Buying Properties With Different Joint Venture Partners

joint venturesThroughout the history of this website I have discussed various aspects of real estate investing and the involvement of joint venture partners but what happens when you’re buying properties with different joint venture partners?

Real Estate Investing With Multiple Partners

Anytime you bring in a partner, whether it’s a joint venture, a partnership or a corporate structure, as long as the investments are significant, there should be separate corporations for each of those partners. Now this greatly depends on your definition of significant because mine might be different than yours.

You have to make sure that the costs associated with setting up your structure to invest with multiple partners isn’t too large for what you’re going to be profiting as a result of that structure.

There are lots of ways you can have joint ventures or partners in real estate investing. It could be a lending situation, direct partnership, joint venture – there are many ways people can come into the mix. If you possibly can, it’s always better to have a separate corporation for each of those relationships.

For example, let’s say you are purchasing a million dollar apartment complex and you have a partner coming in. They lend you $500,000 and for that they get 50% of the project.  In this circumstance, what I would recommend is to set up a new property company that is owned 50% by your holding company and 50% by your investor’s holding company.

Operate On The Same Structure

canadian mortgage tipsI generally recommend that my clients’ investors come in through a corporate structure similar to the way they are coming in. This isn’t a hobby, it’s a business and if you use a corporate structure it truly does save a lot of problems because you’re dealing with shareholder agreements between corporations as opposed to individuals.

There are other issues other than structure that need to be looked at depending on the project. For example, borrowing money is done differently through a corporate structure than an individual structure.

You also need to make sure that you are not setting up a corporate structure that makes it impossible for you to get financing. The key is that there are other considerations…please make sure you are sitting down with your business advisors to help guide you through making the decision process BEFORE you make the decision.

There is nothing more difficult for an advisor than working with someone that comes in having already made the key decisions.  Better to seek advice upfront to ensure that your long term best interests are well protected – after all, if all works according to your plans, this could be the start of a very profitable and rewarding venture!

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