Recently a few newbie RE investors reached out to me to ask for funding for a potential deal they had. This would be their first deal and they knew they didn’t have a lot of experience and they knew they did have a lot of cash to contribute to the deal - which is OK.
So I introduced them to the idea of doing a Joint Venture (JV) to work with a more experienced investor who has done the type of project they are looking to do and can advise and/or guide them along the way.
For those who don’t know what a JV is, it is essentially a partnership between two or more parties who work together to complete a project. In the context of RE, I’ll be talking about JVs between a newbie RE investor and an experienced RE investor who work together to complete a rehab project and participate in sharing of profit.
For these newbies, I offered to put them in touch with a couple of experienced investors that I personally know and that have worked with other newbies on JV deals. I recommended they reach out to them to get an idea of how they can partner together to find a win-win scenario.
They responded with a couple concerns:
What if this JV partner interferes with the project?
I’m not sure if I want to share the profit with a JV partner.
The one thing I asked these newbies to do is consider taking a different point of view. The profit shared with an experienced JV partner should be considered the cost of education. A good JV partner will want you to succeed in this deal AND future deals - even if you’re doing it alone. If you form a good relationship, they will provide valuable knowledge and advice for a long time to come. Just as in any profession, this education will improve your chance for success.
Another point of view to consider is that a newbie investor will make mistakes on their first flip. Sometimes these can be very costly mistakes. So as a newbie, if you’re going to spend money on either costly mistakes or partnering with an experienced JV partner, you’ll get a lot more value for your money sharing the profit with a JV partner.
In my opinion, a newbie investor should not be concerned with sharing profit with a good JV partner. If it’s a good deal, it’s truly going to be a win-win situation. You will come away with money in your pocket AND education from a pro.
What I suggest is: If you’re new you should be open minded to working with a mentor in some capacity. As you know, I’m a huge advocate for working with a coach and I always advise newbies to find a coach that fits their needs and style. In lieu of a coach, there’s a lot of benefits to working with a JV partner. They can advise you on the strength of the deal, rehab costs, project timelines, potential pitfalls or challenges, and can help you avoid costly mistakes.
And once you've got your property under contract, reach out to us for funds for your next project! Feel free to contact us at 484-706-9601 or visit www.wingspreadlending.com/borrowers
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