A Joint Venture is a commercial alliance between 2 or more entities that enable them to share risk and reward. A JV comes to an end on completion of a specific venture. Profits and/or losses are determined at the outset and are generally allocated as a percentage in accordance with what each party contributes to the JV.
Examples of Joint Ventures can be when an additional party simply contributes financially to a project with the aim to share in a percentage of the profits. Alternatively, a party may have land which is suitable for development but are unable to fund the development , or are not confident in developing the land themselves and therefore look to a Joint Venture with a builder to help them through the process. It may be that the land owner doesn't have the time available or simply wants to outsource the development of the project without raising their
Example 1). Akrob Property Group develops a site with 4 units. Total cost of land purchase and build costs total is $1,200,000. Client investment is $300,000. Approximate value of each unit once completed is $400,000. Depending on other financial circumstances the client can choose to either retain 1 unit or share in the profit once units are sold.
Example 2). A client has a property worth $600,000 but is either financially unable to, or lacks the experience to develop the site. Akrob Property Group can fund and project manage the construction. 5 units are built with a build cost of $1,200,000 resulting in a total cost of $1.8 million. Final value of completed project is $2.2 million.
Clients share at completion is 33.3% = $733,333 resulting in an increase of $133,333 above had they just sold their property.
Akrob share at completion is 66.6% = $1,466,666.