Joint Ventures on the surface seem like a good way to get into property either as a small operator or joining others in a large development. In today’s show Peter Koulizos, from ThePropertyProfessor.com.au, takes us through the pros and cons of this type of investment and details the areas you need to be ware of before getting involved. This is the first part of our interview.
Kevin: A very interesting article in Australian Property Investor magazine, which is out now, deals with joint ventures. I’m going to talk to Peter Koulizos, better known as the Property Professor – the website ThePropertyProfessor.com.au – a little bit more about this – pros and cons.
Peter, welcome to the show, and thanks for your time.
Peter: Thank you, Kevin. My pleasure.
Kevin: Thank you. Peter, firstly, what are joint ventures? Can you explain to me what they are?
Peter: Sure. A joint venture, as the name suggests, is going into a venture or a project with one or more other people. Generally speaking, in property, it’s two people and it generally involves property development, but it doesn’t necessarily have to.
Kevin: There’s a saying that resonates in my head all the time: “If you want to wreck a great friendship, go into business with a friend.” Probably that raises a bit of caution about things like joint ventures. Would you agree with that, Peter?
Peter: Yes, 100%. Our friends might be great for having a coffee with or going away on holiday, but when it comes to business, you need to pick the right business partner.
One of my best mates is a great bloke to have a coffee with, go away on holidays. I use his holiday house from time to time. But when it comes time to pay for the coffee, you never see his wallet. So, I’m more than happy to do other things with him, but when it comes to business, I would be looking for somebody else to do business with.
Kevin: Yes. I guess the same with family, as well. You have to be very careful. It raises some issues that I do want to talk to you about. We can talk about the pros and cons, but also getting everything down in writing so that there’s no misunderstanding between the parties right up front.
Peter: That’s right. Look, if it’s not down on paper, then the agreement you have is not worth the paper that it is not written on. You need to find a good lawyer who is experienced in joint ventures to draw up the paper work because even though everything is all going nicely now, it may not go so nicely during the construction. A typical property development can take up to 12 months – if not longer, if it’s a bigger development – and unexpected things may happen.
Everything might be amicable, but unexpected things may happen during the process, so not only do you want to be able to get into a deal, but you also want to be clear as to how one or both of you can get out of the deal, as well as what share is everyone entitled to, what are the responsibilities of each party, and so on? It doesn’t have to be a very lengthy document, but it certainly does need to be documented.
Kevin: Yes, and done by a solicitor, who probably has some experience in this area so that he can foresee some of those problems.
Peter, how important is it that the parties in a joint venture are going to be able to bring different skills to the table? In other words, what I’m saying is is that important?
Peter: Very important. For example, if you’re a builder and your friend is a builder and you decide to go into a joint venture, that may not be the best option because there are many other skills required in a property development project.
However, if your friend was a builder and you had the money, then that could be a good joint venture partnership, or if you were a builder, your friend was a project manager, and together you could both borrow the money, then that would also be a good partnership. Somebody who complements your skills and experience would be the ideal joint venture partner.
Kevin: A little bit later in the show, I’ll get Peter to come back, and we’re going to talk about how dangerous it would be if both parties entering into a joint venture were brand new to property development. We’ll also look at the areas to be wary of and what are the real benefits of a joint venture?
Peter Koulizos will join us a little bit later in the show as we continue this chat and talk about joint ventures.