Let’s explore a little bit further the two types of partners.

1          Money (or Time, or Skills) Partners; and

2          Joint Venture Partners.

Put simply, a money partner is someone who acts like a bank to the borrower.  And, therefore, the arrangement is very basically bank‑like.  The borrower loans the money, an interest rate is negotiated, payments are made, and the arrangement is over a set period. 

The benefit of this type of partnership is that if you’re the person running the deal, you have total control of the deal.  Generally, the lender has little or no say.  Remember, this also means that the borrower carries a higher risk.  If you lose money on the deal, then you are the one who has to carry the loss, and you still have an obligation to pay your partner.  However, if you make a profit, then you are still obligated to only pay your commitment to the lender.

Another benefit is that you know what your costs are right from the beginning of the partnership.  This makes your number crunching a lot simpler, and gives you a clear perspective all the way through.

In addition, payments can be arranged in several different forms.  Payments are  a set amount paid to the lender at an agreed time period, ie, monthly.  If you do set up a money partnership in this way, remember that you will need to honor the arrangement and make the payments, so factor the amount into your holding costs.

Alternatively, you can “capitalize” the interest.  This simply means that the interest is compounding over the period, and a payment is made at the end of the loan.  Whilst this will cost you a bit more (often not a significant amount) than regular payments, it has the benefit of being paid out on completion of a project, usually at the time of sale, or re-financing.  The lender benefits as well, in that they receive a higher amount of interest.

A joint venture partner, on the other hand, is a partner who actually enters into the venture, or project, in some capacity.  This type of partner is often exposed to more risk, will often have their name on the project, and will expect a much higher return on their investment.

On of the main benefits of a joint venture is that the risk is shared.  This includes both profit and loss, so it goes across all parties.   In line with this, you will most likely have access to the borrowing power of the partners in the joint venture, so borrowing capacity is increased also.

This leads to another benefit, which is that you will have the capacity to undertake larger projects, projects you may not necessarily be able to fund on your own.

If you have multiple partners, the shares can be of varying amounts.  They don’t have to be equal, they can be proportionate to the contribution of the partner.

Regardless of the type of partnership, there must be one person who is in charge and makes the decisions.  The responsibility must stop with someone, and that person must be prepared to make hard decisions.  The success or failure of a project will depend on the person in charge.

Lastly, a legal contract on behalf of all parties must be drawn up.  It is important to be sure that your agreement is extremely clear and all parties know where they stand.

Part Three will explore what needs to be in an agreement.  To receive Part Three and more information, sign up at www.InvestingInProperties.com.au

Jennie Brown a property investment mentor explains why she is the best person to give you property investment advice.

Part One – What does it mean to “partner” in property investing?

For years, as a property investor, I was very insular ‑ I did it all on my own, or I thought I did it all on my own.  However, if you are serious about investing, sooner or later you will most likely get to a point you cannot do it on your own unless you have got millions of dollars. 

Even the wealthiest investors in the world leverage money and team up with other people or organizations.

Generally there are two types of people who invest in property.

1          People with money; and

2          People with time, skills and/or knowledge directly related to property.

Very rarely are these people the same person.

In addition, there appears to be another two types:

1          People who are good at sourcing deals; and

2          People who have no clue about getting deals.

As you can see, the possibilities for a partnership between the two types of people are very obvious. 

I want to make partnering really, really simple because it is – basically, at the end of the day, it’s a partnership between two (or more) types of people.  And the partnership is not limited to just money, although that’s probably the most common use of partnering in property investing.  The partnership can share skills (ie, a builder or an architect), abilities (ie, finding deals), time, knowledge, and of course money.  It can share one of these, or a combination of all these.

There are also two types of partnering.

1          Money Partners (or Time, or Skills) ; and

2          Joint Venture Partners.

For our purposes, we’re going to talk specifically about money, so we’ll use the term Money Partner.

Put simply, a money partner is someone who acts like a bank to the borrower.  And, therefore, the arrangement is very basically bank‑like.  The borrower loans the money, an interest rate is negotiated, payments are made, and the arrangement is over a set period.   

A joint venture partner, on the other hand, is a partner who actually enters into the venture, or project, in some capacity.  This type of partner is often exposed to more risk, will often have their name on the project, and will expect a much higher return on their investment.

Whether you participate in a partnership as a borrower, lender, or other type of partner, the benefits can be enormous.  And it really is quite simple to put together.

Look out for Part Two of this series which will cover the two types of partnerships in more detail.