Real estate investment is truly a goldmine given the number of prospects available, but no one wants to face the investment market alone. This is where joint ventures (JVs) come into the picture. The most important advantage is that a company can find an experienced investor with capital and expertise in risk management.
For further assistance, it is wise to consult with a Troy, MI accountant who has expertise in real estate investment. But here are a few questions that will help you think of the structure of a successful JV for your real estate business:
With whom do you want to enter the Joint Venture?
- Skill Sets: There is always someone out there who will supplement your strengths. Are you good at identifying deals? Maybe your partner has a good background in renovations or the property management industry.
- Financial Standing: Stable financial solutions are essential. Make sure that your partner has adequate capability to provide capital and address shortfalls.
- Investment Goals: All men should strive towards one goal. Are you planning to occupy the property for many years or just planning to resell the house after a couple of months or months? One is that the future friction will be reduced due to the shared goals that the two organizations will have.
Which type of joint venture structure will you adopt?
- General Partnership: The basic structure, where the profits and losses are split on a ratio that has been agreed beforehand. Remember that general partners also have joint and several liability for the obligations of the venture.
- Limited Liability Company (LLC): Gives personal asset security while maintaining the elasticity of gains and losses. Some siblings recommend operating agreements that address the rules for making decisions and exiting a business.
- Limited Partnership (LP): This suits those investors who do not want to interfere with the day-to-day operations of the business. A general partner controls its operation while limited partners invest funds but they have limited responsibility and cannot vote.
What Key Provisions Will Be Included in Your Operating Agreement?
- Capital Contributions: The amount of cash each partner contributes initially, and the ongoing operating expenses that correspond to each partner’s stake must also be clearly stated.
- Decision-Making: Explain voting rights and processes of crucial matters involving the association such as the purchase of new properties, its refurbishment, or sale.
- Profit and Loss Sharing: Covenant: It is necessary to set down a definite pattern of apportioning profits and losses with a specific percentage.
Conclusion
Hence, by observing these factors, you can be able to plan a successful joint venture for the real estate investment journey. Please do not forget that high-level communication, proximate values, and smart agreement are the foundation of great and successful cooperation.
