Making money in commercial property investing requires an investor to have adequate funds up front to make such an investment. Capital for investing can be raised in a variety of ways. One common source of these funds is through joint venture equity, which is like a business partnership.
These partnerships can result in tremendous success for commercial real estate investments. Yet it is important to understand there are both pros and cons in these kind of arrangements to be learned before making any commitments.
What Are Joint Ventures?
Joint ventures, or joint venture equity investments, are commercial real estate partnerships between two or more investors. These partnerships, which can be made between individuals, investing firms, companies, real estate developers, and others provide a way for interested parties to generate the capital required to purchase a property. Partners then share in the gains or losses from the investment.
The Pros of Joint Venture Equity
Following are a number of positive reasons why joint venture equity investments are a great chance for those seeking new opportunities in commercial property investing:
- Financing Leverage - By partnering with other investors, it is easier to raise startup capital or leverage investments with equity owned by the collective partners.
- Access to New Opportunities and Experiences - With greater leverage, partners have access to newer and different markets along with more pooled business resources for running and maintaining the property. Newer investors can also gain more investing experienced when partnering with those with a more extensive background in this field.
- Shared Risks - As with any partnership, there is shared risk with joint venture properties. This may allow those with a lower risk tolerance to participate in bigger, more lucrative opportunities.
- Flexible Commitments - Joint ventures can be flexible commercial real estate partnerships that let individuals join in at varying investment levels and for limited time spans based on personal goals and risk tolerance.
The Cons of Joint Venture Properties
Generally speaking, joint ventures can be a very successful option in commercial property investing for those involved; however, there are still a few downsides to this type of arrangement such as the following:
- Complex and Unclear Objectives - Joint ventures often have multiple or unclear business objectives since each partner may have their own goals. This can make achieving venture goals more challenging.
- Complex Arrangements - Because they are so flexible and objectives may be unclear, joint ventures are a complex arrangement that requires detailed contracts and agreements on many legal issues to protect all parties involved.
- Expertise, Assets, and Cooperation - Joint ventures also tend to bring parties with varying levels of expertise and variety of assets together, further complicating the venture. There may also be different management styles at play, which sometimes results in reduced cooperation among owners or a lack of leadership at the beginning of the arrangement.
In spite of these challenges, joint venture equity in commercial real estate can be a profitable option for many investors. To obtain maximum benefits from this type of commercial property investing structure, individuals should cultivate relationships with the right investing groups. The goal is to look for good communicators with similar objectives who are willing to work together to increase the success of the investment!