Whether you are new to the area of commercial real estate or just don’t have a substantial amount of cash to put up front, it appears on the outside that partnering with other investors is the perfect solution. On the surface the solution sounds simple (at least to the person thinking it): instead of putting any cash up front for the property, the investor finds partners who are willing to share the profits. Unfortunately there is one serious flaw in this line of thinking: IT ISN’T GOING TO HAPPEN! You have to find a source of funding whether from traditional sources or through New Jersey hard money lenders.

No Investment for Profit Sharing?

If you are a new commercial real estate investor it is possible you don’t understand the way joint ventures work or perhaps you have heard advertising that encourages people to invest in real estate ventures with no money down. The latter is a very old advertising scheme that means simply the buyer or investor uses none of his OWN money; it does not mean he is able to invest without any money at all. This was a scheme that was very popular a couple of decades ago and may still be used; the problem is people who are unfamiliar with the way investment funding works may not understand the hype behind the claim. Most people know you cannot buy a home in which you are going to live without some kind of investment (down payment), but they may believe the commercial real estate market works differently.

The Way Joint Ventures Work

It seems simple, doesn’t it? You just don’t understand why a group of investors is unwilling to take on another investor even though there is no additional money going into the deal. In a joint venture each partner puts up a certain percentage of what is needed to secure funding for the remainder of the deal. The more money investors raise the easier it will be to secure funding for the remainder of the investment. If they cannot obtain traditional financing they must look for other funding sources such as New Jersey hard money lenders. Since these loans tend to be of shorter duration than standard commercial mortgage loans, it is important to maintain a balance that is financially feasible for the partnership. Thus, if 10 partners put in a total of $1,000,000 and split it based on a percentage of their initial investment, they will also receive the same percentage of profits. They cannot afford to take a chance on someone who is unwilling or unable to pull his share of the weight to make the deal profitable.

How to Make an Investment with No Money Down

Does this mean that an investor with no money to put down cannot enter into a joint venture? The answer is both yes and no. Confusing? Perhaps for some investors but seasoned investors understand they cannot enter into transactions with no money down, but they understand they can obtain funding through various sources including traditional financing and through a private hard money lender in New Jersey or one of the hard money lenders in NY. The reality is you don’t have to use your OWN money, but you do need to investment in the venture for other partners to cut you into the deal.