Joint Venture Development Deep Dive

Samuel Leeds

Joint Venture Development Deep Dive

At the development deep dive, I taught a small group of budding property developers as my intention for them was not only  to become financially free but also property millionaires in the next 12 months which is a big ambition that I’m not guaranteeing.

If you know how to find deals, you have to find opportunities and in this article, I’ll be touching on the key points we learned through the day.

If you want to become a multi-millionaire, you need to be a little bit crazy because when you're asking people for millions of pounds and have got ideas, you’re going to think, what people are going to think about this and give up if you are not a little bit crazy.

Let's say, for whatever reason, you're not qualified and eligible to get any financial aid and want to boost your projects, what most people don’t know is that it doesn't matter and the reason it doesn't matter is because most deals are only forms of joint ventures.

Every joint venture is different as a joint venture is a complete blank piece of paper.

Pretty much everything that you want to happen in property can be put into a contract and this is the thing that just freaked me out over time as I remember calling my sister asking if we can do a certain thing and the answer is pretty much always a yes.

The traditional way of structuring a joint venture agreement is by setting up a company and the company has got two types of shares as it's got A/B shares and just for the record, this is not how every joint venture is structured.

Let's say I want to joint venture with someone in a commercial block which would cost a hundred grand as I want to split it up into apartments which is going to cost me a hundred pounds to do, I would need 200 grand but if we added the cost of a developer that would shoot up to 300 grand.

I might approach an investor with this idea and ask them to put their money in and they’re going to go into the figures and talk about all the ins and outs before agreeing to my proposal.

You can also buy the property by putting in a tiny little percentage of your own money and then get development finance.

However, the finance company is going to be a bit uncomfortable as they're going to give you less money than you asked for because you don’t fully own the property.

If you say i own this and the GDV is 300 grand, you can have no issues with a bridging company.

joint venture

How does this help with the joint venture structure?

Well, I’m going to sell my company and tell my investor that I need his money as we're going to put his one hundred grand to buying the property and we're going to be using a bridge in finance to do the one hundred-grand development finance and push the value up to 300 grand.

We're going to split 50-50 between the one hundred grand profit and I’m going to put in nothing as the bridging finance company is going to put in a hundred grand of which the investor is obviously going to charge interest as they're going to have to deduct their interest payment out of the profit which might make the hundred grand suddenly 85 grand which is not problem because I’m putting in no money while getting half of the profit from his money.

If I say to the investor, I want to borrow money, they might say no worries however, the problem is what's the guarantee that they’ll get their money back?

The investor is going to want a charge on the property and that’s the problem because when you try and get the development finance, there's already a charge and the lender is going to be a bit more skeptical for the second charge and so instead of him lending me the money, we’ll set up a brand new company which will cost us 15 pounds and can do it instantly within 24 hours.

The investor is going to then put 100 grand into that company and he's going to want to hold on as we need two shares which are A shares and B shares.

The A shares are going to be owned completely by the investor while the B shares are going to be owned by both the investor and me in a 50-50 share hold.

If we decide not to sell but refinance and rent out the property, all of the rent is split 50-50 because that's the profit moving forward but then when we sell, the investor gets his one hundred grand back because he always owns that a hundred grand.

The person putting the money in is not risking anything unless you mess up the deal because they are simply investing through you.

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