Joint Venture
The Joint Venture – Know Your Partners and Protect Yourself
By Buyincomeproperty.com
Oct 26, 2005, 18:38

A joint venture in real estate is often an excellent idea. If two or more investors pool resources and finances, it’s amazing how much can be accomplished and how quickly it can all come together. But just because a joint venture comes your way isn’t a sign that you should take advantage of it. In fact, there are some important rules that you should keep in mind before you enter any joint venture.

The most important is that you know your partners. It’s not necessary that you’ve had dinner together, teed off at the local golf course, or worked together on other projects. But when someone is asking you to enter into a joint venture, it pays to do a little research. You can bet that person has looked you over before inviting you to participate.

If the joint venture will put you with some other companies, ask for financial records. You don’t want to step into a real estate deal – even one that looks extremely profitable – with a group of companies that are on the verge of bankruptcy. And you certainly don’t want to enter into a joint venture without being aware of your partners’ situations. The financial situation may not be the only red flag that something is amiss. Mergers, acquisitions or major changes in the company could be signals that the company is in turmoil.

Does that mean that you’d never enter into a joint venture with companies facing issues? Of course not. The deal might be an incredibly sound investment. But knowing ahead of time that there are financial problems is a good heads up to potential problems. For example, a company that is facing bankruptcy unless this last deal is successful may be willing to sign off on some short cuts that will damage the investment, or even to take a joint venture loan with poor terms and high rates simply to be sure the deal goes forward. Knowledge is power and knowing these things ahead of time will put you in a position to keep an eye on the project.

If your joint venture partners are individuals, financial statements may not be feasible, but you can protect yourself to a great degree with a joint venture agreement. A lawyer is not optional here – it’s a must. Find someone with experience in joint venture agreements, and make sure you have your own attorney. A lawyer who simply represents the joint venture group won’t have your best interests as his or her only interest. In fact, an unscrupulous lawyer may be working for another partner in the joint venture with the goal of taking advantage of your participation.

Finally, listen to your grandmother’s advice – “If it sounds too good to be true, it probably is.” If the deal is presented to you as a “surefire profitable joint venture,” take a second (and third, and fourth) look at the details, and the partners.

A joint venture can be very exciting, especially if you’ve only worked on smaller real estate deals up to this point. But don’t let your common sense and your business sense be overruled by that excitement. After all, if you’re now in the market for joint ventures, you’ll be surprised how many opportunities are likely to come your way.