Hi guys! It’s Naomi Findlay here from the Rapid Renovation Formula.
So, you want to jump into the renovating game, but don’t have enough borrowing power? You’re looking to renovate for wealth, but not sure if you have enough time to be “hands on”? Or are you trying to find a way to reduce your monetary risk before renovating?
Yes, some of Australia’s major cities (ahem, Sydney and Melbourne) are going property crazy. And wanting to renovate three-bedroom homes for young families is a good, solid strategy, but the price points of some of these markets can make realising that dream a little bit of a far stretch – and coming up with such a huge deposit and stamp duty can be painful.
Well, luckily for you, there is a way to start renovating for wealth, even if the bank won’t lend you as much as you need, or even if you don’t want to throw all of your savings into a renovation project. And it has nothing to do with getting into crazy debts.
The solution is a joint venture.
What is a joint venture?
To put it simply, a joint venture is a business arrangement between you and somebody else – it can be just one other person or more – where you agree to pool together your resources to achieve a specific goal.
So, if you have your eye on that three-bedder which is just ripe for renovating, but you don’t have enough sitting in your savings account (because you probably want to leave enough for a rainy day), a joint venture will give you the opportunity to acquire and renovate that house – together with someone who also wants to renovate but might not have enough capital lying around. And you’re both going into the project with the same end goal: to make a good profit.
Sounds simple, right? Well it definitely can be, as long as you do it right.
Joint ventures are a great way to get into the renovating business and can be a great way to reduce the financial stress of it all. But in order to enjoy the benefits of a joint venture, there are certain things you need to keep in mind.
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1. Keep it legal
The first thing you need to make sure before shaking hands is that you have an agreement – in writing. I know that if you’re going into a venture with your best friend or your brother or cousin or someone else you’re super close with it can be a bit strange to propose a legal agreement. After all, they’re close to you because there is mutual trust right? Why would you need to put that down on paper?
Well think about it this way: if you’re planning to renovate so that you can hold and rent out the property, that usually implies long term – perhaps years of even decades. A lot of things can change during this time.
And I don’t mean that you’ll have a falling out or anything, but as time goes on people find themselves in different circumstances; your best friend might get married and have a baby, your family member might get a divorce, your cousin might lose their job or decide to move overseas… there are so many possibilities. All of these can pop up at any point in time, and might mean that your joint venture partner wants to sell the renovated property.
That’s where your rock solid legal document comes in. This little baby will save you any hassle of trying to divide the assets later down the track. So, get your lawyer to draw up that necessary paperwork before you jump into a partnership of any kind.
2. Know your strategy
The second point is all about your strategy.
Now, I’m not talking about your renovating strategy – that kind of strategy you should already have in mind (and it’s part of the reason you’re looking to enter into a joint venture in the first place). Although it is still handy to re-assess and tweak that strategy to better suit your joint venture.
This type of strategy is all about your joint venture project. Are you okay with being joined at the hip forever? If not, then you need to look at projects that will give you maximum return for the minimum amount of time – that way you can get in and out quickly and use the profits for your next renovation project.
So, if you want to be in and out as soon as possible, you would probably want to avoid any huge development projects. Remember, just because you’re in a partnership and can now afford to invest a lot more money into a renovation, that doesn’t mean you should go for the biggest thing there is.
Stick to your property strategy – and if that means converting smaller family homes into open-plan entertainment spaces, do exactly that. Don’t buy a block of eight units and then spend two years trying to figure out what to do with them. It’s not healthy for you, your joint venture, or your profit.
3. Capital and borrowing power
The third point is about money; in particular, how much money you can access to contribute to your renovation project.
Do you have some healthy savings that you would like to inject into your renovating project? Do you know how much the bank is willing to let you borrow? Have you got enough left over to actually live?
Renovating for wealth is about using your cash or equity to renovate, and earn a profit at the end of the day. It’s not about going into a state of extreme frugal living where all you eat for dinner is spaghetti from a can because you have thrown all of your money into the renovation. You’re in the business of renovating for wealth, not renovating to live like a pauper in the meantime.
So, if you don’t have enough money to put down for a deposit, stamp duty and renovation costs, you will want to team up with someone who will make up for the gap.
4. Time and skill
Joint ventures aren’t just about finding someone who has the capital to help you secure a renovation project. You might actually have the money you need to jump into renovating – but time, on the other hand, is a different story. Or you might have the time, but you don’t have or aren’t confident in all the skills you will need while renovating. And that’s where a joint venture will come in handy.
The great thing about joint ventures is that you can team up with people to create a renovating powerhouse; one of you might be great at numbers and budgeting, the other might be really good at keeping organised and making sure things run to schedule. And there’s always the added benefit of bouncing ideas off someone who is invested in the project.
As long as you have all of these things – who’s doing what, who’s providing what, how the profit will be split etc. – down in that nifty legal contract I mentioned in point one, you will be on the right path to a satisfying and profitable joint venture.