Pros and Cons of Property Investment Joint Ventures

Pros of Property Investment Joint Ventures

1. Increased Capital and Buying Power

One of the key advantages of a joint venture is the opportunity to pool resources with potential partners, thus allowing investors to make deals that would not be available from utilizing their funds. This is particularly beneficial as it allows individuals to purchase deals that are either too large or too expensive for one person to manage easily.

2. Shared Risk and Responsibility

Investing in property comes with inbuilt risks, especially those relating to market change and maintenance concerns. A joint venture allows for the risks associated with the investment to be spread amongst co-investors thus reducing the amount of financial risk that is associated with investing in a single property.

3. Access to Expertise and Skills

Each partner that is involved in a joint venture either brings new financing, property management, legal expertise, or renovation skills. While the structure of a joint venture benefits from having a range of skills both at an operational and management level, a well-structured venture can benefit from having a variety of viewpoints to ensure that problems are identified and resolved at early stages and the potential benefits of the venture can be reached at the end of the process.

4. Diversification of Investment Portfolio

As a joint venture allows investors to diversify their portfolio and invest in different forms of property or geographies thereby reducing the chance of significant financial loss in a single investment.

5. Networking and Growth Opportunities

Collaborating in partnerships with other investors can lead to new opportunities including expansion of current or new projects, access to further leverage in order to secure better deals, and the opportunity to further expand professional networks.

Cons of Property Investment Joint Ventures

1. Potential Conflicts and Disagreements

One of the main difficulties that exists in a joint venture is the issue of making sure that everyone taking part in the venture agrees with his/her own goals in regard to decisions and expectations in the venture. Disputes over problems such as the size of profits sharing, how funds will be provided and who is going to take the helm of the venture can all cause conflicts within the venture.

2. Shared Profits

Unlike individual investment which keeps all of the profits, joint ventures require partners to share profits. These arrangements may reduce individual returns and profit sharing between partners may result in lower returns for the individual partners.

3. Legal and Financial Complexity

Joint ventures provide legal agreements that provide a framework to outline responsibilities, rights and dispute resolution mechanisms. Setting up a Joint Venture requires careful financial planning and legal structure. These plans and processes can take up a significant amount of time and can also be time-consuming and costly.

4. Dependence on Partner Performance

The success of a Joint Venture depends on everyone involved in the venture making all their commitments and playing their part effectively. If one individual fails to meet up on any of their obligations the venture can be greatly impacted and even destroyed causing significant money losses to the various joint venture investors.