What’s a joint property development venture with a money owner? Australia’s Billion Dollar Property Developer, Bob Andersen discusses.
Hi! Bob Andersen here.
When it comes to creative strategies, by far the most popular with all my students, is what we call a joint venture with a money partner. And just by way of recap – remember, when we are financing a development, the good news is the bank puts in most of the money.
Typically as a developer, we have to put about 20 to 25% of the costs in upfront and the bank follows up with about 75% or 80%. Now, the whole theme behind these creative strategies, is where does that 20% to 25% initial capital coming from? In the case of a joint venture with a money partner, it comes from somebody else; our money partner. The bank doesn’t really care whether it’s your cash or somebody else’s cash, they just want that 20% or 25% upfront.
I’ll tell you something, there’s a lot of people out there with cash that could have lines of credits from investments or houses, they could have money in the bank, they could have super or cash in the bank, whatever it is. Lots of people out there with cash and they want a lot better than the poor interest rates that you get from the bank. Whatever interest rates there at the time, two and a half, and three, three and a half, who cares? It’s pretty poor. And you know, given the opportunity to make a lot more money than that, here are lots of people who would get involved in a development project.
HOW JOINT VENTURE WITH A MONEY PARTNER WORKS
So how does it work? There’s a lot of ways structuring this joint venture with a money partners but the most simple way, the average way or the common way would be that the money partner would put in upfront the required equity. That 20% or 25% that the bank says has to go on the table first, the money partner would put that in. You and the money partner will collectively go on the loan with the bank for the balance of the funds and you’re the clever one, you’re the developer; the entrepreneur, you do the work.
If you like, bring the project into conclusion, and at the end, when they’re all sold, you split the profits commonly 50-50. So, what’s in it? Well, the money partner, they have put some capital upfront but get a big chunk at the back end, they get the capital back plus, 50% of the profit. For you, the developer, what’s in it for you? Well, you didn’t put no money at all, and you get 50% of the profit – A great deal for both parties. Like all joint ventures, there has to be a winner and a winner. Not a winner and a loser. And in both of these cases, the money partner and yourself are great winners.
When you’ve got the money, you can do any deal that’s out there that stacks up. That’s why joint venture with a money partner is so popular. It’s the money that’s in the tin that profit at the end, everybody is happy.
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