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I had a call this week with one of my mentees and they expressed an interest with investing as an angel investor. This is his situation;
They are lacking time themselves, with other commitments but they do have a nice amount of money earning around 5% in an ISA. The investor wants a better return and wants his money pot to grow over the next 2 years.
He also wants to increase his monthly income too, so retaining the property and adding to his portfolio is important too.
We discussed about being a silent JV partner or angel investor and I thought it would be a great idea for a blog and maybe a podcast too!
So today, we're diving into the ins and outs of silent joint venture partnerships in property.
Understanding Silent Joint Venture Partnerships:
In silent joint venture partnerships, what typically happens is an investor will provide most or maybe all the capital needed, while the other partner handles the operational side of the investment. This arrangement allows passive investors to benefit from property investing opportunities without the day-to-day responsibilities and headaches.
Types of Security Offered:
When considering a silent joint venture partnership, investors may be offered various forms of security to protect their investment. Two of the most common types in the UK market include:
First Charge:Â A first charge provides the investor with security by granting them priority repayment in the event of a default or sale of the property. This means that the investor's capital is secured against the property before any other debts or charges.
Personal Guarantee:Â In some cases, the joint venture partner may offer a personal guarantee, committing their own assets or income to secure the investment. This adds an extra layer of security for the investor, mitigating risks associated with the partnership.
It's not unusual to get both of the above. In fact we advise you should at the very least have a first charge on the property.
Common Property Investment Strategies for Silent Investors:
Let's simplify the strategies for silent investors, focusing on two of the most popular exits you can use on a traditional flip project using the B.R.R.R model (buy, refurbish, refinance, rent).
The idea is to find a suitable flip opportunity that you can add value to and then generate profit from that added value. What you are looking for is something that can generate enough uplift in value to meet your desired returns.
We are looking to buy, refurbish and refinance to such a point, that we can pull out the initial investment and some profit too.
Once the refinance takes place after the refurb is complete and the bridging loan is paid down you will be paid out of the profits what is left. Your joint venture partner is also paid their agreed share at this point too.
There we go nice and simple as far as the strategy goes. So, what about that exit in more detail...
Refinancing and Profit Extraction:Â After a refurb takes place and the property increases in value, investors can explore refinancing options to pull out their initial capital, plus the additional profits too. The big bonus here is they have the potential to recycle their capital but they also have acquired an asset that will now generate rental income.
Selling and Capital Return:Â Alternatively, investors can opt to sell the property upon reaching their desired profit threshold. By selling the property, investors can recoup their initial investment along with any accrued profits, providing a lump sum for reinvestment.
With BRRR investors always look to recycle most if not all of their initial capital back out of the property when the refinance is completed. The aim is then to re-invest and jump into another similar project and repeat.
This allows you to:
Grow a property portfolio using one lump sum of cash and bridging
Grow a portfolio much quicker than the traditional way of financing the purchase
Increases the monthly passive income from rental income
Infinite return on investments (if all money is pulled back out of each property)
Grow your investment pot along the way with profit from each project
Other JV Arrangements and Fixed Returns:
In many silent joint venture partnerships, the JV arrangement is often structured so the joint venture partner will offer the investor a fixed return on the investor's capital, typically ranging from 8% to 12%. This fixed return is paid back to the investor upon exit. in this scenario you get your money back plus the agreed return.
If you would like personalised coaching or mentoring in property without the high-ticket costs of the gurus then apply now for: Property and Business Mastermind
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