If you are interested in being a real estate professional, then being a passive investor won’t do you any favors. There is a little known strategy that people are taking advantage of for those who are looking for an alternative to passive investing through syndication. If you want to have access to the equity that comes from running the deal, and to be rewarded for your hard work then joint venture is a great way to go.
Joint venture comes with more responsibility and requires you to do the work, but the payoffs can be great—if you do it right. In this article, I’ll draw on my experiences and those of other successful multifamily real estate investors to share tips for succeeding with joint venture real estate investments.
Get smart:
It is crucial to have a good understanding of what a good multifamily deal looks like. Do the research needed to be a knowledgeable contributor to a solid investing team. There is a ton of free information out there including podcasts and literature. For the investor who is more serious and wants well organized information, taking a course, attending a conference, and getting involved with other people who are making the financial commitment to do what you are doing is a prudent next step. This develops your network by a common interest and will help you develop a fuller framework for you and your intended market.
Deal flow:
There are lots of ways to garner deal flow, and you have to work out what works best for you. It’s probably best not to rely on commercial real estate brokers to bring you the good stuff because they likely won’t. My favorite way of finding leads is by direct mail. But you can also utilize online listings, make phone calls, and lean on your network. The idea is that if you drop enough marketing lines in the water, then you are bound to get calls back and create some interest.
It’s also good to have an idea of what kind of sellers you are looking for. What problems might a potential seller have that you can solve for them? For example, I look at self-managing mom-and-pop owners whose holdings are mostly tied up in potentially underperforming real estate properties. Because they don’t have as much cash flow, they’re often willing to sell.
Experienced partners:
Going in on a joint venture with your partners is like getting married. You are tying your financial future to your partners, and so you want to be able to know and trust them, especially if a deal gets dicey. Here are some things to look into when considering joint venture partners.
- What do they look like under stress? Before you go into a deal with someone, you’ll want to see them during a stressful situation so that you can know that they will be a reliable partner.
- Make sure that your values and goals are aligned.
- Make sure that you are interested in the same market. Be specific about where and what kinds of properties you are looking at. If they are different, it may be best to find someone else.
- Can you predict what a person will do when something comes up? This is what trust is. Remember that it isn’t enough to trust someone just because you like them. You need to have confidence in how they will act.
- Make sure to have protection in the operating agreement and be prepared if something happens to one of the partners. Your operating agreement needs provisions that will allow the operation to go ahead should someone decide to pull out and ensure that nobody in the deal will be able to hold the deal hostage.
- Make sure that they are connected to the capital. If you have a track record of success then people with money will come to you.
Some additional musts:
- You need a deal, a solid business plan, and at least one partner who has signed a commercial loan.
- Make sure that you set yourself up in a deal that will show that you have experience. This will propel you to be able to make more deals and secure financing.
- Make sure you can fund the down payment.
- Make sure you are comfortable with recourse loans.
And finally, it’s a must to have some grace and understanding. Be mindful that there will be difficulties and hurdles along the way. But if you have foundational knowledge, can garner enough deal flow, and work with a good team of experienced partners that you can trust, then these things will help you be more successful in your joint ventures in multifamily investing.
As an advocate for multifamily investing as the best path to abundant passive income, I am an apartment investing mentor who has developed Myers Methods, a multifamily real estate course. This course helps dispel industry-related myths and guide investors through my 4-step process to building profitable deals and operating multifamily real estate. Contact me for more information.