Joint Venture Property Investing: All You Need to Know

Joint Venture Property Investing: All You Need to Know

As an investor, your ultimate goal is to maximise returns out of your initial investments. The real estate market presents a great opportunity for investors because of its high ROI (Return on Investment) rate, but the biggest barrier to entry is lacking the expertise in the industry.

However, with the creation of joint venture property investing, you can invest your money in development projects without even setting foot on a building site.

But how is that possible? The answer is right here! In this guide, we’ll walk you through everything you need to know about joint venture property investing. We’ll also help you decide whether it’s the right investment for you.

What Is a Joint Venture and How Does It Work?

In its simplest form, a Joint Venture (JV) is a business partnership between multiple parties, particularly for a new project. In the real estate industry, the parties involved often include developers, finance houses, builders, and investors. These parties collaborate and form a temporary subsidiary company called a Special Purpose Vehicle (SPV).

An SPV is basically a subsidiary of the parent company that’s created for the sake of the joint venture project. This way, investors can protect their parent companies from financial risks.

In general, joint ventures in the real estate industry encompass partners that fund the project and partners that contribute with their time and specialised skills.

Property joint venture investing isn’t something new since most industry leaders have already invested in joint ventures to varying extents. This is most noticed in massive projects that are worth hundreds of millions of pounds.

Joint ventures present an excellent opportunity for investors to maximise returns. On the other side of the coin, developers get access to major funds quicker and more easily.

Once all parties reach a basic agreement to form a new JV, the first step they have to do is create and register the SPV.

Investors may hold shares in this SPV, and each shareholder gets a per cent of the returns that the SPV makes once the project is done and the property is sold. After all, parties acquire their share of returns, the SPV is split up, and each investor gets their initial funds back.

For instance, if you hold 15% of the SPV, you’ll also acquire 15% of the profits generated by it.

In case the project fails, you’ll only be exposed to your initial investments.

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Getting Involved in Joint Venture Investing: Is It Difficult?

Investing in joint ventures isn’t complicated at all, even for investors who are relatively new in the real estate industry.

This is made possible with specialised online platforms that cater to the needs of investors and developers looking for new joint venture opportunities to expand their portfolios.

AKSUM LETS provides investors with the opportunity to invest in a wide variety of joint venture properties. The company’s service is widely regarded as the best in the UK, in addition to being known for offering higher than average Return on Investments (ROI),

Small investors can buy shares in the SPVs to directly invest in the related joint ventures. There are no limitations on the number of projects or the amount of money you can invest. However, some platforms may set a minimum investment value per joint venture, usually around £1000.

What’s more, co-investment online platforms have made it easier for investors to partner with smaller or larger investors in the same joint venture.

Investors are often advised to run their own due diligence process before deciding to invest in any project. However, smaller investors may just assume that the larger investors have already conducted a robust due diligence process, saving themselves the resources required to carry it out.

On a side note, it’s important that you familiarise yourself with all the potential risks and benefits of investing in a property joint venture before committing to one.

Benefits of Joint Venture Property Investing

Below are some of the perks of investing in a joint venture in the real estate industry:

1. Downside Protection

Joint venture property investing is usually backed by some form of downside protection. No matter what the market conditions are, the land and the buildings on the land will still hold at least some value.

2. Better Investment Than the Buy-To-Let Business Model

Previously, specifically in the last two decades of the 20th century, people used to buy properties and rent them as a form of investment.

However, this is no longer a viable way to make money because the government imposed limitations on buy-to-let investors in the form of restricted interest rate tax relief, a stamp duty hike, and excessively regulated mortgages.

And despite the severe impact these measures have already had on the sector, the full effects are yet to come. So yes, you may still benefit from a buy-to-let business if you have enough experience, but it’s far from being the best route to take in the real estate industry.

3. Establish Partnerships With Experts

As an ordinary investor, all you have to do is open an online JV platform and pick a project to form a JV with the industry’s experts.

This way, you’re basically allowing someone else to handle the nitty-gritty of the project with little to no involvement from your side. Not to mention, investors may choose to partner with smaller builders that are struggling to make their projects come to life due to a lack of funds.

4. Secured

Since you’re investing your money in the form of shares, your investment is secured because the exposure is limited to the invested amount.

5. Fast Return-on-Investment (ROI)

Unlike other forms of investments that take years to yield a significant Return on Investment (ROI), joint venture investments will help you see the ROI within 18-24 months of making the investment.

Property development and selling happen at an accelerated pace, which is why you won’t have to wait that long to get a decent ROI.

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6. Build a Diversified Portfolio of Projects

Since joint ventures are easy to be involved in and there are no limitations on the amount of money you choose to invest, you’ll be able to build a diverse portfolio and have multiple sources of income.

You can even invest a very small amount of cash to decide whether investing in the property market is right for you before committing further.

This way, you’ll be able to minimise risk by “not putting all of your eggs in one basket”.

7. Fewer Limitations Than Buying Shares

As an investor, you may just decide to buy shares in a development company and exit whenever you want to. However, you’ll be missing out on the opportunity of acquiring higher returns from other forms of investment, like joint ventures.

8. Low Initial Investment

Joint venture investment doesn’t require massive capital. You can invest whatever amount of money you have at the moment.

On the other hand, launching a real estate project all by yourself requires a massive budget. You’ll need to buy land, hire engineers and workers, partner with contractors, and pay for building materials. All of these things require a steady cash flow.

9. Higher Potential Returns

Based on the equity you hold, you may be able to generate higher potential returns if the property was sold for more than it was forecasted to be sold for.

10. No Specialist Knowledge Required

One of the biggest advantages of joint venture investing is that it’s not mandatory to have previous experience in the building trade to get started.

You don’t need to have the expertise and knowledge required to build a property. Not to mention, you won’t have to deal with contractors, pay fees to external agents, conduct regular maintenance sessions, and tackle structural issues.

Yes, there’s still a percentage of risk involved, but the potential returns are well worth it.

11. Access to a Large Pool of Potential Investors

Joint venture investing isn’t only beneficial for the investors; developers get to benefit from it, too. Instead of being restricted to a select few investors, developers may display their projects on online platforms to attract a wide range of investors willing to participate in the project.

This will make it easier for the developer to raise the required funds for the project.

12. High Impact

With property JV investments, you’ll be able to see the impact your investments are making on the economy by providing job opportunities.

Not to mention, by investing in the property market, you’re directly contributing to the current acute housing shortage in the country.

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Joint Venture Property Investing – Final Thoughts

Alright, so that was everything you needed to know about joint venture property investment. It’s a form of investment with a very high potential for small and large investors alike. Developers also get to fund their projects in a more streamlined way.

So what are you waiting for? Now is the best time to start investing in joint venture properties!

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