How would you split joint-venture income and profits?

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In the vast majority of joint-venture investment situations one of the partners will put up the majority of the finance and the other will use their contacts and experience. So, how would you split the profits and income to ensure that both parties are motivated?

These factors should be considered at a very early stage and only income and profits after all costs have been deducted should be open to discussion. In a perfect world it would be a 50/50 split on income and profit but this will depend upon the time, money and effort each partner puts in. There is no hard and fast rule.

 

[Josh Caldwell]

Great question. The answer depends upon the situation. There are really 3 factors to a JV deal.

The property is the platform for the JV. The property can take many forms. It can be a small purchase or a large one, the exit can be quick or it can be a long term hold. Finding the right property takes some time and some effort.

The knowledge is by far the most important and valuable part of the JV. With the knowledge of how to convert potential into cash, the deal will die and rest in the graveyard of dreams. Knowledge comes with experience and education, both of these commodities come with time. There is no shortcut to gain knowledge. You have to earn you way in. Because the time and effort required to acquire knowledge it is the rarest part of the JV, which in turn makes it the most valuable. The price of the knowledge depends on how much it is need for a specific deal. Many new investors have little practical knowledge and can only contribute cash to the deal. In that instance, the new investor can make an easy 10% by riding the coattails of a more experienced investor.

The money is the least valuable of the three components. Sure the deal goes nowhere without the money but lots of people have money, there is no rarity to money. Sometimes a deal isn't good enough to attract money or the investor lacks the network to find the money, but the money is out there for the taking, to whomever can grow the money.