The Property Voice

Soundbite: 6 Things to Consider when it Comes to Joint Venture Discussions in Property

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It has been a while since I covered this topic, but it is one that many people are interested in hearing about; funding joint ventures in property. Today, I thought I would share the Big 6 things that need to be considered in any JV pitch and especially any JV discussion. Then, we will take a look at the iceberg effect of what is going on above and beneath the surface, as we delve into the three P’s of psychology, positioning and perception in joint venture discussions. I intend to tread a neutral path, looking at funding joint ventures from both the funding provider and funding recipient perspective.

Resources mentioned

Property Deal Tips & How to Reach me By Telephone

Free Dom Tokens…might be worth something one day: Dominium referral link

How JVs can Propel your Property Business

Typical JV Investor Returns

Link to the Podcast feedback survey

Today’s must do’s

Subscribe to and review the show in iTunes…and while you are at it please help us to spread the word by telling all your friends too!

Send in your property stories, questions or moans to [email protected] and we will try and feature YOU on the show too!

Property Investor Toolkit – here is the book link on amazon.co.uk & amazon.com in case you would like to get yourself a copy to accompany this series

Get talking!

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Transcription of the show

Hello, and welcome to another episode of The Property Voice podcast. My name is Richard Brown and as always, it’s a pleasure to have you join me on the show again today.

It has been a while since I covered this topic, but it is one that many people are interested in hearing about; funding joint ventures in property. Today, I thought I would share the Big 6 things that need to be considered in any JV pitch and especially any JV discussion. Then, we will take a look at the iceberg effect of what is going on above and beneath the surface, as we delve into the three P’s of psychology, positioning and perception in joint venture discussions. I intend to tread a neutral path, looking at funding joint ventures from both the funding provider and funding recipient perspective.

So, let’s go!

Property Chatter

Raising funds for our property investment & development activities is a skill-set that we need to hone if we are to scale and so reach our full potential. When looking at BTL mortgages, bridging finance and development finance from institutions, we do also need to ensure that we present our ‘property financing business case’ professionally. Often enlisting the support of a decent broker can help with that.

However, if we want to raise larger amounts of funding than we currently have the capacity to, or if we want to undertake bigger projects, or if we want to scale our property business, then considering a funding joint venture might be one of the possibilities to consider.

I was totting up some of the JV and private financing that I have raised, and it is well above £3m in funds raised to date, most over the past year or two, with a couple of projects still ‘in transit’ currently.

I would say that JVs have been a bit of a game-changer for me, as I moved from sequential, single-unit property flip or BRR projects into some larger projects. This has involved multiple-unit conversion and development projects to climb up the property food-chain. Equally, I can now also run several smaller projects concurrently to increase my deal velocity, or to peddle faster for want of a better description. This has enabled me to do more with less, more quickly, therefore. This is another example of leverage in property.

Of course, there are two sides to the JV coin when it comes to funding…the provider or the funds and the recipient of those funds. Today, I plan to plot a neutral path, which allows both JV funding providers and JV funding recipients to take something away.

Before diving into the detailed content of this episode too far, I just wanted to flag a couple of older episodes that you might find useful to accompany this one. They are:

  • How JVs can Propel your Property Business, and
  • Typical JV Investor Returns

    • I have placed the links to these other episodes in the show notes to help you out

    OK, so there are 6 main aspects to consider when it comes to joint venture funding:

    1. The JV partners
      1. The funding recipient: who they are, values, their reputation, track record, experience, standing, etc.
      2. The provider: their character, values, access to funds, risk appetite, experience, level of involvement, etc.
      3. The project
        1. It’s viability, comparable & underlining evidence, the business plan, alternative exits, contingency plans, etc.
        2. It is important to ensure that the project suits both parties. For example, the promise of a high reward to a JV funding partner with a low-risk tolerance when they could also risk the loss of capital is perhaps not a suitable project to consider. But, for a higher-risk investor where the funds represent just a modest percentage of their net worth, it might the potential risk.
        3. The commercial arrangements
          1. The timings, numbers, risks, profit shares/returns, etc.
          2. Some investors and developers prefer certainty and so a fixed-rate return may work best, whilst other JV partners might prefer the potential for larger gains, but with the risk of sharing lower returns also, in which case a profit or gain share might work for them.
          3. The legal and other written bases of the agreement
            1. Such as a loan agreement, JV agreement, declaration of trust, buyout & deadlock provisions, etc.
            2. It is important to consider the legal side of pitching JVs too. There are some rules and restrictions around this type of commercial arrangement and so it is advisable to understand what these are before pitching a profit-share arrangement to someone we just met at a networking event. Understand things like Know your Client (KYC), Anti-Money Laundering (AML) and the difference between Retail Investors and Sophisticated, High-Net-Worth or Business Investors. There are some possible differences when it comes to friends and family which might make things more flexible there. So, we can’t just pitch a profit-sharing JV project with just anyone, and perhaps nor should we anyway. This is why getting to know one another is the first step.
            3. Security and protection
              1. Such as a legal charge, personal guarantees, LTV, restrictions of title, etc.
              2. Note that there is usually a risk-reward trade-off taking place. Higher rewards often come with lower security and vice-versa.
              3. The advisers
                1. Such as solicitors, accountants and other experienced consultant advisors in such matters like experienced investors.

                  2. Any JV funding discussion or pitch should address ALL of these issues.

                  OK, so there is also an iceberg effect going here! Firstly, what is above the surface…which I have summarised above. Then, there is what goes on below the surface; what often goes unseen, which is more about psychology, positioning and perception than anything else.

                  I can’t really tackle all of this here, but I can give you a steer as follows.

                  Psychology

                  Some questions to consider…

                  • Do we believe we will raise the funds for our investment/development opportunity?
                  • Do we understand that we have a lot to offer a potential JV partner?
                  • Do we genuinely have the values where we would place the funding partner’s interest at least the same as ours (known as ‘same endeavours’ legally), if not ahead of ours (known as ‘best endeavours’ legally) in terms of making sure they get their money back out?

                    • These are just questions that help us to understand what goes on in our own mind and the mind of the JV partner to help us have the right approach and mindset.

                    Positioning

                    Some questions to consider…

                    • Building on the psychological element, are we approaching things as someone desperately looking for funding or of someone with a great opportunity to get involved with?
                    • Do we ask for money or do we share our journey and project stories instead that attracts offers to get involved?
                    • Do we seek to understand the other person before trying to be understood, as Steven Covey suggests?

                      • These are just some examples of how to position how we talk to people and also how they might view us.

                      Perception

                      Once again, we are building on the previous two points; consider…

                      • Are we another development newbie fresh out of a property training programme/mentorship looking for money?
                      • Are we a professional developer with a great investment opportunity with limited opportunity to get involved?

                        • This is all about how we are viewed by the counter-party to the conversation and so is the result of the first two points. If you are an investor or developer that has previously sought JV investment funding, perhaps with mixed results, then I would suggest asking some of the people that you have previously connected with to give you some honest feedback in how you came across. This is not only valuable for us to learn from but also places us in a humble and vulnerable position…and we might even be quite surprised at the results, let’s just say that.

                        JV funding partners operate in different ways and there is usually someone for everyone. Some people actually like to work with the newbie, as long as they are a grafter and obviously are trustworthy. Others want to make sure that they are working with someone that has a decent track record but can fully securitise their position strongly as well. Others still are looking for high-returns and can tolerate a little more risk and uncertainty to trade-off against in return. It is difficult to have it all though, so do keep that in mind!

                        The main takeaway is to understand ourselves and what our core values are, then showcase these, understand what the other party is looking for and try to provide that as far as possible within your own limitations, then be professional and business-like in our approach and put your best foot forward…most of all…just be yourself.

                        Like attracts like, after all.

                        Shout Out

                        Before I leave today, just a bit of a link to last week’s show. Do you remember me talking about the book Give and Take by Adam Grant? He described people as givers, takers and matchers along with one distinction, the faker, which is a taker disguised as a giver.

                        Consider some of the following encounters that I had this week…

                        The life coach that gave her time on a pro-bono basis to help a young man change jobs and then referred that person to me for us to potentially work together with them around their property goals.

                        The person that thanked me for all the free content that I provide, actually quite a few people did this last week to be fair which I really appreciated, but to the one in particular that offered to take me on a wine tour around their family vineyard, because they spotted that I like a little tipple. It’s Chianti keeping me company as I record today incidentally.

                        The two people that unsubscribed from my mailing list when I changed tack from my usual of simply announcing more free resources to asking for contributions to support an article that I am writing. One has been on my mailing list for 6 months but the other for 18 months and clicked on half of the links to the podcast during this time…go figure? As it happens, I routinely remove people from my mailing list if they do not regularly engage with my emails, so unsubscribes are quite rare these days.

                        Finally, to Adam Grant himself, who liked my Tweet where I talked about his book…when I didn’t even tag him! A retweet might have been REALLY nice though Adam lol.

                        Anyway, it’s been helpful to me to see people in a different light…if you are a giver or a matcher…welcome, you are my kind of people. If you are a taker and want to redeem yourself…you can at least try and be a faker…eventually, it might stick, and you might come into the light…you never know

                        OK, that’s me done for this week. The show notes can be found over at www.thepropertyvoice.net. Or, if you want to talk about anything from today’s show, or just talk property investing more generally, email me at [email protected], I would be happy to hear from you!

                        Once again, all I want to say is thank you very much for listening once again this week and until next time on The Property Voice Podcast…it’s ciao-ciao.

                        The post Soundbite: 6 Things to Consider when it Comes to Joint Venture Discussions in Property appeared first on The Property Voice.

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                        The Property VoiceBy Richard W J Brown from www.thepropertyvoice.net