Is a JV a good strategy to raise a deposit?
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?
- As you’ll have realised from the story, no bridger will take 50% of your profits.
- 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.
- 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.
- 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.
- 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.
- Contact Kevin Wright over on his Facebook page.
- Browse the Recycle Your Cash online training library by clicking here.
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