Wazuans,

Am exploring the possibility of building 4 houses in an unusual way (or maybe it's not that unusual, it's just that I haven't been exposed much to the parameters of this kind of deal:

I have 2 acres in a high-end area, with permission to build 4 houses on 0.5 acres each.

A traditional build would see me finance the whole project by paying architect/consultants/contractors with a deposit of my own capital plus a bridging loan from a bank. I'd seek to sell 2 houses off plan to pay for the total cost of development, I'd get my deposit back as profit and would be left with two houses.

I would be exposed to the possibility of significant interest accruing through debt if off-plan sales were not forthcoming.

However, if I partnered the contractor/architect and developer team (let's call them 'CADT') in a joint venture - I would donate the land for the project (4 houses), and in turn they would finance and build the houses from their own pocket, thus negating the need for banking finance for myself - and we would roughly take 2 houses each at the project's end.

The sums I've done show the CADT would potentially share an extra 8-12m on top of what they'd each take home from a traditional build - and I'd be left with no banking headache.

I am sure there are pitfalls - trust of the CADT is paramount etc - but are there any other horror stories to speak of?

Thanks, as always...

Joint ventures are quite a common occurrence these days.

First you should consider the profit you would get if you develop the land yourself vis-à-vis the joint venture, with the market value of your land in mind. The things to ask yourself are: If you sold 1 acre of your land, will the money you get be able to construct the 2 houses you were planning to get from the JV on the remaining acre? If you finance the project yourself what would be the cost of financing the project and how does that compare with your current financial status? Suppose your houses don’t sell would the rental income from the houses cover your loan repayments with ease?

You were concerned about the possibility of acquiring significant interest if you don’t sell the houses on blue prints, to avoid this you can negotiate a grace period with your bank that allows you to make repayments after the construction is complete. Another alternative you could use is by building two houses initially, once these are sold and you can commence with building the remaining two houses.

If you decide to go for the JV then make sure you have a watertight agreement done by a lawyer that covers all aspects of the JV. Make sure you read the document yourself and clarify anything you don’t understand. Also make sure the developer has the full ability to finance the project.

The other thing I would advise you is to get quotations from independent contractors not related to the architect, the reason for this is I had an architect who would tell all contractors to inflate the tender price by 7-8% which he would later put in his own pocket (I’m not saying all architects are like this but its better safe than sorry).

As for the ugly side of JV’s, in one of the projects I was doing a few years back the landowner decides he wants the profit sharing done differently than what was agreed, had to stop the project half way during construction and go to court, but eventually managed to sort it out. A friend of mine was duped into developing a plot with two title deeds, resulting in some hefty losses.

If you do a joint venture you cut your profit by HALF?? I would think thats a hell of an opportunity cost to pay just to avoid interest payment and the risk of not selling.

Ok, you have 2 interelated risks/fears: not getting a sale & interest accruals...

I would take my loan in bits as I utilise the funds, get a credit line if possible...

Phase out the project, start with one unit... eg. you can be roofing one as you do the foundations for the next...

Start selling as you build... better yet, sell before you build... start selling now!!

If you do a good project plan, your debt exposure at any time is limited to between a quarter to a half compared to going all out...

If you find yourself in a situation where you have 2units completed but no sale, you can always pause the construction... again controling unecessay debt exposure... get a good & binding contract with the contractor that will allow you to do this. The contractor will not be happy with this, he'd rather control the project and get paid on his own schedule, squeeze the guy b4 u give him the job!


You have all the cards... you're the enterprenuer... you have no professional role to play in this project... your only role is to bring together resources (capital, legal, technical etc.)... your only goal is to make money...

Get someone who can do the job better than you, tell them what you want and let them do it (your way)...
get a good architect
get a good lawyer
get a good contractor
get a good banker
get a good sales agent

If you can put all these guys together and negotiate the lowest possible price for their services, you are home and dry...

Why Partner when you can Employ... you can always fire an incompetent or fraudulent employee if you have a good written agreement in place...

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smaigo@pinnacleprojectsltd.com or dkuria@pinnacleprojectsltd.com