Investopedia defines joint venture as “the cooperation of two or more individuals or businesses in which each agrees to share profit, loss and control in a specific enterprise.” They are a good way for companies to partner without having to merge.
Joint Ventures are commonly seen in the world of large corporations and complex business partnerships, but they can be just as effective and beneficial for smaller companies and even individuals. For real estate investors specifically, they have huge potential, and they are not just for the seasoned pros.
Here are just a few benefits of a joint venture:
1. Lower cost
Because you are working with partners, you are not the only one with money in the game. Instead of spilling all your money into one project, you can pool money from multiple investors, allowing you to save some of your money for other projects.
2. Risk is spread
If the joint venture involves a package of investment homes (as opposed to one large commercial deal), the risk is spread among the homes involved. All your eggs are not in one basket, as they say.
3. Potential to invest in new markets
If you live on the West coast, and want to take advantage of the affordable Midwest market, you may not know where to start. Partnering up with a local company or individual who knows the market you’re interested in, will give you the knowledge needed to invest there.
4. Learning experience for new investors
Like I said, you don’t have to be a seasoned pro to get involved in a joint venture. I’ve always been taught that you should surround yourself with those who are smarter than you. That is how you learn and grow. Partnering up with someone who’s been around the block a few times will expose you to the necessary lessons for becoming a better investor.
You still need to do your due diligence of course, and make sure that all partners involved are on the same page. Also, there MUST be open communication between partners, and get everything in writing.
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