The Answer to one of the Most-Asked Questions: What is a Joint Venture?

By Russell Westcott

Tapping into other people’s money is essential to your long-term success in Real Estate. If you find a real estate investor who has built a portfolio of properties, almost without exception, they have used other people’s money and resources to achieve their desired results.

Before we get to the components required to create successful Real Estate Joint Venture relationships, we’re going to start with the basics and a few important fundamentals. Each will help you create a strong foundation upon which you can build successful Joint Ventures.

Let’s start at the beginning: How do you structure a joint venture? Truthfully, there isn’t a singular black and white way in which to structure a deal. Each joint venture relationship is unique, just like a fingerprint. Each can be completely different because there are so many variables: different people, different expectations and different goals. The good news is there are some simple templates and structures you can follow.

Each joint venture relationship has key fundamentals that are shared. In order to make your life easier, your job is to look for commonalities, not exceptions. Your job as an investor and joint venture partner is to simplify and systemize your JV transactions – make it as cookie-cutter as possible – then deal with the exceptions.

A legal definition of a joint venture is, “The joining of two or more people to conduct a specific business enterprise. A joint venture is similar to a partnership in that it must be created by an agreement between parties to share in the losses and profits of the venture. It is unlike a partnership in that the venture is for one specific project only rather than a continuing business relationship.”

The definition that we use at REIN is, “An agreement joining together two or more parties for the purpose of executing a particular real estate transaction. Each party has committed to perform certain duties and lives up to those written commitments.”

You are setting up parameters for one transaction. That one transaction could be 100 individual properties, but what you are setting up for is one particular undertaking.

The second part of the definition states “Each party has committed to perform certain duties and lives up to those commitments.” This is crucial. If you say you’re going to do something – no matter how bad the deal is – do something, do it! Then when it comes time to renegotiate, renegotiate. But if you’ve made a commitment and it’s not a good deal in your favour, follow through and don’t repeat the mistake the next time. You need to take responsibility for the deal you have negotiated.

Let’s explore a few points about what a joint venture is not:

• A joint venture is not an ongoing partnership; the details for this deal are specific to this transaction and do not transfer over to other business ventures.

• In the eyes of the law, joint ventures do not have specific considerations. Lawyers and the Canada Revenue Agency typically do not treat joint ventures the same as they would a corporation or a defined partnership. Therefore, a joint venture is not a ‘stand-alone’ entity like a Corporation, and does not fall into the same treatment as these structures.

As always, it is important to seek good legal and accounting advice surrounding joint ventures (from qualified advisors who understand joint ventures and who understand investment real estate). Not every lawyer or accountant you talk to will fully understand all the details around joint ventures and investment real estate. This is why you’ll need to have one on your team of quality advisors. The money you spend with a good lawyer will save you much more than you could ever imagine.

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Russell Westcott: Canadian Real Estate Investor, Educator, Researcher, Best-Selling Author and part of the Management team with the Real Estate Investment Network (REIN). He uses his personal experience to present his Advanced Buying Strategies™, and Joint Venture Secrets™ that have helped Real Estate Investors think creatively and raise investment capital to buy their next piece of real estate.