3 Investors!

Hi, I am a newbie and need some help. i didnt know where to put this post. Other/Legal/Accounting...its a bit of a mix.

Background:I'm 21 and looking to get into the property market with my brother and cousin. My brother is 23 and just bought his first home in June 2009 for $336k. his current loan amount is $285k. I have been helping him pay it off, as interest inst deductible on PPOR. My cousin is 19. The three of us combined are earning $155k p.a. gross. We can save together $50k per year. We are very close knit as we were living together for the first 17 years of our lives. I understand the importance of writing signed agreements about working together, and will do with solicitor.

From now on the 3 of us want to buy investment property together (1 property at a time, and continue until we have at least 10 properties). We want every property to be in all three of our names. What is the best way to go about this under 2 circumstances.
First circumstance: we buy, renovate and sell after 12 months so we receive 50% CGT discount.
Second circumstance: we buy for long term and keep hold of the investment properties

is it best to just to go to bank/mortgage broker and get a loan under our 3 names or is it better to instead enter into a partnership or trust? if you could tell me for both circumstances please.

I have been reading quite a bit about trusts and i cannot see a discretionary trust being of any use, as we have no spouses/kids, and i heard to add beneficiaries after opening the trust is expensive. unit trusts i guess you can continue to add beneficiaries however we just want this to be between the 3 of us, as we have a lot of trust for each other. plus the cost factor of setting up and maintaining the trusts. so i am not really looking at that, but your opinions will help.

How about partnerships? are they worthwhile? what are the main disadvantages/advantages?

What is better for Investment property: stay as Individuals or Trusts or Partnerships?

Also we want to keep all the capital we put in, income, and expenses separate from our personal finances. if we were to go to bank can we create a bank account for the 3 of us? I'm sure we can, but please clarify!

Instead of just registering our names in the bank account, is it possible to get an ABN and business name (and create a bank account under the business name). We just wanted a business name haha. I am not sure if its possible, or will that make it into kind of a partnership?

last question...if one of us got a loan approved to buy a house, is it still possible to buy the property under 3 names? is there any costs involved/or other factors to consider apart from that we would all be liable for the house if it was under all 3 of our names.

I would be really grateful if you could answer my questions. i also appreciate any feedback and ideas or things that we should/shouldn't do. thanks heaps!

navjit
 
For me it's an unusual way to do business.

If you buy each IP in all 3 names the lender would probably want all 3 to be responsible for the whole loan which will reduce your borrowing capacity.

Perhaps a better way would be for all to contribute and get each deposit together and then buy in individual names or in some trust structure.

example
IP1 deposit =$45k $15K each, property in your name, brother n cousin owed $15+$15K

IP2 deposit =$45k $15K each, property in your bother's name, you get your $15K back and your cousin is owed $15

IP3 deposit =$45k property in your cousins name, you all contribute $15K and now you are all square so you can start saving for your next 1.

I hope this makes sense....
 
If you buy each IP in all 3 names the lender would probably want all 3 to be responsible for the whole loan which will reduce your borrowing capacity.

Yes, Bill is right here! You will be "jointly and severally liable" for the debts - meaning that if you want to buy again in your own name at some point in the future, then the lender will see YOU as being responsible for the WHOLE debt AND only being entitled to 1/3 of the rental income as well.

If you just plan to buy, reno, sell then not so much of an issue, but you need to have an exit strategy in place if the market moves against your position. i.e. you buy, reno and the market tanks for a few months and you decide to keep and rent it out for a while 'till things improve. Just cover off on all your bases.
 
Another thing to consider is that you are all single at the moment. Fast forward a couple of years and you may find that one or more of you wants to get married and/or have kids. This brings other people into the mix and a partner may not want to be tied to 2 other people.
 
DONT would be my initial reaction

If you do, use an apporpriate structure that allows a buy out when circumstances chnage as u can guarantee they will,

ta
rolf
 
I don't understand why you would prefer to buy with these two other people.

Why not just for yourself?

What happens when one of them wants to go to Hawaii and use the funds from property and the rest of you don't?

What happens if you want to retire early and the rest don't?

It will create some problems.

Is there a good reason not to buy in your own names?
 
Background:I'm 21 and looking to get into the property market with my brother and cousin. w
From now on the 3 of us want to buy investment property together (1 property at a time, and continue until we have at least 10 properties).
How about partnerships? are they worthwhile? what are the main disadvantages/advantages?

What is better for Investment property: stay as Individuals or Trusts or Partnerships?
A partnership can work quite well,if u know the other people 100%,and the way they act,and have experience, when things go pearshape as they always do when uncertainty like we have out there is now is in place,imho i would not go into a threeway split in investing in property unless they have the cash upfront and it is set-up in rock-solid-contract with up-front clause,both entry and exit,it may take longer to go it alone, but you would be safer,and you have "Total" control over everything ,plus there is still a lot of investors STILL shell-shocked and scared to invest their resources,they missed the last upswing on the "ASX",missed the "FHB"media-re-driven property upward swing,..

Fom my experience the only partnership that works is the one you sleep and wake up with..imho..willair..
 
Yes, Bill is right here! You will be "jointly and severally liable" for the debts - meaning that if you want to buy again in your own name at some point in the future, then the lender will see YOU as being responsible for the WHOLE debt AND only being entitled to 1/3 of the rental income as well.

If you just plan to buy, reno, sell then not so much of an issue, but you need to have an exit strategy in place if the market moves against your position. i.e. you buy, reno and the market tanks for a few months and you decide to keep and rent it out for a while 'till things improve. Just cover off on all your bases.


Bill and Propertunity...just trying to understand you point: if we buy 3 IP under all three names for loan amount $300k, banks see us having debt of $900k?, while if we buy separately then our debt is 300k each?

Rolf & Skater & Investor2009...The main reason we are buying together, is because for 1 person to invest and make money is hard (but can be done). If you do with 1 or 2 or more people then there is more capital, more ability to borrow etc etc. THERE ARE SIGNIFICANT ADVANTAGES. I also understand with that comes more risk of things not working out with the other people, like the things you have suggested.

Just generally bit more background will help you guys understand where we are coming from...

My dad and his brother (and partners), & dads parents, came to Australia in the early 1980's, with hardly anything, however living in extended family has huge savings, and also can create problems if you dont sacrifice for each other, as people want to do things their own way. By living together our family was able to get a taxi loan, up to 10 properties, though some have been sold, and currently our property is worth at least $4million, though we bought it for $785k in 1996. My dad, mum, uncle aunty, could never have got that big loan as couples, but by doing so together, they were able to.

yes we will most likely be married within the next few years, and in the future have kids etc. However us 3 are not worried one bit, as i have complete faith in them, and i am certain they have complete faith in me (like our parents). key thing is being able to sacrifice and come to agreements. we will always be able to do that. I know it has the possibility to create problems, but you have to understand our culture, how we have grown up. I am punjabi (punjab is a state in india). Even though we were born and brought up here, we live very differently compared with others. we have never been clubbing/parties, dont drink, smoke, never had girfriend, will get arranged marriages, live in extended families, etc etc. Us 3 are in this for life.




The main thing i am trying to find out is how to go about investing in the best possible way for the 3 of us.



example
IP1 deposit =$45k $15K each, property in your name, brother n cousin owed $15+$15K

IP2 deposit =$45k $15K each, property in your bother's name, you get your $15K back and your cousin is owed $15

IP3 deposit =$45k property in your cousins name, you all contribute $15K and now you are all square so you can start saving for your next 1.

Bill i like this idea. However the reason I want property to be under all three of our names is, say we sell a IP's down the track, we will have to pay CGT. if we each get 3rds, then there will be tax benefits.

We are going 33.33% each for everything..income, expenses etc etc. is it just best to set up a bank account under our 3 names?



Thanks for all your replies and thoughts, appreciate it!!
 
A partnership can work quite well,if u know the other people 100%,and the way they act,and have experience, when things go pearshape as they always do when uncertainty like we have out there is now is in place,imho i would not go into a threeway split in investing in property unless they have the cash upfront and it is set-up in rock-solid-contract with up-front clause,both entry and exit,it may take longer to go it alone, but you would be safer,and you have "Total" control over everything ,plus there is still a lot of investors STILL shell-shocked and scared to invest their resources,they missed the last upswing on the "ASX",missed the "FHB"media-re-driven property upward swing,..

Fom my experience the only partnership that works is the one you sleep and wake up with..imho..willair..

what is imho stand for? hahha
 
Land tax is less advantageous when buying together (I'm not 100% sure of details, many here are). Not a big issue early on, but if you are looking at 10 properties....
 
If they insist on going with 3 names on the title it's unlikely they'll ever get to 10 properties anyway. They'll hit borrowing limits way before that because of the joint and severally liable thing.
 
If they insist on going with 3 names on the title it's unlikely they'll ever get to 10 properties anyway. They'll hit borrowing limits way before that because of the joint and severally liable thing.


Land tax is less advantageous when buying together (I'm not 100% sure of details, many here are). Not a big issue early on, but if you are looking at 10 properties....

thanks guys...thats the reason i am on here, trying to figure out the best way to go about it. if you could give suggestions i would be grateful.
 
Bill and Propertunity...just trying to understand you point: if we buy 3 IP under all three names for loan amount $300k, banks see us having debt of $900k?, while if we buy separately then our debt is 300k each?

In a word - Yes.

AND they will only allow you 1/3 x 3 IPs rent as your income for serviceability - so you hit a wall.
 
Rolf aready gave it to you:

yeh i understand that that is not the way to go and i will definitely not go down that road. but if i want to invest with my cousin and brother, there must be plenty of other ways to do it. i.e. like Bill said just get loans under own name, which i am thinking of. but i understand i need to learn a lot more. which is why i have come on this forum.

If i was to make a trust/partnership with them 2, does that limit your borrowing ability?
 
I recommend you visit an account and get qualified advice as to how to go about achieving your goals in the most economically feasible manner.
Marg
 
I still own a third share in a block of land in the country that was purchased as 3 tenants in common 30 years ago because no-one has ever been able to agree on when to sell it (well the other two!).

Partnership is most usually another word for delayed argument in my opinion.
 
yes marg i guess it will be best to see a qualified accountant.
one last question....Bill if we were considering just buy - renovate - sell, and continue that process with say 2/3 properties at a time, that would work?
 
Top