Nov 19 | Posted by Barry Cohen

Investing in real estate requires two basic ingredients – capital and expertise.  In most cases this requires a partnership, with one partner supplying the money and the other having the expertise.  There is a large contingent of residents in the GTA that have the capital to invest but lack the time or expertise to do so, and this is where a partnership or joint venture can be mutually beneficial.

The main goal of a joint venture is to build a partnership that is stronger than the two parties existing on their own.  A typical scenario would have one partner supplying the investment capital and the other supplying the time, expertise and relationships with key professionals in the industry creating a virtual tag-team of money and knowledge resulting in huge potential for both parties.

With any partnership it is imperative that you outline the expectations and responsibilities of the partners in a written agreement that has been drawn up by a professional and reviewed by each party’s legal representative.

It is crucial that the investment capital partner seek out a trustworthy and experienced counterpart with a proven track record of successful investment.  Due diligence in this regard can mean the difference between a lucrative investment and a reckless waste of money.  You need to take your capital seriously, but sadly, I have seen a lot of investors just throwing their money at deals that seem good on the surface, only to discover a year later the obvious flaws in the deal structure, partner or property.  

Joint venture deals are often bigger than those financed individually and that will be reflected in your financial responsibility as the money partner.  If a deal sounds too good to be true, it probably is.  Be realistic about the rates of return and the timeline for payback of your initial investment.  Demand to see the actual figures on the analysis of the property to ensure the incomes are not overstated and expenses understated.  Don’t hesitate to have an accredited appraiser review the property so you know you’re getting accurate numbers.  If renovations are required, is the dollar figure stated close to accurate and is there a 20 percent overrun factor built in to your costs?  These are just some of the important details that require the expertise of a real estate professional to handle on your behalf as the investor.

If the other partner is a family member or friend, it is especially important to do extensive due diligence on them.  Your perception of the other party is often not based on reality because they have the same bloodlines as you, or have always been helpful and supportive to you.  This does not mean they will be a great business partner or are looking out for your best interests.  An investment that has gone sour where relatives are concerned can have a trickle down effect throughout the family.

Joint ventures and working with someone you trust is an excellent way to get involved in real estate, but remember you are putting your financial future in someone else’s hands, don’t rely on blind faith.  Choose a partner that has a proven track record, lots of experience and expertise in real estate investment who can help you build a strong portfolio.

I have helped many clients successfully invest in the GTA real estate market over the many decades I have devoted to the business.  If you would like to discuss the pros and cons of real estate investment, want answers to your questions about joint ventures or any other aspect of real estate investment I would be happy to meet with you.