How Joint Ventures Work in Real Estate

July 20, 2023
Land in Lagos State

To get the best of real estate as an investor you need to diversify your portfolio. Real estate investing, in most cases, is perceived as a solitary endeavor but the hidden gem, which is a Joint Venture, can bring remarkable advantages.

The fundamentals of Joint Ventures are that- it’s a business agreement between the landowner and a developer to combine their assets and skills to develop a property project.

Benefits of Investing In Joint Ventures:
Real Estate in Joint Ventures can offer the potential that investing as an individual might not be able to achieve. Joint Ventures can be a good investment opportunity for the following reasons:

  • Shared Risks and Costs: Joint Ventures allow investors to share the costs and risks by reducing the investor’s exposure to potential losses and increasing their chances of success.
  • Access to Expertise and Resources: A Joint Venture allows investors to pool their expertise and resources with the other party, which can lead to more effective decision-making and better outcomes.
  • Access Markets: Joint Ventures can be beneficial to developers who are looking to expand into new markets and geographies. By partnering with other developers, both parties can access local knowledge, networks, and resources that can help navigate the business.
  • Flexibility: Joint Ventures can be structured in a way that best suits the needs and objectives of the investors, allowing for greater progress with the proposed project.

Things to Consider Before Investing in a Joint Venture

  • Partner Selection: Choosing the right Joint Venture partner is crucial to its success. Having a partner with complementary skills, a good reputation, and a good track record is perfect for business. Do your due diligence before going into Joint Ventures with an investor or a developer.
  • Market Research: Before investing in any Joint Ventures, it is important to conduct thorough research on the market conditions and the demand for the type of property you are considering to have on the land. Conduct your market analysis based on market trends, your projected ROI, and investment goals.
  • Legal Considerations: Joint Ventures involve complex agreements, so it’s important to work with a lawyer who is experienced with Lagos real estate and importantly, real estate Joint Ventures. This is to ensure that your interest is protected.
  • Risk Management: Joint Ventures involve risk, so it is important to have a risk management plan to minimize potential losses regardless if you are an expert realtor or an experienced real estate developer.
  • Financial Options: Joint Ventures often require significant financial options, ensure that you have what it takes to cover your share of the investment.

People Who Invest in Joint Ventures:
The people who invest in real estate JV can include:

  • Real Estate Developers
  • Individuals
  • Private Equity Firms
  • Institutional Investors
  • Real Estate Investment Trusts

The people who invest in real estate JV are typically looking to share the costs and risks of real estate projects, potentially earn a return on their investment, and diversify their portfolio.

How Joint Venture Work in Nigeria.
If you are wondering how Joint Ventures work in Nigeria, it typically involves two or more parties who have agreed to set up a Special Purpose Vehicle (SPV) for a specific purpose, such as a housing development or commercial building. The SPV registered with Corporate Affairs Commission, is a subsidiary created by the parent company or Joint Ventures investors to isolate financial risks.

The parties agree on a profit-sharing mechanism based on an agreed Return on Investment model, and a Shareholders Agreement is created to govern relationships between shareholders and the SPV.

However, it is important to note that Joint Ventures carry some downsides, such as a potential for disagreements between partners, and the complexity of managing a joint enterprise, all of which can be managed through due diligence and legal backing.

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