Why don't new investors do JV deals?

Question

I have a question for new investors out there.What's stopping you from teaming up with each other or more seasoned investors to do JV deals? JV investing can help you to learn the business and to increase the size of your portfolio as the partnership will increase your buying power. I ask because I get several questions from investors on a daily basis but seldom does anyone ask about JV's.

Robert Webb · Answer

I think the two main mindsets would be 1. Fear. Scared to ask, scared to look like an amateur, and scared that they would actually be taking the leap. A seasoned investor is going to keep things moving and hold them accountable. And 2. Greed, if you JV you split the profit.

Not saying everyone has these or anything or these are the only two. Just think that deep down, they are the most popular.

Odie Ayaga · Answer

What gives you the idea that people don't JV? Most of my closest real estate friends have a partner or partners including myself. I think the difference is there's a lot of newbies who run around looking for a partner, because at the heart of it they have nothing to offer i.e. experience, money. Typically not what people look for an ideal partner. The partnerships I know are built organically over time.

Joe P. · Answer

I'd be down, personally, but I think people are worried about trusting others in general. I've met plenty of investors and have thought of it, but I think a general lack of trust and inexperience prevents it.

Could be smaller items, like not thinking it's worth it if it's a small deal, but I have to assume most are just gunshy about getting into a deal with a stranger, or even someone you know.

Laura Dantel · Answer

I am a newbie investor and I would love to JV on a deal! I am a couple of weeks away from closing on my first property which will be a house hack but I am interested in wholesaling and growing a rental portfolio. I have a fear of JVing with a newbie since I am a newbie as well; I definitely would prefer to partner with a seasoned investor on my first JV. I just need to understand how to right the contract to protect myself.

Joe P. · Answer

@Laura Dantel what I've heard...take it with a grain of salt...is to ensure contracts are not 50/50 (e.g. 51/49 in terms of control, even if you split profit 50/50) as someone needs to be able to make the "final decision" when those are needed. A lot of disagreements come up because two entities cannot make a decision and have no recourse when an impasse comes up other than litigation and/or arbitration, which costs time and money.

You also want to have exit strategies you both can agree on. If X happens, we will do Y, unless Z, type of scenarios. Spending a few hundred bucks on a lawyer that can draft an amenable solution would be best.

David M. · Answer

@Vaughn Smith

Few thoughts come to mind:

I don’t train my competition

Myself and others find the competition in NJ pretty fierce.  So, how do you split it for both parties make money? (eg An acquaintance of mine is doing her first and purposefully NOT expecting to make money just so she can learn and experience the process)

Like any other partnership, the two parties need to have compatible temperaments, goals, styles, etc...

Keivyn Reyes · Answer

@Vaughn Smith agree! Sometime before people JV it’s also to have an accountability system. Here’s a sample agenda for a call with your accountability partner. Does anyone have any further suggestions?

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1. Weekly High And Lows⠀

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2. What Big Goal are you working towards⠀

2a. What was your commitment last week?⠀

2c. Did you accomplish it?⠀

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3. The Hot Seat⠀

3a. Select one person from the group and help them walkthrough their issues or goals⠀

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4. What are you going to commit next week?⠀

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5. What’s the most important next step you are going to accomplish?

Laura Dantel · Answer

@Joe P. thanks Joe! That makes a lot of sense. I have a few people I may can partner with so will post how that goes.

Dutch Langley · Answer

@Vaughn Smith I've been struggling with the answer on what I would gain from JV'ing.  I've had a number of people approach me (They start the conversation with "I'm new....you want to JV?"), and if I could see why it would work, I would do it in a heartbeat.  The last guy that talked to me, wanted to give me 30K on a project that was a 275K buy, 60k rehab (for a flip) and wanted 40% of the profit (ARV...around 410K.  I didn't need the money.  We are a GC. My husband is a realtor (I will be soon as well.).  I brought the deal.  I really liked the guy.  Lots of enthusiasm.  Very little experience.  So if someone could explain a great way to JV where it is worth my while, I might consider it.  But I can't figure out how to get the math to work and the effort.  And I have yet to have someone come to me with a way that makes sense.

Vaughn Smith · Answer

@Brett Baginski Good point, I have to find a time to write a blog entry about this topic

Why don't new investors do JV deals?

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