The joint venture approach

By YIP | 11 Jun 2020

Buying property on your own is ideal in terms of having complete control and autonomy. However, it’s not achievable for everyone, especially if you are only able to save a lower deposit, which can also delay you from entering the market at an opportune time.

A property joint venture “can mean a larger pooled deposit, which opens up the purchase possibilities”, says Jason Paetow, managing director at AllianceCorp.

“Alternatively, one person may have the deposit but little borrowing capacity, where the other person has no deposit but strong borrowing capacity, so the positions are complementary,” Paetow explains.

“At the end of the day, you are better off with half of a high-performing property than the entirety of a property that offers no growth.”

Paetow advises borrowers to be mindful of the fi nancial liabilities of a property partnership and its potential impact on your future borrowing, which he says can “prevent you from building out a proper portfolio and achieving your financial goals”.

Buying in partnership

When it comes to investors connecting to build wealth through property or execute a development, whether they are friends, relatives or even strangers, Paul Wilson of Income2Wealth says he has “seen some really good outcomes – and some really bad outcomes”.

“Say we meet a guy who is doing 10 townhouse developments and looking for $1m, and he wants investors to put money into his project. [This means] we are relying on one person who is holding the asset, who is going to do the build; he is going to control the funds and he is going to give us a return for our funds at the end of the project. That is an unregulated environment and it’s quite high-risk,” Wilson says.

As the property market evolves, so do the resources that can guide investors along the most secure path so things don’t turn from a dream into a nightmare. This is where joint venture and syndicate platforms have filled the void, providing a more secure means by which investors can pool their resources for better financial gain.

“At the end of the day, you are better off withhalf of a high-performing property than the entirety of a property that offers no growth”

Recognising the potential of joint ventures, Wilson launched an ‘Armchair Development’ fund that allows investors to combine their capital with that of other investors in development projects. It comes with the added security of financial services regulation, which minimises the risks. Last year, this fund paid its investors up to $3.3m in monthly profit instalments.

“That represented a 20% return on their invested capital,” Wilson says. “It allows an investor to participate in projects that are too big for them to do on their own ... where the structures have been put in place to mitigate the risks while paying them a very good return.”

Tips for joing venture successHow to buy in a joint venture

Empower Wealth’s Ben Kingsley advises investors to create a legally binding buy-sell agreement, which will work to ensure that each party is aware of the rules.

“What happens if one person wants to get out early? I always say that the best way to make sure that both parties are super interested in going down this pathway is that if one party wants to get out within five years, they get no gain, they get no return, so all of a sudden [they might think,] ‘Oh, this is serious now’,” Kingsley explains.

“Because what we often see is too many disputes and no one making any money, because their life circumstances have changed, or their priorities and where they want to put their finances has changed.”

As well as offering a fraction property investing platform, DomaCom has partnered with Domain to provide an online platform that allows investors to select a property from anywhere around the country and group their financial resources to invest in it.

While lending has tightened and more borrowers are unable to obtain loan approval, Naoumidis says, “That’s not relevant in our case because, when you set up a syndicate in DomaCom, you click a button to say, ‘I want leverage’, and [say that you] want up to a maximum of 60%, it means that you only need to raise 40% across your friends and family.”

Who can help you get on the path to property ownership?

Read more:
Low-cost ways to profit from property
The A-REIT path to property investing
Buying a 'fraction' of a property

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