Joint Venture Partnering is a way for an investor who might lack money, time or resources, to get involved in a deal or investment with one or more parties.
Each party to a joint venture contributes something such as cash, contacts, resources, skills or proprietary knowledge. Profits are shared in whatever way the parties decide.
Joint ventures can be as large as a partnership between governments and businesses who are building a sports stadium, or as small as two investors pooling money to buy a single-family, rental property.
Joint Venture Partnering and Trust Deed Investing
In trust deed investing, a joint venture typically involves an investor who is seeking a passive yield and an entrepreneur who performs all of the heavy lifting. The money partner puts up the cash. The entrepreneur – also known as the operating partner – finds the deal, analyzes it, structures it, negotiates it, manages it and disposes of it. Profits are split between the money partner and the operating partner, 50/50.
The joint venture can be a win-win because both parties get what they want.
The money partner earns secure yields that are passive and hassle-free. The operating partner earns profits from the contacts, skills, knowledge and resources brought to the table, without having to fund the deal.
In essence the joint venture is a partnership of time and money.
The money partner can focus on their own profession and earn a living doing what they know best, while allowing an experienced operating partner to spend the time finding deals that provide a good enough yield and return for both parties.
The Joint Venture Agreement
A joint venture agreement can be a simple 1-2 page document spelling out things like:
- The parties involved
- The roles of the parties
- When and what assets are to be bought and sold
- When the joint venture terminates
- Buyout provisions
- Reporting requirements
- How disputes are to be handled
An attorney should be used for initial document preparation and review. If future deals are similar, this document can be used as a template without having to pay additional legal fees.
Joint Venture Liability
In a simple joint venture, all parties are generally personally on the hook for any liabilities. As such, the joint venture parties may want to use an LLC which could limit their liabilities to the dollar amount invested.
To avoid personal liability, the parties can also form an LLC instead of a joint venture and have the operating agreement spell everything out.
For smaller deals, a joint venture agreement between two or more LLCs can offer the speed and simplicity needed to quickly tie up an attractive deal, while also providing personal liability protection.
Retirement Accounts and Joint Ventures – Another Beautiful Partnership
A money partner to a joint venture can even use a retirement account such as an IRA. They would first establish a self-directed IRA, which would fund an LLC. The LLC would enter into the joint venture agreement.
Investors who are sitting with idle cash, earning paltry yields in their retirement accounts, can participate in investments like trust deeds. Unlike volatile stocks and mutual funds, trust deeds in a retirement account provide an opportunity to earn consistent, passive, high-yields, secured by real estate, while limiting personal exposure and minimizing taxes.
What better deal can one find?
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