So you have a deal you want to do, and someone who is ready to put their own capital in to help finance the project.  How can you put together a joint venture contract to use someone else’s capital in a real estate investment project?

• Start with a statement of the basics of the joint venture, including things like the name of the business and the amount invested.  Be sure that you specify the specific purpose of the agreement, and at what point the joint venture will be concluded.

• Get into the nitty-gritty of how the venture will be run.  This is one of the most important elements of the contract, and the one that keeps the project on track when opinions begin to differ.  Who is responsible for business decisions?  When and how will expenses and compensation be paid?

• Detail what it’s really all about – the profits – and how each party will be protected.  Of course you and your partner will negotiate the good part – that is, how profits will be split.  The party contributing their capital frequently earns a greater share of the profits to compensate for assuming the financial risk.  Keep in mind that your investor may also require collateral on your part, and/or first claim on the assets and profits, to protect their investment.

• The termination clause could turn out to be the most critical part of the contract.  Don’t even think about doing a deal without a well-thought-out termination clause – because life happens.  Depending on the contract, if one party suddenly steps out without a termination clause, it could legally dissolve the contract and leave you both hanging.  Specify a termination notice period and the division of assets, ongoing work, expense payments and so forth.

Finding and negotiating with your new financing partner is a major step forward, but it’s the joint venture contract itself that truly starts the ball rolling on your real estate investment project.  Be sure you protect both parties and clearly itemize the terms, including a termination clause.  A well-crafted joint venture agreement can pave the way to profitable real estate investment projects. 

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