In the world of joint venture real estate, sometimes those with money pair up with those that have the experience. Sometimes one party putting down all the cash on a deal can cause ill feelings towards the party just contributing the brains. Yes, experience does count and can help get a better deal and make more money, but still, it is human nature to want everything to be on a level playing field.
Paul Kondakos is an investor that came up with an idea to make these types of business relationships more palatable. An investment group can still attract those with knowledge, but perhaps even more partners that want to put up some cash. His method is a bit of creative financing he calls VTB.
Suppose you are investing in a commercial property worth $1 million. That means the down will usually be 25 percent or $250,000. In the usual joint venture, or JV, that means the cash partner would front the down. Using a VTB a cash partner would only need 10 percent for the down, or $100,000 for this deal.
This VTB system means that both parties contribute to the down payment. Also, in most JV situations the money partner doesn’t take as big a part in the workings of the deal. In this case the partners, having both contributed funds, have crossed the psychological threshold to where they feel equal in the deal.
Kondakos regularly uses the VTB and finds it much easier to recruit cash partners because of the lower price point going in. More people are willing, and able, to come into his joint venture projects because less of their investment funds are exposed.