Joint venture development - yay or nay?

I've just started digesting an investment proposal that looks like this:
- 3 way joint venture development that takes an existing property and builds new townhouses at the back. Selling all upon completion.
- The players involved:
1. Yourself with a deposit of about $100k (you have money, but not the serviceability)
2. Someone who funds the remaining amount (they have the serviceability, but not the money)
3. The project management company who select the location, feasibility, manage the build etc.

What are your thoughts? I don't think I have the appetite for this kind of risk/complication at this stage.

 

Could be a good way to make money (or lose money).

 

Doesn't sound like there is enough fat in the deal for three ways. Also relying on an external company to do everything from site selection to feaso......personally I'm not comfortable with that unless you are able to check and verify in detail their research/feaso. And if you can do that then you don't really need them. Not to mention there is a conflict of interest...they want to get you a site so they can make money. I doubt they have any real fat in the deal.

I don't like the proposal. Risk seems too high. Just my take.

 

How would you go about it Leo?

 

Not comfortable at all. Just have to read a post on SS/PC - the Armchair developer to work out that it is very easy to get burnt developing property using an external company. JV, really only interested in this if everyone is on the same page in terms of experience, same $ value and same expectations at end of completion.

Homework, homework

 

Hi @Rentvester

I currently do a couple JVs and the first thing I make sure is that there is enough profit in the deal for 2 parties, if 3, then needs to be even more profit. Also my limit is 2, the more parties involved the more chance for nightmares to happen. That's 2 whole families involved. It might just be 1 person from that family but if anything happens to a family member you never know how it will affect their mind/mental state/decisions of the JV partner.

Also I would never engage any company to be in charge of everything, site finding, feaso, Project management etc. Unless I knew the person personally and really, really trusted them - I would never do that.

I would be more than happy for a company that has come well recommended to me to do site finding and recommendations but then I would apply my own filter on their deals to see how it stacks up. I would also be happy for them to help me PM, but again I would want to be informed every step of the way and have input in all major decisions.

Maybe I'm a bit overkill but I 100% respect the risks that comes along with the best and most straight forward of developments, and we all know most developments are anything but straightforward. I have only managed to survive this far because I take risk assessment and management to be the #1 thing I look for and try to mitigate with respect to all my investment decisions.

 

I would rather a fee for service arrangement for #3 person rather than a profit share solution. That way they don't have any power in how the project is done between the JVs.
My JV is coming to an end with our venture going on market very soon - completion is towards the end of this month. Our JV is ridiculously chillaxed but that is mainly due to our personal nature and clear upfront decisions and goals.

 

I'd be putting a caveat in place to protect your 100k.

 

You can't just lodge a caveat like this. you can only lodge a caveat if you have a caveatable interest in the property. This is generally an equitable interest of somesort. Where someone has lent money to someone else this does not make an equitable interest generally. So legal advice should be sought from a property lawyer about the lodging of a caveat as if you get it wrong you could be up for the costs of the other side when they remove it.

 

Hi terry
I tried to send a pm I couldn't work out how to
Can u answe this ?
Iam looking to do a deal where I need to borrow 40k to pay for some costs and the person has asked for a caveat over the property Iam buying I have a 5 month settlement and plan to sell to someone else befoure settlement

If we lodge a caveat how does it get removed if I sell to someone else via the add or nominee clause
The deal is in vic btw

 

Hi Oyster

I have turned off my pm as I get too many questions like this.

You should seek legal advice and so should your mate. How does he Lodge a caveat in which he has no interest and in which you do not own?

 

Dam. Good to know.

 

2 is the limit. Both needs to be on the same page and a 50/50 cash injection. Transparency and risk management are the key. Trust that each person will do right by the project is very important. If the project does well, the 2 partners will in turn do well. Simples.