When it comes to joint venture partnerships in property transactions, many investors tend to shy away – mainly because they've heard too many horror stories about such partnerships ending with families and friendships breaking up and people losing their money, their homes and even their businesses.

There are also those who don't understand how, when and where to use joint ventures, and therefore don't explore them further.

Successful joint venture partnerships are a common occurrence in today's market. They're successful when the partners have done their homework on each other, and have agreements in place that spell out the conditions of the arrangement, including the roles and responsibilities of each partner.

The most common reason why joint ventures fail is because there was no written agreement between the parties.

Why a joint venture?

The answer is simple: if you want to buy into a good deal, and you don't have the capacity in one way or another to complete it, then finding a joint venture partner can provide the missing link to enable you to close the deal.

It will mean that you'll have to share the proceeds of that deal, but our philosophy is that we'd rather have 50% of something than 100% of nothing.

In short, joint ventures can accelerate the potential to grow your property portfolio faster.

Joint venture partnerships have been fantastic for us. They've allowed us to accelerate the growth of our property portfolio when we had little or no more equity to use as deposits to buy property.

The biggest issue that we had in growing our portfolio was equity.

Having started with only $12,500 in our back pocket seven years ago, we needed to buy high capital growth properties so that we could revalue them six to 12 months later, draw out the equity and use it as a deposit for our next purchases.

The problem we had, however, was that we kept running out of equity, even though we had fantastic borrowing capacity.

There's nothing worse than having the desire to purchase more properties without the means to do it. For us, property is a long-term strategy and I understood that we needed to wait patiently for capital growth to happen before we could buy the next property, but I felt I was being held back by our lack of equity.

Our first joint venture had its beginnings when we travelled to Perth a few years ago to visit friends for a birthday party.

We arrived early in the day, so our host took us on a tour around Perth.

The incredible redevelopment that was taking place in East Perth really pricked our investment antennas up.

We could see the potential in the area – it was minutes from the CBD, next to the Swan River, across the river from the Burswood Casino and golf course, and close to infrastructure and great restaurants. Our investment appetite was whetted by a couple of display units that were for sale in an apartment block.

Without really intending to buy the property – but always on the lookout for a good deal – we started negotiating on one of the units to see how good a deal we could get. After a bit of to-ing and fro-ing, our offer was accepted. This left us in a conundrum of what to do next.

On our return to Melbourne, we were chatting with friends about how we had negotiated a fabulous discount on a unit overlooking the Swan River, but didn't have the funds for the deposit.

To cut a long story short, they had cash in the bank and wanted to borrow but couldn't. We had borrowing capacity but no equity. So we decided to buy the property as a joint venture deal. We had a joint venture agreement drawn up by a solicitor – and the rest, as they say, is history.

Types of joint ventures

When it comes to property, the two most common types of joint venture partnerships involve:

• equity partners – those who put up the cash, and

• finance partners – those who take out the loan from the bank

We had the borrowing capacity but not the equity, and our friends had the equity but not the borrowing capacity.

Together we had the makings of a perfect joint venture partnership. We structured the partnership so that our friends provided the deposit amount plus the 'on' costs such as stamp duty, solicitor's fees and conveyancing costs, and we took the loan out from the bank.

When it comes to deciding who puts what into a joint venture partnership, it's really up to you as to how you want to structure it. It helps if each partner's needs complement the other's, so that each party brings something to the table to make the deal work.

For instance, in our case, the partnership wouldn't have worked if our friends were in the same position as us, and had borrowing power but no equity.

There are many people who own their own home, and therefore have lots of equity, but are semiretired or work part-time and don't have the ability to borrow money. This situation provides the perfect opportunity for them to form a joint venture with someone who has a solid working history, earns a good wage and has the capacity to borrow.

Choosing the right partner

It's important that, when choosing a joint venture partner, you make sure they have similar goals, desires and intentions as you.

This is one of the key elements to a successful joint venture, as having a similar mindset and understanding about investing can help make the partnership run a lot smoother.

If there are differences, you could run the risk of your partner regretting the transaction down the track, which may impact on your friendship. The purpose of a partnership is to jointly grow wealth in harmony, not to be burdened by one partner's negative view on life.

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