JV partners, the big quandary, friends or business acquaintances?

[nmb]

The investment markets are littered with individuals who have attempted find joint venture partners only to come across dubious companies and individuals who do not always deliver. Perhaps the biggest quandary for those looking for a joint venture partner is do you go for somebody you know or a business acquaintance?

If you go with an individual you know, somebody you have a personal friendship with, is this conducive to a business relationship? If you go with somebody you don’t know, who was maybe recommended to you or replied to an introduction, will you ever really know their true character?

Personally I would rather go with a partner with whom there was no friendship or personal relationship but who has a long-term proven track record in real estate. The key to any such relationship is to make sure that all roles are set in stone from day one.

 

[Nicholas Wallwork]

It's interesting as I've worked with JV partners from both of your examples... Both have worked out very well thankfully...

I think keeping a JV simple and on a per deal basis eliminates the risks and keeps the relationship very defined... A property joint venture is usually quite straightforward - one person puts up the cash and the other the expertise for example... It's not like a normal business partner. Finding a business partner can be much harder as you tend to have to work very closely together and there are lots of areas for conflict... For a real estate JV though the roles tend to be quite separate and well defined and thus the risks of conflict are minimised I think...

In any event make sure you have a JV partner agreement so these roles are clearly defined...

 

[nmb]

I would still feel more comfortable working with a third party with which I had no previous relationship - although they would need to have a good track record and be personally recommended by a friend. I think this helps to make the more difficult decisions when you have no real friendship with the person involved. As they say, business and pleasure dont mix.

 

[Nicholas Wallwork]

It certainly can make things easier and less risk of "emotional" problems... business should be all about making calculated decisions and having a family member or friend involved could give rise to problems. I guess it depends how well you work together as there are plenty of good examples of related parties building cracking businesses, for example:
- Walmart
- Ford
- Berkshire Hathaway (Warren Buffet's family)
e.t.c.

See the top 25 largest family owned businesses here:
http://www.forbes.com/pictures/ghmf45giff/1-wal-mart

 

[nmb]

There are also many successful businesses which have been ruined by infighting amongst family members. In theory property investment does come down to cold hard facts and figures but it can be very difficult to keep emotions in check. If you have level headed joint-venture investors who have the same cold hearted approach to investment, i.e. simply using facts and figures, this is probably the best setup for all involved.

Now, we just need to find that scarce breed of level headed investor who thinks the same way as us