How to team up with others to invest
Joint ventures are a great way of spreading the workload, diversifying risk, and bringing in complementary skills.
The key thing is to make sure inputs reflect the outputs. Nobody should get a free ride and everyone should have skin in the game.
Here are some things to watch out for:
Be careful of guarantees
Make sure you don’t guarantee your new partner for anything other than your deal. Any guarantee should be limited to the joint mortgage facilities and not to anything else your partner is doing on the side. Even if it seems really awesome.
Find the right lender
When it comes to joint ventures, some banks are better than others. You may need to try a few different lenders, or use an experienced broker who can find the right bank for your deal. A weak JV partner might make it difficult for you to get financing on another deal.
Make sure everyone has skin in the game
Everyone should have real skin in the game and have something to lose if a deal sours. Don’t let other people gamble with your money or your reputation.
Manage the risk
Make sure your partners are financially stable and that they have adequate life and health insurances. You don’t want to be left holding the baby. They cry. And are expensive.
Educate yourself about your responsibilities
Non-disclosure is fraud. As a trustee or director you will personally guarantee the debts of that trust or company. This guarantee is a liability that must be disclosed to the bank in any of your mortgage applications. Ignorance is not an excuse.
Create strong JV partnership agreements
Have a formal agreement about what happens if something goes wrong. If you are using a company structure make sure you follow the Companies Act and correctly appoint and remove directors and transfer shares.