In this video, Glen Gallucci discusses three advantages and disadvantages of doing joint venture projects.
Hi, Glen Gallucci here with Peak Private Lending. On today’s video, we’re going to talk about the three advantages and disadvantages of doing joint venture projects. Stay tuned.
Hi! Okay, we’re back to talk about the advantages and disadvantages of doing joint venture deals. Let’s talk about some of the advantages. Number one, when you do a joint venture partnership, you can share the resources with your other partner. They may have resources you don’t have and you may have resources that they don’t have. That’s the nice thing about doing joint ventures. You can combine, combine those resources. So now you have your own little Rolodex of contractors, real estate agents, attorneys, title companies. So that’s one of the benefits of doing a joint venture.
The second way is you each bring your own expertise to the table. You may be a great wholesaler that knows how to find properties but you’re really not quite sure on how to do the rehabbing. The other joint venture partner may be a rehabber or a contractor. And their expertise is getting the work done but they just can’t find the discounted properties. Okay? So you each have your own roles here. That’s a great benefit for doing joint ventures.
And the third thing is it’s only temporary. When you do a joint venture project with somebody you’re only partners until that project is completed. So you’re not setting a long-term business relationship with that person. Just in a case may be the personalities just clash and it doesn’t work out. But that’s a huge benefit by doing you know four, five, six-month project and then it’s over. So joint venture partnerships have some very, very good advantages. And those were just three of them.
Now I’m going to talk about three of the disadvantages of doing joint ventures. The first thing is your roles may be too vague. What I mean by that is who has, who’s doing what? If you’re the wholesaler maybe you shouldn’t be doing what the contractor does and vice versa. Your expertise is in wholesaling, stick to that and let the rehabber partner stick to that. Once you start crossing lines things can happen. Okay? So understand the roles and not understanding it will cause problems. And that’s where it all becomes a disadvantage.
Another thing is clashing personalities. Before you do a joint venture with somebody make sure your personality is kind of match. I know it sounds kind of strange but it’s so true. If you get two type A personalities, everybody wants to be in control. And that lends itself to creating some problems down the road. So again, it’s okay for both of you to know your own benefit, your own style but again if the personalities aren’t there, it will clash and cause problems. So that’s another thing to be careful of when you’re doing joint ventures.
And the third thing would be just having unclear or unrealistic goals or exit strategy. You need to be on the same page before you purchased the house before you go into a joint venture on what your exit strategy and your goals are. If your exit strategy is “hey we want to get this house, fix it up, sell it real quick at a discounted price below the market”. That’s great. If you want to say you know to buy the house, renovate it and you want to rent it for a year to collect some income especially if it’s a multifamily, that’s fine too. But you need to determine that in the beginning and also is it realistic? You may want to rent it but if you look at it and you analyze it the deal doesn’t make sense to rent because your cap rates are going to be too low. Okay? So, you want to be able to really hone in on exactly what your exit strategy is going to be. And also on that exit strategy, you may want to say “hey if this doesn’t sell at this price within 30 days, we’re going to lower the price of the House by X amount of dollars”. And then you can do that for a month or two out. Because, quite honestly, if a house is not selling, it’s basically two things or actually three. Locations very bad, the renovations didn’t come out well or the most common is just overpriced. So just make sure that you’re both on the same page with that and it won’t be a disadvantage. If you’re not on the same page, it can be a huge disadvantage. But I feel the advantages far out weight the disadvantages and joint ventures if you just follow some of those guides.
So if you like these tips stay tuned and we’ll see in the next video.