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Is a JV a good strategy to raise a deposit?

strategic planning Jan 25, 2020

Joint ventures (JVs) are suggested by many property training programmes as a means for an investor to gain momentum and build a portfolio faster.  It cuts down the ‘saving up’ period considerably, depending on how much your partner is willing to put into the pot.

However, a joint venture partner must fulfil certain criteria for the Financial Conduct Authority (FCA) to consider they qualify as a ‘sophisticated investor’.  If you get this wrong you can end up in serious trouble.  Before you enter a joint venture it’s wise to ensure your JV partner ticks the FCAs boxes.

If you have a keen friend or family member willing to put in your deposit on a property in return for your time and effort in getting ready for occupation or sale - and split the profits 50:50, then you’re giving away half your profits on every deal. 

So what is the alternative?

There are a few savvy investors who have cracked how to keep way more than 50% of the profit in each of their deals.  How do they do it?  Let me tell you a story:

At a property meeting I attended they ran a deal clinic, with the two hosts taking notes on whiteboards and invited people to outline potential deals for review.  A member of the audience announced he was looking for a JV partner for his deal and was offering a 50:50 split on the profits.

He elaborated on the intricacies of the deal with the hosts taking notes.  They asked him what he expected to make in profit – he replied £34K.  One of the hosts then asked, “Have you considered bridging finance as an alternative to finding a JV partner?”

He replied “Yes, I have and it’s too expensive.  I got a quote and it was going to cost me £8K and I’m not paying that.”

Both hosts stood for a minute and scratched their heads and asked, with some degree of puzzlement, “So £8K is too expensive, but you’re offering 50% of £34K to a JV partner, if you can find one?”

So how does bridging stack up against a JV partnership?

  1. As you’ll have realised from the story, no bridger will take 50% of your profits.
  2. JV partners take time to find and nurture. This can take a number of meetings, discussions, the need to explain everything in layman’s language and in great detail.  Bridging can be arranged in a few days.
  3. JV partners can be unpredictable - and it’s not unheard of for them to pull out at a critical point in the purchase. Once the loan is agreed bridgers want to get the show on the road and they don’t suffer from cold fee or a change of heart.
  4. With a JV and a mortgage completion will take a couple of months or more. This generally means you pay a higher price than a cash buyer would.  With bridging you can complete in less than 28 days and negotiate like a cash buyer.
  5. With a JV you’re just one of many investors, nothing will make you stand out from the crowd. With a bridging loan you can blow away your competition by being able to complete much quicker than they can.

There are other advantages to using bridging finance - not least that it will set your property career on the fast track.

 

You can learn more here:
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