By Brent Roberts
When I started investing I did my first few deals on my own, using my personal equity and my home equity to purchase the deal. Proud of myself for taking the first steps in real estate, I mentioned my accomplishment to an experienced real estate investor and he said, “Yes, but are you doing joint ventures?”
His unintentional dismissiveness revealed a surprising level in investing that I didn’t know about before. It turns out that “newbie” investors use their own equity while savvy experienced investors joint venture with others. Joint ventures then become a “key” that unlocks the next level of investing. It’s as if investing on your own is good but joint ventures are superior, and those who put together a joint venture are celebrated as investors on a fast track to success.
So what about those other investors who don’t yet feel that they’ve reached that level? New investors may feel like they’re not doing a good enough job because they’re using their own equity to do deals. Worse yet, I’ve seen many investors struggle to invest in even a single door because their focus is not on investing but rather on putting together a joint venture partnership so that they can start investing. They’ll go months or even years without making that first investment because they want into that higher level investing game.
I think joint ventures have been elevated to an artificially high value and narrowly defined. I want to transform your thinking about joint ventures and show you that the high-level game of joint venture real estate investing can be played right now, by any real estate investor, regardless of how many doors you own and how much personal equity you have available to tap into.
Rethinking Joint Ventures
First, stop thinking that joint ventures are a higher level of investing. In a moment I’ll show you a simple, “hidden” way that any real estate investor can participate in a joint venture on their very next real estate deal.
Second, stop thinking about joint ventures as an advanced agreement purely about money between two or more people. Joint ventures are much more than that.
Joint ventures are an agreement between two or more people about doing a deal. Each party contributes something to the deal and the deal is structured so that each party benefits in some way.
Let’s look at these individual concepts a little more closely:
- Each party contributes something: Perhaps a couple of investors each put in 50% of the financial capital required to invest in a property, or perhaps one investor puts in the sweat equity while the other puts up the financial capital. Either way, they each contribute something to the deal.
- Each party benefits in some way: Perhaps the property is co-owned (or owned by a corporate entity and each person in the joint venture owns shares of the entity); perhaps the property is owned in the name of one person while the other receives rental income. Joint ventures can be structured in many different ways.
With this clearer understanding of joint ventures in mind, consider the people you work with as you do a deal: bird dogs and real estate agents, lenders and your bank’s financial officers, contractors and home inspectors. Each of them contributes to something in the deal and each one benefits from the deal in some way.
By the traditional “confining” definition of joint ventures, these people are not joint venture partners. In the definition of joint ventures that I just laid out for you, these parties ARE joint venture partners in your real estate deal. They each bring some form of capital to the deal (perhaps sweat equity in finding a deal or in fixing it up, or perhaps financial capital by providing you with access to money). They also each benefit in some way (perhaps through a fee or through the payment they receive when they invoice you for work completed).
Why This New Joint Venture Mindset Is Essential
Why am I making this slightly broader definition of joint ventures? It’s simple. Joint ventures are ultimately about partnership and your relationship with the bird dogs, real estate agents, lenders and contractors should be a partnership. When you take that approach with these groups, you’ll raise your real estate investing to the next level.
Case in point: As a Realtor® I work with real estate investors all the time and I see a huge difference between investors who see me as a service-providing commodity and investors who see me as a partner. The investors who see me as a service-providing commodity are focused only on talking to me about the next transaction and I won’t hear from them until they need another transaction. The investors who see me as a partner do more than call me up whenever they need to buy or find a property. They instead share their business vision and goals with me and then unleash me to do my very best for them in a way that contributes to their larger business goals. I am equipped to work proactively for this latter group because I see myself as a long-term partner.
This partnership approach works well for all the different parties you work with in your investing. When you treat your bank’s lending officer and contractor like a partner you’ll see a huge shift in how they work with you. Share your business vision and goals with them and talk about how the two of you can work together long-term and proactively. Suddenly they’re thinking not just about this deal but about the next deal and the deal after that, and you’re figuring out how you can help them. What a difference in the relationship and the result!
Nothing else about the relationship needs to change. They’ll still benefit in the same way they always have but your new approach – in treating the relationship as if it were a joint venture – makes each of you partners who are pulling in the same direction to grow your business.
Brent Roberts started to invest in real estate and bought his first “door” at the age of 18. Brent owned 18 houses prior to becoming a realtor. He decided to take the real estate course in the late 1980’s to become a more educated buyer. He was then convinced to become an agent and has never looked back. Contact Brent at email@example.com.