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Joint Venture (JV)

Joint Venture (JV)

What is a Joint Venture?

Whether you're developing a new property or you're embarking on the rental property journey, it's often helpful to start a Joint Venture. 

A Joint Venture, also known as JV, is a legal agreement that defines the scope of the partnership where 2 or more parties come together to co-invest in a new project. This allows multiple parties to share the risk and diversify their investments while still enjoying the yield.

One important element of a joint venture is that the partners are typically all active participants in the venture. Though a Joint Venture can have LPs, the Joint Venture largely refers to the partners who take a role in operating or investing in the real estate.

What needs to be defined in a JV?

In real estate, a JV should have the following items defined:

  • Capital contribution. Who is putting up the amount of capital required for a property? What happens when the actual needs exceed the estimation? Are there minimum requirements for each member of the JV? In many cases, these people and companies are LPs in the Joint Venture.
  • Management. Who manages the JV from start to completion? In many cases, this person or company may become the GP of the Joint Venture.
  • Distribution. When there are profits from the venture, who handles the distribution of the profits? Are there any guidelines around who gets what percentage of the profits?
  • Exit. How long is the intended investment period?

Defining this information ensures there's a legal framework and structure around the investment.

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