In real estate investing, wholesalers use creative strategies to optimize their deals and increase profitability. One such strategy is the Joint Venture (JV) Wholesale approach. But what does it exactly mean to JV wholesale a deal?
JV wholesaling merges the strengths and resources of two or more wholesalers to close a real estate transaction efficiently. This collaboration can unlock a network of potential buyers, share risks, and combine expertise for a successful deal.
In this blog, we'll discuss everything you need to know about real estate JV wholesaling, from a step-by-step guide to navigating challenges and ensuring that your JV wholesale deals are hassle-free.
In real estate, a joint venture (JV) is a collaboration between two or more parties to combine resources, expertise, and efforts for a common objective. Within the specific context of wholesaling, this concept takes on a unique role.
To understand JV wholesaling better, let’s first discuss what wholesaling real estate is. Wholesaling is a real estate investment strategy in which an investor, or a wholesaler, secures a contract to purchase a property and then sells that real estate contract to another cash buyer, typically a real estate investor before the original purchase transaction is completed.
The wholesaler's profit comes from the difference between the price at which they secure the property and the price at which they sell the contract the cash buyer.
A joint venture agreement in wholesaling typically happens when two wholesalers come together to co-wholesale a deal. One wholesaler might have a property under the wholesale contract but might not have a buyers list, while the other wholesaler might have a list of active buyers but might not have a good deal at hand and perfect for assignment to get a JV. In other words, a joint venture is a great way to arrive at a swift close.
The ROI from forming a joint venture depends on the profit margins of the particular deal and the agreed-upon profit split between the parties. In many cases, the split is 50/50, but it can vary depending on the parties' contributions and negotiations.
For instance, if a property is secured under contract for $100,000 and is then co-wholesaled to a buyer for $110,000, there's a gross profit of $10,000. If the wholesalers have a 50/50 agreement, each would earn $5,000 before accounting for any expenses.
Here are specific factors that can influence the ROI:
While JV wholesale deals offer significant advantages, they're not without their challenges. It's vital for anyone considering such a venture to be aware of both the potential benefits and pitfalls.
In any real estate venture, there are inherent risks, such as the property not selling quickly, unexpected costs, market downturns, or even changes in local regulations.
By entering into a JV agreement with the right person, these risks are not shouldered by a single entity but are distributed among all the partners.
This distribution is the best way you to encourage more individuals to participate in wholesaling, allowing for bigger and potentially more profitable deals.
Additionally, it provides a safety net, ensuring that no single entity bears the brunt of any losses when you assign deals and bring a buyer into the picture. This distribution can make recovery from a bad deal easier and faster.
Pooling resources can lead to significant cost savings. Two wholesalers might share marketing, administrative, and even property holding costs in some cases.
In a JV, costs can be split based on the agreement, which means reduced overheads for both parties.
Reduced costs can translate to increased profitability. Cost-sharing can also enable wholesalers to tackle deals or marketing strategies they couldn't afford alone, leading to expanded opportunities.
Different wholesalers bring diverse skills, networks, and resources to the table. One might have a vast end buyer network, while the other excels in finding undervalued properties. Combining these strengths can optimize the wholesaling process.
Enhanced capabilities mean that deals can be sourced and closed faster. Diverse skills can also lead to innovative strategies, tapping into markets that were previously untouched. It also causes learning and skill development, as partners can learn from each other's strengths.
In some JV partnerships, there can be differences in the amount of work and resources each party contributes. One partner might end up doing the majority of the work or investing more resources than the other, leading to potential conflicts.
This uneven division can lead to resentment or disputes. It can affect the relationship between the partners and even jeopardize the deal. If not addressed early on, such imbalances can lead to the dissolution of the partnership or can deter parties from entering into future JV agreements.
While risks related to investments are spread in a JV, the liability can sometimes increase, as is with virtual wholesaling. For example, if one partner makes a legal mistake or engages in misconduct, all partners might be held liable.
Increased liability means that each partner has extreme trust in the other. It also means that each party must be diligent in ensuring all actions by all parties are above board. A mistake by one can have legal and financial repercussions for all.
Interested to JV a wholesale deal? Here is a step-by-step process you should take to get started or take your business to the next level without needing complicated courses.
Before jumping into a joint-venture JV real estate wholesale deal, it's crucial to understand the details of joint ventures in the real estate context. You can do the following:
Understanding the real estate market in your target area is foundational when you JV your wholesale deal. Here’s what you should do:
Not every wholesale deal is suitable for a JV. Recognizing the ones that involve evaluating potential profit margins, risks, and the strengths of potential JV partners. Here’s what you can do:
This is the practical step where you're on the ground (or online) searching for properties that have potential for wholesaling. Use multiple channels such as online listings, public records, real estate agents, or direct mail campaigns to identify potential properties.
Develop a system to analyze and filter properties based on your criteria and then visit necessary.
Once you've identified a promising property, the negotiation phase begins. Understand the needs and motivations of the seller to create a win-win negotiation. After which, draft a purchase agreement with the seller, ensuring all legal bases are covered.
When finalizing the JV agreement, clearly define roles, responsibilities, profit distribution, and exit strategies with your partner(s). Consider having an attorney review the JV contract to ensure all parties are protected.
After the contract has been signed for the joint venture wholesaling, market the property to your network or buyers' list. This could be other real estate investors, flippers, or rental property owners.
With your ideal partner, whom you formed an alliance with, facilitate the wholesale transactions, ensuring all legal requirements are met and the sale is smooth as a way to get a high ROI.
Once the deal is closed, split profits or the assignment fee based on the JV agreement. Reflect on the deal to understand what went well and what can be improved in future JV wholesaling deals. Also reflect on your relationship with another wholesaler or how you can make a better buyer's list.
As stated in this vlog, it's clear that success in JV wholesaling also known as "co-wholesaling" requires a deep understanding of the real estate market, an ability to identify promising opportunities, and the skill to build strong partnerships.
By carefully navigating through each stage of a JV wholesale deal, from initial research, and transferring ownership to the final exit, wholesalers can find profitable opportunities that benefit all parties involved. Just remember that this may be too risky if you're just starting out.
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