An Agreement To Joint Venture

Finding the perfect investment property and then discovering someone else is interested in the same house would bring out the competitive spirit in some people. For Denise Dunn, a 45-year-old mother of four children from Adelaide, it was an opportunity to collaborate with more experienced investors.

Joint Venture Partners : Michael, Denise, Carol and Steve

Denise and her husband Michael now have four successful Joint Ventures behind them and have built a strong and profitable property portfolio.

Denise turned to property investment after running a successful floristry business, but arranging flowers wasn’t her first career.

  Planting the Seeds

“When leaving school I had a choice of ornamental horticulture at the Botanic Gardens or the police force (my mother was a police officer.) I chose the latter and enjoyed the Force for 8 years. But studying to climb the promotional ranks was not for me. I was an action person in an action area as an undercover operative and loved it. I thought time to leave and do something else. I attended floristry classes and completed a small business management course. I bought an existing florist business, ran that for 18 years, during which time, I opened my second then third shop, whilst also having two children. I had a successful business and many corporate clients. My largest floral function was the opening of the Adelaide Entertainment Centre”.

“My husband also had two careers, first as a chef and then a police officer. Michael then resigned to help me with the shops and the boys. I was getting a little burnt out and maybe it was just time for a change. I’ve got to say there are not too many millionaire florists around either”.

“My sister-in-law, Lisa, was so into this investment group that I just had to join as well. It gave me the education and absolute focus I needed. At first, Michael and most of my friends thought I had joined some kind of cult! I met so many inspiring people, who changed my mindset around money and investing as well as the way I view life. I love it. Michael and I attended seminars, networked and read investment and motivational books, and after revisiting our goals we knew property investing was the direction for us”.

The couple entered their first Joint Venture by accident. “My husband and I were looking for our first residential property to buy, subdivide and reno. We located a house at South Brighton, Adelaide and thought it may be suitable, so sought advice of a friend I’d met through the same investing group. Carol and her partner, Steve, already avid property investors, lived in an adjoining suburb. They had extensive local knowledge and the experience of analysing a deal. It turns out that they had also been looking at this particular property. As the result of a Saturday of open inspections we find ourselves entering our first joint venture”.

 
                        South Brigton property Before

“We paid $470k for the South Brighton property in January 2007. It was a bungalow in average condition on a corner block of 860sqm. We subdivided 400sqm off the rear, and then spent $65k on the reno. We sold the renovated house for $612,500”.

  
                        South Brighton property After

“We then spent $180,000 on the subdivided block (valued at $340k) and built a 4 bedroom home, which we have held and now has a bank value of $640k”.

That's over $500k profit to the Joint Venture partnership.

Joint Family Venture

“Our second Joint Venture was with my brother Trevor and his wife Lisa. That deal was based more on need than profit. My mother owned a house on 2000sqm of land at Clare, approximately 155km north of Adelaide, as well as the adjoining vacant block of 1000sqm. Mum had moved into a smaller house for health reasons, so the house and block were on the market. She hoped it would sell in the high $400ks but there was little interest. An auction campaign failed and she rejected an offer of $380k”.  

“We got together with Trevor and Lisa over a barbecue and a couple of beers at their home on Magnet Island QLD, and decided to renovate mum’s house. With Trevor and Lisa in QLD we decided to start at the beginning of the school holidays in October 2007, allowing all four of us and our four children to go to Clare and help”.

“We wanted to do an extensive reno, not a makeover. Armed with professional advice from my uncle, a semi-retired architect/builder, we commenced. We recruited the kids to help during the school holidays. It was all about bash and crash, knocking down walls, sheds, stripping wallpaper, removing the kitchen and demolishing the bathrooms”.

“We all had defined roles. Lisa was in charge of the finances and paperwork (which she was able to continue at the end of the holidays from Magnetic Island). I was responsible for sourcing, ordering and supplying everything we needed. Trevor and Michael were to put the house back together after we had all trashed it”.

“We had a time limit for the whole project of 12 weeks. Trevor and Michael both lived at Clare for the duration, working from sun-up to sundown”.

Ancient to Modern

“The split-level 1980’s house was constructed of two-toned hard baked bricks, a tiled roof with Grecian-style powder-coated columns and balustrades. It had two bedrooms plus an office, a formal lounge and dining area divided by two archways, and an original orange/green kitchen. Downstairs was an area previously used as a workshop, with a toilet, vanity and shower, plus access to the double garage”.

“Our aim was to bring the home into this century and attract a younger, more professional demographic. The house’s greatest appeal was its commanding elevated position with views over the township, yet it was only 200m from the main street”.

“The renovation completely transformed the home. The exterior was rendered; metal posts and stainless steel wires replaced old columns and balustrades. An old aviary was reclad and fitted with a roller door to become a separate garage; the garden was simplified with sustainable plantings. An attractive water feature hid an ugly entrance in the focal part of the house. New walls were built; kitchen and appliances added whilst the main bathroom, laundry and en-suite were completely refurbished. A new stairway was built to the lower level, which was lined with plasterboard, a small kitchen added, shower, vanity and toilet re-tiled. With access available from the front yard the entire area was now fully self- contained”.

“The remodelling turned it into an executive-style residence, with three upstairs bedrooms, including an en-suite and large walk-in-robe. A new office was built with separate access from the front. The living and dining area was now open plan off the kitchen. We finished the house with ducted reverse cycle air-conditioning, quality carpets and timber floating floors”.

The Clare house Before

 “The project took 13 weeks and cost $66,000. The house sold for $520. Most of the comparable homes on sale at the same time as the un-renovated house are either still on the market or have been withdrawn from sale. I believe we were successful because we totally changed the target demographic”.

The Clare house After
 

Play to Your JV Partners’ Strengths and Weaknesses

Denise believes the key to a successful JV partnership is to ensure you have the correct mindset and a complementary mix of personalities.

“We know our strengths and weaknesses. We are highly motivated and visual people, however we realise our analytical and numbers side needs some work along with our time management skills. These strengths and weakness need to be balanced and therefore we are grateful for having met Carol and Steve. They are both brilliant with the analytical, numbers and planning scenarios. Our Joint Venture Partnership is balanced”.

“If we were all interior designers, we would clash, but because of the differences each of us has a defined task. Steve got his builder’s licence and deals with the trades. Carol handles all the computer work, spreadsheets, accounts and banking. Michael and I negotiate the purchase and the sale of the property, landscaping, interior decorating and preparation for sale”.

“Carol and Steve’s roles are larger than ours, so that is reflected in the J.V Agreement’s breakdown of the profit. However, you cannot split hairs over who has put in one hour over someone else, as all input is hard to quantify. Countless hours may go into sourcing products; quotes etc. and we all agree, “What goes round comes around”. As much emphasis should be placed on the experience and the journey as on the profit”.

Double the Benefits

Working in a JV partnership has other benefits too:

“The physical and mental energy increases when there are more than two of you working together. If you don’t feel like doing something you are spurred on knowing your partners are already working away and you don’t want to let them down. This encourages you to keep going. Some laborious tasks are less daunting when four people are working on them, the time just flies”.

“There’s also more continuity, so if one party goes on holiday the other party can carry on because they’re totally familiar with the project. We are all there for each other with moral support so that if, and when, tricky situations arise, you can work through them more easily”.

Safety in Numbers

“Our courage to take on larger projects is increased in JVs. With more people to brainstorm, more collective experience, and an extended network of contacts & resources, everything gets crosschecked”.

“The deal can be larger as you have the increased capital and equity input. I believe the larger the deal the more profit. If there is going to be more profit in the deal then there is a larger buffer if something goes a little unplanned, hence the deal’s safer”.

“As a JV we are a larger concern, so we get respect from the trades and our buying power is greater. For example, more deals can be struck when ordering for nine kitchens than just one or two”.

“If there is a problem, different opinions are discussed and if we still don’t have an outcome we seek outside opinions to help us come to an agreement. Emotion is left at home”.

“We came together with Carol and Steve for the JV deal, not as friends. We have our own lives outside of the projects and we are respectful of each party’s privacy. Having said this, we have forged a strong, dynamic and enduring friendship”.

“As a result of JVs, we are further down the property-investing path than we would have been on our own. We have improved financially and educationally as well as gaining further skills, contacts and friendships. I have learnt valuable lessons from our partners and hopefully helped them as well”.

Denise’s Ten Top JV Tips:

1. Treat JV as a business venture.
   
2. Leave emotion at the front door.
   
3. Establish everyone’s strengths and weakness, and allow each party to contribute in their area of expertise.
   
4. Exercise caution if your JV is with longstanding friends. (It’s that old saying: Business and friendship generally doesn’t mix.)   Our family JV had clear guidelines and was sorted prior to us commencing.
   
5. Communicate openly – trust your partners to do their jobs; don’t interfere.
   
6. Establish a rapport and nurture relationships with tradespeople (looks after them and pay them on time).
   
7. Get three quotes or more.
   
8. Be proactive - if someone hasn’t got back to you, chase them up continually. “The squeaky wheel gets oiled.”
   
9. Be flexible. If things change, work with the changes.
   
10. The JV needs to be finalized at end of each deal.

Denise recommends first time JV investors do the homework and then take the plunge.

“You may not know exactly what it is you want but just work towards it, do courses, network, read, get out and look around and most of all ask lots of questions. Take the first step. It may be out of your comfort zone, but it will be most rewarding. It’s about the journey”.

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