Don't invest unless you're prepared to lose all the money you invest. This is a high-risk investment and you are unlikely to be protected if something goes wrong.
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Risk Summary

Estimated reading time: 2 min

Due to the potential for losses, the Financial Conduct Authority (FCA) considers this investment to be high risk.

What are the key risks?

  • You could lose all the money you invest
  • Most investments are shares in start-up businesses or bonds issued by them. Investors in these shares or bonds often lose 100% of the money they invested, as most start-up businesses fail.
  • Checks on the businesses you are investing in, such as how well they are expected to perform, may not have been carried out by the platform you are investing through. You should do your own research before investing.

You won't get your money back quickly

  • Even if the business you invest in is successful, it will likely take several years to get your money back.
  • The most likely way to get your money back is if the business is bought by another business or lists its shares on an exchange such as the London Stock Exchange. These events are not common.
  • Start-up businesses very rarely pay you back through dividends. You should not expect to get your money back this way.
  • Some platforms may give you the opportunity to sell your investment early through a 'secondary market' or 'bulletin board', but there is no guarantee you will find a buyer at the price you are willing to sell.

Don't put all your eggs in one basket

  • Putting all your money into a single business or type of investment for example, is risky. Spreading your money across different investments makes you less dependent on any one to do well. A good rule of thumb is not to invest more than 10% of your money in high-risk investments. Learn more here.

The value of your investment can be reduced

  • If your investment is shares, the percentage of the business that you own will decrease if the business issues more shares. This could mean that the value of your investment reduces, depending on how much the business grows. Most start-up businesses issue multiple rounds of shares.
  • These new shares could have additional rights that your shares don't have, such as the right to receive a fixed dividend, which could further reduce your chances of getting a return on your investment.

You are unlikely to be protected if something goes wrong

  • Protection from the Financial Services Compensation Scheme (FSCS), in relation to claims against failed regulated firms, does not cover poor investment performance. Try the FSCS investment protection checker.
  • Protection from the Financial Ombudsman Service (FOS) does not cover poor investment performance. If you have a complaint against an FCA-regulated platform, FOS may be able to consider it. Learn more about FOS protection here.

If you are interested in learning more about how to protect yourself, visit the FCA's website here.

For further information about investment-based crowdfunding, visit the crowdfunding section of the FCA's website here.
Property investing
Insights
property
Alternative Investments
Portfolio Diversification
Alyssa Peterson
· 3 min read
· Updated on

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What are the risks and benefits of joint venture property investing?

Enabling investors to combine their capital with the industry expertise of property developers, joint venture (JV) property investments involve two or more parties working together to fund and build much-demanded property projects in the UK. 

Ultimately structured with the goal of providing positive returns and impact for investor and developer alike, JVs offer a less direct investment avenue into the alternative asset class of property.

Whilst this can be ideal for accredited investors who would prefer a more ‘hands-off’ approach to gaining exposure to property investing, the route does come with a number of risks that every investor should be aware of prior to investment.

 

The main risks of joint venture property investing

Whilst JV property investments can provide sophisticated investors with a wealth of benefits, these are understandably accompanied with risks. The four broad categories outlined below summarise the essential risk considerations of JV property investing for investors to understand:

1. Loss of capital

As with all investments, the risk of losing capital is always present. This means that investors who are contemplating undertaking JV property investments should be comfortable with the possibility of their investment value depreciating, as well as appreciating. 

Personal financial circumstances and previous investing experience will play a large role in determining the capacity to cope with investment losses. This, in addition to the overall credibility of the investment opportunity and the development team behind it, is essential to be familiar with, helping to promote a fair and realistic outlook for the future outcomes of a JV property investment. 

2. Lack of liquidity

Due to no secondary market currently existing for the exchange of JV property investment shares, this opportunity can be considered as relatively illiquid. 

As a result of capital typically being tied up in the investment for up to two years (with the average payback period for most JVs sitting between 18-24 months), investors would need to assess their personal tolerance for reduced liquidity. 

3. Development risk

Unexpected events occurring on a local, national or international scale (including regulatory changes, political uncertainty and global supply chain issues) may result in construction delays, possibly increasing the time taken to complete the JV property development.

Subsequently, a longer duration for completion can adversely impact the internal rate of return (IRR) of the investment and tie up investors’ capital for a longer time period.

This is why being presented with a downside case return scenario, as well as a realistic base case and upside case within the provider’s investment memorandum, is highly important. Accounting for the possibility of unprecedented events, challenges and delays - and putting sufficient planning in place to have the capacity to cope with these - can assist in the operational efficiency of the development, and ultimately reduce the overall risk profile of the investment for the investor.

4. Sales risk

Due to the market forces of demand and supply affecting property sales prices, the final sales value may be higher or lower than initially anticipated in the project’s financial projections.

Furthermore, the prices of inputs, such as labour and raw materials, can also be impacted by levels of market demand and supply. As a result, costs may fluctuate around the original assumed level, as well as sales prices. 

Following this, investor returns could increase or decrease according to changes in sales prices and input costs.

 

The main benefits of joint venture property investing

Whilst a number of investment risks must be considered, joint venture property investing can also provide significant rewards for investors.

1. Indirect exposure to property

Notably, the ability to gain exposure to the desirable alternative asset class of property, whilst not being directly involved with the physical construction, renovation and/or maintenance process, can be highly attractive for experienced investors who would prefer a more ‘hands-off’ opportunity. This can help to minimise the time, personal costs and effort required for property developments undertaken alone via routes such as buy-to-let.

2. Utilising industry expertise

Embarking on a joint venture enables investors to partner with professional property developers, which in turn can mitigate much of the downside risk associated with the investment and potentially improve the chances for success. This may be achieved via certain elements, such as improved experience, expertise and industry knowledge being at hand, potentially making the process run fairly smoother.

3. Portfolio diversification

Due to JV property investments existing across a range of tenures and geographies - from regional residential developments to large scale commercial developments - this form of property investment can contribute to an effectively diversified portfolio when adopted alongside a balanced library of alternative assets. Ultimately, this can contribute towards reducing overall portfolio volatility and investment risk via the calculated distribution of capital.

4. Potential for considerable returns

JV property investing has the potential to provide investors with significant returns when compared with many traditional routes, largely due to the lack of added costs and the high demand for property developments (in particular residential) in the UK amid the current housing crisis. 

In turn, for some investors this can compensate for the often higher risk levels that accredited investors undertake in ventures such as JV property investments. It should be noted that more considerable financial returns are likely to be crucial in maintaining portfolio value during current times of high inflation, with the UK CPI rate reaching 9.9% as of August 2022.

 

Should I invest in a property JV?

Ultimately, joint venture property investments undoubtedly have the potential to provide significant rewards for investors keen to target considerable returns, invest in property without the burden of additional cost and regulation, and diversify their portfolio against an increasingly fluctuating economic landscape. Though, it is crucial that investors consider the potential risks in an equally balanced manner.

Investors researching JV property investment opportunities should conduct thorough due diligence, as with any investment, to ensure all key information is provided and clearly understood. To help with this, considering 12 key questions regarding JV property investing could formulate a clearer outline of how to approach this form of investment.

You can find out more about our current property investment opportunities here and the way GCV approach identifying and structuring investments.

Download our Free guide Investing into Property
Driving Growth.
Creating Value.
Delivering Impact.

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Growth Capital Ventures (GCV) is backed by funds managed by Maven Capital Partners, one of the UK’s leading private equity and alternative asset managers.