Joint Ventures: how is the money and effort valued?

Potsa Cash is sitting on a pile of cash and looking for a property investment,
Savvy Investor would like funds to put together more deals.

If Savvy Investor is willing to do the the hard yards to put a deal together using Potsa Cash's funds, at what point are they equal partners in the profits? Savvy Investor in with 0% and Potsa Cash with 100%? Savvy in with 10% and Potsa in with 90%?

Thanks for any opinions.
 
Why would Savvy Investor need a partner when banks sell money for 8% pa?
What exactly is SI doing? Putting deals together? I'd think thats a commission payment.
Other question is 90% of what for equal share in what?
Too many variables.
 
Mmm, yes I see.

Example: Savvy is subdividing a large block of land and would like to build 5 townhouses. He's at his limit with bank credit. Potsa is interested in investing in anything to do with property which doesn't involve tenants and doesn't want to be involved in the day to day running of the project - so would sell upon completion before tenants arrive on the scene.

Actually, perhaps the question should have been not how do you value effort but how do you put a value on risk.

I can see that it needs a real life and current example with location and dollars for anybody to really help so it's ok if this doesn't go any further. I'll go read some books on jv's. :)
 
Its the golden rule, he who has the gold makes the rules.....
Depending on the market at the time, the gold in question might be information/knowhoe, but most of the time its money.
 
Joint Ventures (to my mind) involve a finite time frame. For example 12-18 months where two or more individuals/entities come together with complementary contributions that neither have in isolation or independantly. Can include cash, skills, land, property, labour, etc. I don't see it as an investment per se, where a syndicate would be a more appropriate vehicle.

Usually JV's are for an activity such as a reno, subdivision, development, etc. The end of the process is a sale or a return of funds or some stock kept as an investment however apportioned as per the agreement at outset.

Really they can be as creative as the imagination allows and that the parties agree to. The JV agreement not only spells out contributions and profits, however also risk and also should address disputes, confidentiality, and so on. A lawyers input would be important.

It is also crucial IMO to also limit the liability that each JV partner has as only liable to the extent of the JV agreement, not jointly liable as in a partnership.

** Edit ** Just an afterthought........GST registration may also be required by both participants to the JV agreement and accountants (and likely ATO) advice/opinion would best be sought prior to setting up the arrangement and based upon agreed exit strategy.
 
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I think they can work well if rules are clear.

My rules would be Potsa gets cash back first

Potsa then gets a good return on his investment before any split say 15%pa.

Then profit after initial capital and minimum return is paid is split say 60% potsa and 40% savvy

good luck convincing potsa to hand over the $$$ for ur venture;)
 
It is also crucial IMO to also limit the liability that each JV partner has as only liable to the extent of the JV agreement, not jointly liable as in a partnership.

** Edit ** Just an afterthought........GST registration may also be required by both participants to the JV agreement and accountants (and likely ATO) advice/opinion would best be sought prior to setting up the arrangement and based upon agreed exit strategy.

Thanks to all for your comments. These 2 last ones I'm looking into now.
 
I think they can work well if rules are clear.

My rules would be Potsa gets cash back first

Potsa then gets a good return on his investment before any split say 15%pa.

Then profit after initial capital and minimum return is paid is split say 60% potsa and 40% savvy

good luck convincing potsa to hand over the $$$ for ur venture;)

Good to start playing around with actual numbers - thanks.
 
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