The Secret to Getting Higher Returns on Your Property Investments
Looking for higher than average profit from your property investments without high risk is something that appeals to people who do not have the time to manage their investments on a day to day basis. Joint Venture investing can solve this problem.
Like any property investment there are risks involved of course, but with Joint Venture investing you can be investing in property developments that have already had approval and are well on the way to being started.
When property developers approach a bank for funding they understand that at least 60% of the property needs to be pre-sold before the bank will release development capital. This protects the bank from funding a property that only gets half sold by the time it is finished. If this was the case there would also be a good chance that the developer goes broke because he would have to be paying the interest out of his own pocket, never mind any capital that the bank may want back.
Pre-selling protects both the bank and the developer.
So where do you fit in as a Joint Venture investor?
The bank will lend somewhere between 60% – 70% and the developer has to raise the balance of the capital to meet the difference or put up the money themselves.
Even if developers have funds available they very rarely want to use it at this stage. The main reason for that is that should the developer be approached to purchase another development site and he has his funds tied up he cannot go ahead to purchase and could well miss out on a good deal.
Another reason is that a developer should keep some fluid cash for unexpected expenses, something that may crop up that has not been allowed for in the financial allocations.
As a Joint Venture investor you would as we say, be investing once the bank has agreed to put up the construction costs. At this stage council approvals have been met, feasibility studies have been done and legal documentation has been set up for lenders.
Joint Venture investors can then put up their money and get a guarantee from the developer.
There are basically two methods of lending to a developer:
1. The investor receives a portion of the total profit from the project
2. The investor receives a fixed return on their funds.
Either way the investor is dealing directly with the investor or his employees and should be able to get straight answers about any concerns.
The first method can allow for a much more substantial return on property investment, but carries more risk, while the second method is a fixed income return. There is of course the option of investing in both methods in the one development. It is just a matter of setting up the funding to do so.