Step-by-Step Guide

Step-by-Step Guide To Setting Up a Real Estate Joint Venture

Step-by-Step Guide To Setting Up a Real Estate Joint Venture
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There’s never been a better time to get in on the real estate boom in Canada. Year after year, the home prices in the country’s urban areas continue to rise. Construction companies are racing to meet the demand for new homes, but they’re struggling. Even the outlying areas of the Great White North are seeing an influx of new people searching for a place in Canada to call their own. It’s the perfect time to become the real estate investor you’ve always wanted to be.

Table of Contents - Step-by-Step Guide To Setting Up a Real Estate Joint Venture

Of course, real estate investment in Canada can be a tricky labyrinth to navigate alone, especially if you’re relatively new to the scene. As you invest, you’ll build a team of brokers and lawyers focused on protecting your investment, but that’s not the same thing as having another person to rely on for the health and well-being of a real estate project. You need someone whose goals mirror your own. You need some extra insight. Maybe you need a little additional capital to make your real estate dream a reality.

Whatever the reason, it’s time to think about a real estate joint venture.

What is a real estate joint venture?

A joint venture is a business term that refers to a deal struck between two or more parties to pool resources and accomplish a goal. When that joint venture regards a real estate deal, then it is — you guessed it! — a real estate joint venture. It’s as simple as that.

Dozens of real estate joint ventures occur every day, at every level of the industry. If you’re working with partners who have complementary skills to your own, a real estate joint venture can be very lucrative. It can also help protect some of your assets and relieve the burden of accomplishing your real estate goals solo. If you’re interested in setting up a real estate joint venture, here’s how to make it happen.

Look for a joint venture partner with something you lack

The key to a suitable joint venture partner is to pick someone with skills that you don’t have. For example, if you don’t have a lot of capital, someone who’s willing to pay the checks while you do the legwork is ideal. If you have the money, someone with industry experience and a history of successful real estate deals could make for a perfect partner. Don’t be afraid to stop at just one partner, either.

Depending on the size of the real estate transaction, you could need more than one helping hand to make the most of the deal.

Someone has to get the deciding vote

Make no mistake, a real estate joint venture is not a 50-50 partnership (at least, not most of the time). There’s a clear-cut hierarchy in a joint venture, and for a good reason. Regardless of how well you work with your team and who smoothly the deal is going, the odds are good that there will be disagreements. Those disagreements will likely be very passionate, too.

When you and your joint venture partners are locking horns, it’s essential to have one person who can make the final decision for the group. Establish who that person is on day one.

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Outline the joint venture relationship

Before you set off looking for a profit in your real estate transaction, make sure to draw up a document that explains the terms of your joint venture in clear-cut language. Even if you’re entering a joint venture with someone you feel you can trust completely, like a family member or a friend, it is still a good idea to make sure that the financial stakes are settled, in writing, at the beginning of the agreement.

If you don’t have a joint venture agreement, that’s no problem. You should be able to get a boilerplate joint venture agreement from your real estate lawyer. If they don’t have one, don’t let them charge you to write one up. You can find a general real estate joint venture agreement online (they’re not uncommon). Once you’ve found an agreement with the wording you like, your real estate attorney should go over the language to make sure you and your partner agree.

Protect yourself

In a lot of joint ventures, one party is the financial backer, and the other person is the name on the lease. This could potentially leave the financier in trouble if their partner decides to sell the property out from under them. You might think this kind of fraud only happens to other people, but you’d be wrong—few people ever expect to be betrayed, yet it happens frequently. It’s best to play it safe and make sure there is legally binding documentation on file to prevent unforeseen losses.

Watch your bank account balance

During a real estate joint venture, it’s only natural to set up a shared bank account to which everyone in the deal has access. After all, when you’re investing in real estate, it is critical to maintaining some kind of liquidity for emergency expenses and the like. Be careful about how much money is in this account. Make sure that you have a ceiling as well as a basement for the amount of money that can be put into any shared account.

Is a corporation the right idea?

If you’re considering setting up a corporation to handle your real estate joint venture, you might want to think carefully. Some Canadian banks won’t offer real estate financing to a new corporation. As a result, depending on the bank you choose, you or one of the members of the joint venture may need to personally offer collateral to get corporate financing. Still, more Canadian banks won’t let corporations close on residential properties. If you’re working on a large-scale deal, a corporation might be worth the effort; otherwise, they could end up being more hassle than they’re worth.

Joint ventures are often the best way to finance a real estate deal—just make sure you follow these steps to protect yourself and your assets.

Setting up a Real Estate Joint Venture

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