Joint Venture Partner Deals
Real estate investing can seem like a difficult way to grow your portfolio, but it doesn’t have to
be. In Canada, joint venture partner deals are a fantastic option for those looking to invest
funds in a specific project, but who may not know all the ins and outs of the real estate
In this blog post, we’ll tackle what joint venture partner deals are, why they can be a good idea,
and how joint venture partner deals work.
What are Joint Venture Partner Deals?
If you’re interested in investing in real estate, but you don’t have the knowledge, connections,
and skills to make it happen on your own, a joint venture partner deal can help make your
project dreams a reality.
In a joint venture partner deal, typically one person provides the investment funds (and can act
as a passive investor) while the other brings the skills needed to develop the real estate and
perform the ground-level work.
However, don’t think that you only have to have one partner for a joint venture deal. Parties of
more than two are allowed to form these agreements – there is no limit to how many people
can support the project.
There are many different project options, including fix and flips, multi-unit buildings, rent-
owns, student rentals, real estate developments, and lastly, buy, renovate, refinance and holds.
Keep in mind that in a joint venture partnership, the partnership only lasts as long as the
specific project. It’s also good to know that these partnerships can take on a variety of different
legal structures, which we’ll discuss in more detail later.
Why are Joint Venture Partner Deals a Good Idea?
It’s difficult to be successful in the field all on your own. A joint venture partner can help you
throughout the entire process. By combining resources with others, you’ll be able to actually
get the work done in a joint venture partner deal.
You’ll share the risks of the project – but you’ll also share the profits. Having a joint venture
partner helps you grow your portfolio substantially. With real estate investments, you can often
earn a better return than what average mutual fund investments will net you.
How do Joint Venture Partner Deals Work?
There are different ways to configure a joint venture partner deal; however, as we mentioned
before, there’s one common arrangement.
One person will be the hands-on partner, who scouts for great investment opportunities (for
instance, under-valued properties) and puts together deals. The other person is responsible for
qualifying for the mortgage and handling the financials.
It’s common for one investor to have a great deal lined up and the skills to make the project
come to life, but they lack the cash to realize it – which is why they need a private equity
partner to make it happen.
However, this is not the only situation that occurs. Sometimes, the investor already owns the
land – or building – that the developer wants to transform. The investor can arrange a joint
venture partner deal so they still have a stake in that property.
Again, keep in mind that more than one party can form a joint venture partner deal. For larger
investments, it might be a good idea for two or three parties to come on board.
Perhaps the most important part of the process is the drafting of the joint venture partnership
agreement. It specifies each member’s role and responsibilities. When tax time comes, CRA
looks at this agreement in detail.
When it comes time to draft the joint venture agreement, each party’s contributions,
responsibilities, and share of the profits will be determined. Typically, the parties either split
profits based on an agreed percentage, or there may be a preferred equity arrangement.
It’s important to decide who will be making which decisions regarding the building or
renovation process, the potential sale of the property, or the management of the property after
the project’s completion.
In Canada, if you’re interested in investing but you’re worried about protecting your assets, you
can form a corporation to officially sign the agreement. Or, if you already have a corporation
you can use it to invest in the project. If it’s a particularly large project, you might want to form
a specific corporation just for that one real estate development, to protect your other assets.
Keep in mind that, depending on the type of investment you and your partner agree upon,
there will be tax consequences.
If you already have a corporation or if you will form one for this joint venture partner deal, then
the taxes can be reported through the corporation. However, the developer can report the
property on his own personal tax return.
It’s important to know that, if you are investing with a joint venture partner, profits from
residential resale are almost never subject to HST. Pay close attention when you draw up the
joint venture partnership agreement to how you’re sharing the profits – and the taxes.
Another consideration to keep in mind is your exit strategy – make sure you have one in place
for the end of the project. Most Canadian joint venture agreements have a duration of either
three or five years.
While it is possible to extend the agreement past five years, it’s still a good idea to have an
agreed-upon end date at the beginning of the process.
Also, you should include a conflict-resolution clause in the agreement. This is important in case
something unexpected happens and you no longer can participate in the partnership. And while
it’s never pleasant to think about, make sure you have plans in place in case one of the parties
While the world of real estate investing can seem like a complicated place, it’s much easier to
navigate when you partner with someone who has the knowledge, connections, and skills to
make your real estate dreams a reality.
By entering into a joint venture partner deal, you can reap the rewards of real estate
investment without having to put in the hours of work. Consider partnering with Pal Property
Solutions on a joint venture partner deal to start growing your real estate portfolio. Contact us
for more information!