Working with partners is a great way to minimize risk and make real estate investing a reality for many, however, any partnership needs to be outlined in a joint venture agreement.
A Joint Venture (or JV) agreement is a document that outlines all the details of a real estate investing partnership. Usually, a joint venture is limited to a single project or a specific time frame. As you take on more projects, you create separate JV agreements.
What to Include in a Joint Venture Agreement
There are no set guidelines for what should go into one of these agreements, but it’s important to cover as many bases as possible to avoid misunderstandings in the future.
Items in a joint venture agreement should include (but are not limited to):
- the financial contributions you will each make
- how liabilities, profits and losses will be shared
- who has the authority to make decisions about the project
- under what circumstances can one party make a decision without the other
Another thing you should always include in a JV agreement is an exit strategy. Eventually one or both of you will want to end the agreement, either by one buying the other out or selling the property. It’s very important to understand how this will be handled when the time comes.
How Important is a Joint Venture Agreement?
If you’re investing with a family member or close friend you may feel that this kind of agreement isn’t necessary. This could not be further from the truth! It’s important to protect your investment, but it’s also important to protect your relationship. Disputes over expenses, responsibilities and profit-sharing can easily spiral into serious arguments. But with a well-planned JV agreement, you can stop these disputes before they even start.
These days a handshake agreement is not enough. Even if I’m partnering with someone I completely trust and have 100% faith in, I still create a JV agreement and have a lawyer look over it to make sure it’s solid. I suggest you do the same.