With buying a first home out of reach for many, most can only dream of ever having an investment property too. Prices seem to only be going one way - up - and the lending restrictions are making it harder as well (you need to have a 40 per cent deposit for an investment property now).

So what are some other possible solutions to those who want to get on the property ladder as an investor? Well it seems a lot of people are turning to joint venture strategies, and it is something that many more may be looking to explore further as it is certainly not a bad idea - or is it?

What is a joint venture strategy?

A joint venture is two or more people joining their finances together in order to purchase property - it may be in order to just get a foot in the door of the property market, or to increase borrowing potential by having a larger deposit, and more people to service the mortgage.  

Read more: Buying an investment property? Here's how to choose the right location

Who is doing it and why?

People from all walks of life - from family and friends to more serious investors like developers.

And why do they do it? Because property is becoming increasingly more expensive - particularly in our larger cities like Auckland, but the flow on effect has meant surrounding regions are also seeing an upward trend in prices. For example, both the Matamata-Piako district, in Waikato, and the Mackenzie district, in Canterbury, have seen a nearly 40 per cent increase in house prices from January 2013 to August 2016.

So what’s involved in the process?

To put it simply, it is about pooling resources together to purchase a property - whether to rent out, live in together, or renovate and sell.

The first point of discussion for the involved parties would be to work out the amount of money each is able to invest, and how it will divide up the property for ownership.

One person may be able to provide the deposit, while the other pays the mortgage (this type of agreement is of course quite common between parents and their adult children).  Or perhaps one will put up the cash, while the other uses their expertise and skills to renovate the property, so it can be sold for a profit (commonly known as ‘a house flip’).  These details obviously need to be carefully worked out between all relevant parties before going down the path of purchasing a property.

You also have to consider what happens in terms of ownership. For example, if someone is stumping up the deposit, and the other is doing the work on refurbishing it - how does it divide up the investment? 50-50? 70-30?

If you are keeping the property long term - who will be paying the rates, insurance, be responsible for finding tenants (if required)? All of these will need an in depth discussion and agreement from all involved.  

What are the risks?

Of course, where there is a large amount of money, and more than one person involved - there will be risks.

What happens if the party servicing the mortgage loses their job, or gets sick, and is no longer able to make payments? Or if a renovation goes over budget, and takes longer to complete than first planned - who will be responsible for dealing with the impact, either through further investment or some other solution?

And then there are external risks - ones that no one has any control over. Like the market hitting a downturn mid renovation, which means the house is unable to be sold as quickly as it needs to be in order to gain a profit.

Always, always have a signed agreement in place to protect all involved parties from any risks involved in a joint venture.  

What happens when you want out?  

As a part of the agreement, you should also have something to cover any parties exit strategy.

Life priorities change, and this may mean someone wants or needs to get out of the property investment earlier than planned. So how will you deal with this if/when it occurs - will it be sold? Offered up to the other investor(s) for market value?   

It is important for everyone to be clear on what it means to end the arrangement amicably and without anyone having to take a financial hit. 

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There is plenty to get excited about when deciding on a joint venture, but by making sure you consider everything that could go wrong, and working out a strategy to deal with it, then hopefully you will be able to mitigate those situations should they arise.

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