| "Joint venture" is probably one of the hottest and | | | | they are equal business partners with you. Next thing |
| overused words in all of business. | | | | you know, the investor wants to help you pick out |
| I'd like to shoot the person that invented the term. | | | | the tile for the bathroom rehab. Not good. |
| But it's here with us to stay, so in that case, we | | | | In addition to this, some people think they can get |
| might as well figure out a way to deal with it. It just | | | | around securities laws by saying that their private |
| seems like everywhere I turn around, somebody has | | | | money investor is a joint venture partner, and thus |
| a joint-venture for me. Most of these so called | | | | they do not have to comply with the securities laws. |
| joint-ventures are one-sided: like I take all the risk | | | | Not true. |
| and the person proposing the JV has all the upside. | | | | Unless your private investor is a materially |
| Here's a good one for you: | | | | contributing partner on the deal (meaning if their |
| "Adam, how about I find a deal for you and you | | | | profits can depend upon their actions) then you must |
| bring the money to fund the deal from your private | | | | still fill out the required securities filings/disclosures. |
| investors. You guys can manage and rehab the deal | | | | It can bite you in the behind two ways if you are |
| and we'll split the profits?" | | | | running around proposing joint ventures that really |
| Whoa! Where can I sign up?.....NOT! (I love bringing | | | | aren't. |
| that term back whenever I can) | | | | Keep it nice and clear and concise: you're looking for |
| It's more like: "how fast can I run the other way!" | | | | an investor, not a partner. Well, maybe you are |
| Why? Because this isn't a "joint venture" and it's not | | | | looking for a partner, but I really caution you against |
| something I'm even remotely interested in. So, here's | | | | letting other people in on making business decisions |
| what I told this person: [More...] | | | | with you or for you. Never forget the reason YOU |
| "Ok. Tell you what: you bring me a deal. I will either | | | | are in business - and that is to make money. |
| A: pay you a commission or finders fee for the deal | | | | Be very leery of anybody proposing a joint venture |
| or B: purchase the property from you wholesale." | | | | to you. Make sure you clearly understand what each |
| Of course, the other persons interest waned | | | | party is bringing to the table. If you don't have the |
| considerably. This tells me one thing - they were | | | | market knowledge or connections to get the best |
| interested in making a bunch of money for not a lot | | | | deals, but you can raise the cash and handle the |
| of value added. This just doesn't work. | | | | rehab, be sure that any joint venture you enter into |
| A joint-venture only meets the definition if both | | | | clearly spells out how much you are getting and what |
| parties bring considerable value to the table and share | | | | the other person is getting. |
| in the profits proportionately with the value they | | | | Of course, there are relative and absolute dollar |
| contribute. Otherwise, it becomes a "dis-jointed" | | | | considerations here. If you have the potential to |
| venture. | | | | make a massive profit on a deal (like six figures or |
| Now, I'm going to tell you the right way to approach | | | | more) and the other person is really proposing |
| these things when it comes to private money. | | | | something that you'd be dumb to pass up, then don't |
| Maybe you think that by telling a prospective private | | | | pass it up! Don't be penny-wise and pound foolish. |
| investor that you'd like to do a "joint venture" with | | | | Just make sure that you know what you're getting |
| them that they will be more enticed to place funds | | | | into. Spell all the details out on paper before spending |
| with you. This can really mess things up in your | | | | time or money. Set up a good operating agreement |
| relationship with the investor. They may think that | | | | or partnership agreement. Watch the dollars. |