When times become more challenging and there is less money available on the street
and you want to diversify the risk and share the rewards, the easy answer seems to be joint venture – find partners.
This is a great structure for property investors but be careful the crooks and easy
money guys realize this as well and their operations may attract your money to their creative schemes.
If you are thinking about investing – do your homework first, get good advise and do not put all your money
into one single project/one investment proposal with the same group of promoters.
My financial planning friends suggest that you Do Not invest more than 10% of your investment capital with anyone
promotion/ scheme or opportunity. They are conservative and they want to protect you, even if you
have done your homework and sought the best advice that money can buy.
Every investment has risk – this is a natural law of all investments.
Don’t leave common sense behind.
The promoters need to put on slick and professional presentations to attract your interest and money.
No they are not all crooks, after your money but you have to be careful and smart, trust but verify!
When evaluating a prospective real estate deals, there are a few items of concern and the following
is not an exhaustive list because every real estate deal is unique and the people involved in any deal
have a diversity of motives and weaknesses – they are only human after all.
There have been many successful joint ventures in the past and people have made wonderfully
good money being involved in them. So we do not want you to be paranoid to the extent that you do Nothing.
You must Do, to get ahead in life. Avoiding all action does not work for anyone.
Some deals will only get done through the coordination of a successful joint venture; the partnership.
And there are many advantages to them. So do not simply write them off as a den of thieves.
A. Try to keep emotions out of your investment decision, remain rational and approach it logically. Asking the 5 Ws is helpful in order to understand what you are investing in and how the money will really be made by the project. Clearly answering your questions with sufficient detail to satisfy your accountant or financial adviser.
You should understand the business plan, real estate is simple. If there are too many assumptions and they are complex or they need a knight in shining armour at the end to rescue the investment and deliver the returns Be very worried. We recommend you let that one pass by and you run in the other direction.
B. Yes Time is of the essence with good investment opportunities, however if they place undue pressure upon you to commit to the investment – be careful , be cautious. You should come willingly into the investment after you have done your research and not driven by pressure or emotions evoked by the promoters.
C. High Yields, profits promised and guaranteed by the promoters and at the same time minimizing the concern
about risk. Yet telling you that was their past performance and asking you not to rely upon this information but we expect similar or better results – Wow!
If it sounds too good to be true – it usually is, be careful.
D. How does the joint venture intend to own the asset being invested in/ purchased?
What’s the ownership structure of the valuable assets?
E. How is risk the downside shared by all partners, limited and general? What about cash-flow short fall how is that dealt with? What if the asset does not perform as expected can we get out, how fast?
F. Stand on solid ground, “believe me or just trust me” does not work. You need paperwork of the joint ventures progress and financials at least quarterly and an annual financial statement with proof of filings with the taxing authorities. These should be timely and in order.
Due diligence, asking questions and getting timely accurate and verifiable clear financial information and filings should be a central theme to your investment program. Using advisors; lawyers,accountants,financial planners and realtors to help you determine a good investment from a bad one are worth the money to prevent a major loss. However here to keep it in perspective you don’t want to spend all your money simply reviewing investment opportunities and have no money left to invest – there is no return in that.
If you are in the investment, it may be too late to start asking questions.
Great preparation should result in better yields with much less concern.
Keeping an eye on your investments with timely reviews of progress should help alert you to any potential dangers.
All opportunities are not scams, but they exist and you want to avoid them by working harder and staying alert.
Only invest in things you understand is priceless advice, the rest is speculation.
And if you are okay with speculation, then be prepared to win some and loss some.
What are your thoughts? Share your wisdom by leaving a comment below.
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Envoy Capitol Realty Inc., Brokerage Toronto / Canada
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