I Found a Potential Joint Venture Deal!
Samuel Leeds here. I recently spoke to a guy that was seeking a joint venture partner for a property in Southwest London. It’s a Victorian house currently on the market for between £1.35 million and £1.375 million. But as you know, the asking price and the market value of a property are not always the same.
So what is this property’s market value? According to my caller, the home’s actual market value is around £1.5 million.
Before getting into the joint venture (JV) discussion, I also wanted to know if converting the house into apartments would fit in with the neighborhood’s character. “Yes, so within a half-mile radius, there are quite a number of flats in similar houses … similar Victorian properties,” he informed me.
“Okay, and also the cost to turn it into flats. Did you say you’re going out with your builder soon, or do you already have an idea of how much that would cost?” I was curious. “A bit of both,” he responded before proceeding to say the estimated cost of converting the house into flats would be £60,000 to £70,000 for each flat.
And where was he in terms of entering into a joint venture, and how could I help? He revealed he needed a partner that would solely finance the project. “Within London, this sort of deal, for example, will need probably around £600,000 to £700,000 from a joint venture partner … I can’t afford that.”
Finding someone with deep enough pockets to fund this deal wouldn’t be a walk in the park. And this is why he sought my guidance. “How do I do this … in a city like London or surrounding areas?” he asked. “Do you live close to the property?” I asked in response. To which he answered that he lived about 10 minutes from the house.
I let him know the deal sounded decent. It wasn’t a deal that would get you jumping up and down, but from what I had gathered from the guy, it appeared reasonable. “There are investors that like to invest in that kind of thing. So is it possible for you to get a joint venture on this property? I would say yes,” I told him.
I did, however, also mention that investors do not just invest in a deal, “people are also investing in you.” So it would help to have a proven track record of successfully doing deals. My caller was new to the industry. And it wasn’t until November that he and his family had decided to turn their family home into an HMO, marking his entry into the property market.
For such a big deal, I emphasize getting someone to put in all the money wouldn’t be easy. “You know when we do … the Wednesday calls and stuff? Are you active on there?” I enquired. “Yeah, I’ve been there every Wednesday,” he answered. “Brilliant,” I replied because “there are people on that call that do have money” to invest in his deal.
So I suggested that on Wednesday, he get the attention of potential investors by putting it out there without being salesy that he has a deal and is looking for a joint venture partner. “I definitely think that would be a smart thing to do,” I urge him on. But what if he can’t get a joint venture partner?
Well, if the joint venture doesn’t pan out, there’s still the option of selling the deal for a fee.
And seeing as he lives so close to the property, he could even ask to serve as the project’s project manager. He could, for instance, say to an investor, “Look, you can have the deal. I want £2,000 upfront, I want £2,000 after completion, and then I’m gonna charge 10% of the conversion cost to oversee the works because I live 10 minutes away.”
In his case, selling the deal has the following benefits:
- It’s an easier sell than getting a joint venture partner to put in all the money for a percentage.
- He’ll earn a finders fee and possibly a project manager’s fee.
- Being a newbie in the housing market, he’ll gain experience.
- It’s an excellent opportunity to build his track record.
So as a fallback option, selling the deal might be worth doing if he can’t find a JV partner. Additionally, at the risk of stating the obvious, I reminded him that other than thinking, “what investors do I know?” think about “who you might know on a personal level like family and friends … who might have some money or some equity.”
Yes, your first JV partner might be the person right under your nose.
“I wish I could wave a magic wand and just appear you a joint venture partner,” I told him. Then went on to reassure him that with a good deal at hand combined with his training, support from my team and me to help him do due diligence on the deal, and a platform to reach out to hundreds of investors, the odds are in his favor.
And what if the project falls through? Well, he’ll still learn from the experience, with the main lesson being:
“Don’t wait to find a perfect deal before you start looking for a JV partner.”
I also reminded him of the importance of being compliant as a deal sourcer. Ensuring compliance “is more about protecting you and protecting the investor” rather than observing the law. I further encouraged him to try and form a joint venture to run the project. And if unsuccessful, I strongly suggested he pursue the property manager angle.
But before ending the call, he wanted to know two things:
- If the joint venture angle didn’t work out, would I agree with turning the property from a BRRR to a fix-and-flip due to the high mortgage that would come with refinancing the property? It’s essential to have an exit strategy, so if you can’t refinance feasibly, reselling may make more sense.
- Can he suggest entering into a joint venture agreement with the property owner? Absolutely!
I, however, insisted that he instead focus on getting a JV partner, getting the builder’s quote for converting the Victorian house into flats, finding a potential buyer for the deal, and introducing himself to potential investors on Wednesday night.
Parting shot: “Fill your pipeline with other properties.”
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