It's the age-old question - which comes first, the chicken or the egg. It shows up in all sorts of places. And Property Development is no different. In fact, it appears as a question I hear frequently...
Should I find the deal first, or the money/joint venture partner?
Drum roll.... and the answer is...
Both!
Now, before you lynch me for asking you a trick question, let's take a look at the pros and cons of both options.
Deal First
One of the first things we do in Property Development Formula is set up a 5 Year plan. Because, as I've said many times, if you don't know where you are going, every bus will take you there.
As part of that process, you will have a very clear idea of what sort of deal you're looking to do next. That's what you research, become an Area Expert for, and hone your ninja skills to find.
Which means when you find it, it should be a cracker! The type of deal that partners want to invest their money in to make a great return. Unless they don't - at which point you start to look desperate. Not a good look.
There's no doubt that finding the deal first carries the risk of not being able to fund the deal. That's a level of risk that you have to decide if you're willing to accept.
Property Developers with cash in the bank will often aim to fund the deal with partners as a first option, but have enough available to put in the needed funds from their own resources. Covering all the bases, basically. Working with partners allows them to take on multiple deals at once, rather than tying up all their resources in one deal.
Money First
It's been said that your relationship with a joint venture partner is a bit like a marriage. So there's a lot of common sense behind the idea of finding your JV partner before the deal.
You can spend time getting to know each other, get comfortable, and make sure that you will be able to work through any problems that arise throughout a project.
If your agreement is more of a private loan scenario, chances are the money partner isn't going to be very involved day-to-day with the project, but having the basis of knowing and understanding each other is still important to build a level of trust.
Essentially, finding a money or joint venture partner first gives you time. Time to make sure you're compatible, that you trust each other, and that you have similar risk profiles.
It also means you have time to do your due diligence on each other, put in place legal agreements that you can use to back up your partnership on a project, and be clear that you have the same goals and objectives around how the deal should look.
Both
Depending on your personality and risk profile, you might already be leaning one way or the other on the "which comes first" question. But I believe that you should be looking for deals and money/JV partners at the same time.
There does need to be some method behind this process though. There needs to be synergy between your deals and your partners.
Start from the base of looking for deals that suit YOUR strategy, not theirs. It's really great that they're interested in building childcare centres, but if your strategy is subdividing land, you can find yourself going down a very big rabbit hole in the wrong direction.
Instead, look for partners who are also interested in subdividing land. Now, maybe the deal size they can fund is different to what you have in mind, but that's okay. If your deal is a bit big for their resources, you might be able to put a couple of partners into the deal to make it happen.
The important thing is that you're both on the same page, and that you're working with partners who like the kinds of things you're planning to do. It will just make your life a whole lot simpler and easier.
It will also mean you don't have to try and convince them you've found a great deal, or why they should invest in a subdivision rather than a childcare centre - they're already mentally there. You only need to determine the details of how it will all come together and put the paperwork in place to back that up.
Even better, having money/JV partners already on hand means that when you find a great site, you can act quickly. You will be able to get the finance side of things well underway through the due diligence period, reducing the risk of having a great project and not enough funds to make it happen.
One thing to keep in mind - check in with your partners regularly. It's incredibly frustrating to get hold of a deal only to discover your money partners have invested somewhere else in the meantime. Ongoing communication is vital.
So make your life easier and get out of the habit of chicken vs egg thinking. Try multitasking instead, and do both at the same time. It will make you a more successful Property Developer.
Should I find the deal first, or the money/joint venture partner?
Drum roll.... and the answer is...
Both!
Now, before you lynch me for asking you a trick question, let's take a look at the pros and cons of both options.
Deal First
One of the first things we do in Property Development Formula is set up a 5 Year plan. Because, as I've said many times, if you don't know where you are going, every bus will take you there.
As part of that process, you will have a very clear idea of what sort of deal you're looking to do next. That's what you research, become an Area Expert for, and hone your ninja skills to find.Which means when you find it, it should be a cracker! The type of deal that partners want to invest their money in to make a great return. Unless they don't - at which point you start to look desperate. Not a good look.
There's no doubt that finding the deal first carries the risk of not being able to fund the deal. That's a level of risk that you have to decide if you're willing to accept.
Property Developers with cash in the bank will often aim to fund the deal with partners as a first option, but have enough available to put in the needed funds from their own resources. Covering all the bases, basically. Working with partners allows them to take on multiple deals at once, rather than tying up all their resources in one deal.
Money First
It's been said that your relationship with a joint venture partner is a bit like a marriage. So there's a lot of common sense behind the idea of finding your JV partner before the deal.
You can spend time getting to know each other, get comfortable, and make sure that you will be able to work through any problems that arise throughout a project.
If your agreement is more of a private loan scenario, chances are the money partner isn't going to be very involved day-to-day with the project, but having the basis of knowing and understanding each other is still important to build a level of trust.
Essentially, finding a money or joint venture partner first gives you time. Time to make sure you're compatible, that you trust each other, and that you have similar risk profiles.
It also means you have time to do your due diligence on each other, put in place legal agreements that you can use to back up your partnership on a project, and be clear that you have the same goals and objectives around how the deal should look.
Both
Depending on your personality and risk profile, you might already be leaning one way or the other on the "which comes first" question. But I believe that you should be looking for deals and money/JV partners at the same time.
There does need to be some method behind this process though. There needs to be synergy between your deals and your partners.
Start from the base of looking for deals that suit YOUR strategy, not theirs. It's really great that they're interested in building childcare centres, but if your strategy is subdividing land, you can find yourself going down a very big rabbit hole in the wrong direction.
Instead, look for partners who are also interested in subdividing land. Now, maybe the deal size they can fund is different to what you have in mind, but that's okay. If your deal is a bit big for their resources, you might be able to put a couple of partners into the deal to make it happen.
The important thing is that you're both on the same page, and that you're working with partners who like the kinds of things you're planning to do. It will just make your life a whole lot simpler and easier.
It will also mean you don't have to try and convince them you've found a great deal, or why they should invest in a subdivision rather than a childcare centre - they're already mentally there. You only need to determine the details of how it will all come together and put the paperwork in place to back that up.
Even better, having money/JV partners already on hand means that when you find a great site, you can act quickly. You will be able to get the finance side of things well underway through the due diligence period, reducing the risk of having a great project and not enough funds to make it happen.
One thing to keep in mind - check in with your partners regularly. It's incredibly frustrating to get hold of a deal only to discover your money partners have invested somewhere else in the meantime. Ongoing communication is vital.
So make your life easier and get out of the habit of chicken vs egg thinking. Try multitasking instead, and do both at the same time. It will make you a more successful Property Developer.
