Investing in a commercial property joint venture
Long since regarded as a good bet, investing in commercial property can yield substantial returns over a number of years. Unlike with residential property, a commercial investment is usually paid off within ten years and once the property is paid off and occupied by long-term tenants, the property owner can start investing in more properties.
As a would-be property mogul, it’s important to do thorough research on the potential investment and the market in general. Inexperienced investors often rely on a “gut feeling” to make a buying decision, without having the proper help, knowledge or a real goal in mind. This lack of basic knowledge of the market you are investing in can seriously dampen your chances of success.
Would partnering with an experienced investor or investors minimise your risk and provide you with more insight?
Another reason could be that you may have found the perfect investment opportunity, but just don’t have enough financing. Entering into a Joint Venture (JV) can be a safer way to invest your money or obtain that shortfall.
Whatever the reason for seeking out the partnership, a JV partnership can also benefit you by:
- Helping you realise more value for your money and time, because you can leverage your capital further with the knowledge and expertise that an expert brings to the table
- Providing a sense of security; a joint investor with an established track record in commercial real estate deals and a good investment portfolio, reduces your risk
- Having an expert that can define a location and strategy for your investments and analyse the market to suit your future needs
- Not being responsible for coming up with the entire amount; meaning you can have money for a cash reserve, necessary for any unforeseen expenses
So how do you find the right partner with the relevant experience and a similar vision? When you’ve identified a potential partner, you need to do a due diligence to make sure that they know what they are doing, have a solid reputation and are in it to create a win-win for the both of you.
The partner must not only understand how the property market works, but should be able to identify risks and opportunities.
Before you sign the deal, speak to past partners and have your lawyer look over all the legal documents related to establishing the venture. These documents can be complicated, so make sure you understand exactly what the roles and responsibilities of every investor are.
The JV Partnership will take the form of a legal entity between two or more people to invest in a specific business or property opportunity. A ‘money partner’ is willing to take a back seat and simply provide the capital needed to get started, while an ‘expert’ can get involved with everything from the research, tenanting and market timing, to the day-to-day management of the property.
As an inexperienced investor, this is a good way to make your first few real estate investments; learning how to invest and making a decent profit in the process. Although joint venture investments are not risk free, they are a valuable way of ensuring a more secure investment.