In this post I'm going to explain one strategy that's allowing people to buy investment properties with very little or none of their own money.
The biggest barrier to entry for beginner real estate investors right now is finding the money to put down for a deposit. For example, a 20% deposit on a £200,000 property is going to cost £40,000. So how do people buy one property after another? Do they have £1m in the bank? Some lucky people might but not if you're just starting out!
The secret is using Joint Venture partners (or JV's for short).
So what is JV?
Essentially, a JV is a business arrangement where two parties pool their resources together to accomplish a particular task. In this case, buying investment properties.
How do JVs in real estate work?
JVs are executed in one of two ways, either via debt or via equity
If you're carrying out a JV via debt you find someone who will loan you the money for a deposit plus any additional refurbishment costs for a fixed period of time. They will charge you a fee to loan the money. You then carry out improvement work to increase the property value and refinance at a later date against the higher property value. The previous mortgage and the JV partner is paid off using the equity and cashflow you've been able to create from the refurbishment.
This is more common in longer term JVs. Usually, one partner will provide the money and one partner will do everything from sourcing and negotiating the deal, carrying out the refurbishment and even managing the property. One person is the hands on partner and the other a silent partner. However, all profits and benefit of capital appreciation is split 50/50.
There are no hard and fast rules for Joint Ventures. Its up to the individual circumstances of both parties.
You see, there are a lot of people in the world who are cash rich but time poor. Many high-income earners don't have the knowledge or time to dedicate to real estate investing so want to leverage the skills and expertise of someone who is. On the flip side, there are people who are knowledgeable in real estate but don't have large sources of capital to invest.
So Joint Ventures, however they are structured, allow people to leverage the skills of another to create and grow wealth for themselves and their family.