A joint venture is a very common way to maximize returns when it comes to real estate. A joint venture is a combination of two or more entities that join forces in order to produce a property or properties for sale or rent.
Mostly, when a property is sold in conjunction with another, the new owner takes on the legal responsibility for the property, as well as an opportunity to make some money off it.
For example, when a condo complex is purchased, one person may take on the legal responsibility for all of the units but no one gets paid unless all of the residents take advantage of what it offers. For example, housing and dining options can be offered together.
Another way to gain exposure is through development rights. When properties are acquired and reorganized as new entities, development rights are given out so that another person can develop them. These rights give people control over where and what they want, so they are worth paying for.
Find a partner who has the same long-term vision as you do
Find a partner who has the financial ability to match your investment
Building partnerships can be a way to maximize your returns, especially if one of your partner’s has an apartment or hotel unit they would wish to sell.
By matching your investment with a partner who has the financial ability to absorb and/or replace any losses on your behalf, you can find many high returns.
Partnering is particularly valuable for financing as it can help you obtain the property at a lower price than you would without him or her. By obtaining a higher price than what the public would offer, you will increase your investment return.
It is important to find a suitable partner that has the right amount of money to spend on property and on people needed to operate the property.
Determine what the total value of the property is
In order for a joint venture to maximize the returns for both parties, both parties must agree on what the total value of the property is.
There are some conditions that must be met for a property to maximize returns for both parties. For example, one party may want to add a second unit or a venue they don’t currently have, but the other party does not.
In this case, one party can sell their unit and take the money they get paid in exchange for their contribution to the property as their margin of return. This is possible due to how highly rated most units are.
As mentioned before, each party should calculate their margin of return and put it into jeopardy in order for this kind of joint venture to yield maximum profit.
Agree on a share arrangement for the property
When building a new high–rise apartment building, the developer agrees to give a certain percentage of units in the building to someone else as a joint venture.
This is called a hotel or hotel venture. In order for this deal to work, both parties have to agree to it.
A hotel venture is much more complicated than a conventional high-rise apartment development. However, in order for this deal to work, both parties have to agree to it.
If one of the parties does not agree to the terms of the venture, then they can legally exit out of it.
Document everything with a contract
Paragraphs of a building partnership agreement are critical to have in a joint venture apartment or hotel deal. It typically includes:
Paragraph 1: The names and addresses of both parties in the agreement. This is called the “Documentation” section.
Paragraph 2: The precise terms of the project, including who owns what buildings, how much each party will pay, and what rights and responsibilities each has. This is called the “Buildings” section.
Paragraph 3: Any conditions or restrictions on projects that affect residents and people who want to live in them, the general public, or International Students & Students Association (IRA). These may include security measures, visitation rights, floor rules, etc. These are called the “Publicly Available Information” (PAI) section.
Get professional help with your joint venture
As the owner or developer, you have the ultimate power in your building and in your community. You can make or change the rules for the joint venture!
As the C-Suite of your partnership, you can remove members of your team who don’t support your goals and support other goals. You can also add new members to support your projects as well as strengthen the relationship between yourself and your partners.
As developers, you can choose whether to develop on your own or with a fellow developer. You can decide if you want to develop alone or with another developer if the area is suitable for development.
As residents, you can choose whether to support development that supports other residents or not.
Maximize returns by managing well
In order to maximize returns with the joint venture model, both parties must be thorough in their dealings. It is important to understand your fellow shareholder, the building’s management, and the market share that they have coming into the partnership.
Understanding what each party wants can help make things easier for both parties. A well-developed plan can overcome any issues that may arise, like competition or changes in market demand.
Having a clear plan will help build trust and create a culture of cooperation among all parties. As mentioned earlier, competition is one of the biggest challenges for hotels and apartment buildings looking to expand. Joint ventures can help limit the impact of competition by providing a shared platform for development.
By working together and sharing updates, developers can keep their customers aware of their project, which brings in more guests and income tax revenue for both sides.
Recruit new investors for better returns
finding new investors is the most popular way to maximize returns with joint ventures. You approach existing investors with a low-risk investment in a large market space, and they come back for more.
To recruit new investors for your joint venture, you must first find new sources of capital. Most commonly, these sources are small banks or non-bank financial institutions.
These institutions tend to be more stringent in their requirements for a venture-thinning loan than a traditional bank would be, making your investment more secure. They also typically require minimum size investments in order for them to consider you an investor.
If you can find these type of investors, they will likely return the money they invest back to you in the form of increased volumes or assets that you can use in your venture.