge/experience or time to invest their money themself.
When someone has a property or plot of land which they wish to either turn into an investment or develop but doesn’t have either the knowledge/experience, development finance or time.
Joint ventures are not exclusive to the above scenarios. There is no reason why two or more individuals who both bring the same asset (e.g. knowledge, experience and money) to the table can’t joint venture. For example, if two individuals who already invest in property combine their pool of funds and knowledge together in a joint venture, it may make a property investment which was out of their reach, tangible.
Note: If you are providing the finance for any project, we strongly suggest you seek independent financial and legal advice.
How does a joint venture work?
Every joint venture has a slightly different structure. However, there are generally two approaches to setting up a joint venture, with both outlining how each individual is involved, their liabilities and their share of any profit or loss.
Option 1: Through a Business (formation of a new legal entity such as a limited company).
If a joint venture is established through the formation of a new business, each of the individuals involved in the joint venture become a shareholder of the business. The share split of the company is typically in proportion to the value of the resources brought to the joint venture. For example, if a joint venture is formed between two individuals, where one party brings all the money required for the joint venture and the other party brings the knowledge and experience to execute the joint venture, a 50:50 share split would be common.
If the goal of the joint venture is to purchase residential properties for lettings purposes, then any business incorporated for this purpose is known as a Special Purchase Vehicle (SPV). Setting up an SPV is no different to setting up any other limited company; however, the company must be registered with the correct SIC (Standard Industrial Classification) codes.
Option 2: Through a Contract (a written legal agreement between the individuals).
If a joint venture is established with a contract between the individuals entering the joint venture, the contract will often include:
The individuals involved and the resources or assets such as money, property or knowledge/experience that each individual is bringing to the venture.
The joint venture’s objective.
How the joint venture will be managed and the responsibilities of each individual to achieve the specified objective.
How the profit/loss of the joint venture is distributed amongst the individuals.
If you’re using a legal contract to form the basis of your joint venture agreement, we advise you receive independent legal advice before signing any agreements.
Note: Irrespective of the structure you use for a joint venture, it is important to define an exit plan in case an individual needs or wants to exit the agreement. This is typically a buy-out clause defined in the agreement which gives the other party first refusal of an individual’s shares.
Benefits of a joint venture
Joint ventures allow a group of individuals to combine their resources (e.g. money, property, time, experience and knowledge etc.), this creates several advantages. It allows individuals:
With money to make a return on their money by leveraging someone else’s knowledge and experience of property investment, giving them a hands-off property investment.
With property to maximise the value of their property, by joint venturing with an IPA who can provide a development service to maximise its value.
Where can I find someone who offers a joint venture?
If you’re missing a key resource to begin your property investment journey, a joint venture might just be what you’re looking for. Use Doormarked to find an independent property advisor (IPA) who’ll be able to work with you to achieve your property goals!
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