By David H. Nolan Submitted On February 16, 2011
Have you ever wondered how investors make money from real estate deals? The answer is simple, they add value. They add value by making improvements to the property before they sell it. These improvements can be by way of additions to the building, renovations, land sub division, strata titling or turning apartments into condos and other such activities. But what do you do if you own a property and have little or no experience in how to make valuable improvements?
One way to do this is to advertise your property for sale and look at doing a joint venture deal with a prospective buyer. Many investment property developers are happy to do joint ventures. A joint venture is where an investor joins forces with the owner of the property to optimise the potential return on the property. This can provide the owner with access to development skills from the joint venture partner that the owner does not have themselves. Skills that can be readily translated into additional profits for both parties to the joint venture.
Let me give you an example of what I mean. Let’s assume that you have a property consisting of say 10 apartments and you want to sell them as one sale. Let’s also assume that the property can be strata titled or turned into individual titles be they condos or where I come from, units. However, due to the lack of knowledge or skill, or money, or time, the owner, you, wants to sell them as one sale for simplicity sake. So an investor comes along and agrees to purchase the property from you. They will try and obtain an option over the property so that they can get all their permits in order prior to any settlement if possible. If not they will settle the property and then do a simple sub division and on sell as individual condos/units and hopefully make a profit for themselves.
This process is quite strait forward but it has one very large flaw. The flaw is that by doing a deal this way the two parties to the deal, i.e. the owner and the investor are incurring huge costs that could possibly be avoided. Costs that provide no direct value to either party and in fact could be saved and added to the bottom line profitability of the project. Some of the costs include local, state and federal government taxes that may apply on the transfer of property, mortgage costs, insurance costs, selling costs and advertising costs, not to mention holding costs for the investor. These simply can add up to tens of thousands of dollars. Trading in real estate is not an inexpensive exercise to say the least. What then is the alternative?
One alternative would be to find a joint venture partner who has the expertise and or capital required to optimise the property as it is. By joint venturing the deal the owner effectively keeps control of the property until such time as all development or subdivision activities have been completed and the property sold as 10 individual sales. The sales go from the original owner to the end user as a direct sale and not through the investor. This will save tens of thousands of dollars of potential profits from being expended. Clearly there needs to be adequate legal protection for both parties in the joint venture and independent legal advice should definitely be sought by both parties.
Before entering into any joint venture agreement you would be well advised to seek professional advice from your legal and taxation advisors to assist you in protecting your interests and optimising your net return. This can also be a good source of finding joint venture partners. Many legal professionals and accounting/taxation specialists have clients who specialise in property development and could maybe even make an introduction for you to find a joint venture partner. This works for both sides of the equation whether you are the owner or the investor.
Joint venture property deals have been around for a very long time and with sound advice and a well designed plan there are more profits available to both parties if you can take the time to seek them out. This is one very good way to make more money from your next property deal. You may not only make more money but you will also learn some valuable new skills that you can use again and again in the future.
Having spent over 25 years as a professional financial planner and property developer I have developed a very unique set of skills which I use to help Australian residents to acquire property, even without deposits. I have a mission to assist as many people as possible to get into their own home and stop renting. Basic information about the service I offer can be found at http://www.davidhnolan.com.
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