3 Investors!

[redwing]

Hi Navjit,

There's some great advice in the thread thus far and worth consideration as you move forward, even some of the stuff you may not agree with is worth talking about between your group? You need to look at both the good and the bad when you plan, as you want to mitigate your risk as a group as best you can; after all, its a business venture not a family picnic and a lot more costly

As well as exploring unit trusts, research joint ventures or joint venture partnerships

 

[deejay]

how do u know i haven't been standing on my own two feet, just coz my parents pay for my education??? thats a big assumption..... we are building a house in our village in india my dad asked me and my bro for $10k so we gave it to him, i just gave $20k for my bro's house too...just coz i dont pay for education/bills doesnt mean i bludge and i dont stand on my two feet,. our family works differently. u dont get the culture...and no i wont pay the bills...mum n dad will continue to pay the bills haha, you dont understand our culture!!! i am here for advice to help invest in property.

Navjit, you seem to think that because we aren't just talking about trusts or tax law, we are ignoring your request for investment advice. You seem to be assuming people are commenting on cultural norms that aren't relevant to investment. That isn't really the case.

Investment isn't something that happens "over there" completely detached from the rest of your life. It all has to connect up and make sense, or it won't work.

You have received a lot of investment related feedback on this thread, even if you don't see it as such. Let me point some out and elaborate on others:

- Investing with family is fraught with problems around trust, conflicting monetary goals, and input from future spouses (further complicated by inlaw dynamics). In this case, you're really talking about six people, only three of whom are currently known - a recipe for disaster. If you must go ahead, go in with your eyes open and a contract with responsibilities, consequences, conflict resolution provisions, and exit provisions.

- Borrowing and buying as one of three is particularly problematic because the bank sees you as having all the responsibility and only one third of the profit. Find another way. Help each other into your own properties, build and subdivide a triplex, or buy a small group of units on one title and convert to strata and then refinance separately. Think outside the square.

- Because of your culture of pooling funds, you are at risk of accepting liabilities you could never service alone, on the expectation that your family will help. They may genuinely intend to but be unable because they get sick or they lose their job, and you can't insure against that because it is not money Australian law recognises you as being entitled to. Bottom line - help and be helped all you like, but don't accept legal responsibility for a debt you can't manage alone, or for which you do not get the benefits of ownership.

- You need to balance quality of life now against your investment goals.

- Don't assume your goal and your brother's or cousin's are the same. Yours is to be financially independent by 35. Theirs might be to enable their wives to stay home until the children hit a certain age. If, because of that, they pull back to minimum repayments, you might be frustrated and want to unwind the arrangement. Make sure you have laid the groundwork to do it.

 

[willair]

our family works differently. u dont get the culture...and no i wont pay the bills...mum n dad will continue to pay the bills haha, you dont understand our culture!!! i am here for advice to help invest in property.

That may be the problem,i do understand the private school system very well,after my daughters being in that system for 14 years,the last one is finished in a few weeks,maybe you don't understand the real investing
culture or the way investors think,it all seems so easy,everyone that has posted in this post has many years experience and everyone will be different,from the high 18% interest var rates up too yesterdays cash rates, and experience is not what happens to you,experience is what you do with what happens to you,..willair..

 

[13910]

you dont understand our culture!!!

That's probably true for a lot of us. But as quick as people are to jump on cultural reasons, it doesn't matter whether you come from an Indian family that does things like this for 'cultural' reasons or if you're a Anglo-Saxon that comes from a background where parents are flush with cash and don't teach the value of it.

That's not an anti-wealthy family statement, it's an anti-poor parenting statement. Two of the most respectable people I know in our age group grew up in a family where they could have had anything - including never having to work a day in their lives. Instead, through good parenting, they know the value of what they've got, how lucky they are, and how that could all turn to **** if they get complacent.

Simple fact is, either way you've demonstrated an ignorance for serious potential risk because you simply lack the understanding of how far the fall is. Therefore you look at things through rose-coloured glasses because your understanding of wealth, financial hardship and everything in between is skewed.

Sure, if something goes wrong, your family will be there to help you here and there. But we're talking huge sums of money when it comes to property, and there will come a point where the risk might outweigh the bailout money those around you can supply, and that's when willair's comments about standing on your own two feet are really going to come in to play. This is particularly true as the two people you're talking about getting involved with are family, so it won't only be you going to parents etc. to bailout the same situation.

i am here for advice to help invest in property.

I'm skeptical about how genuine a student you are. You don't have to take all the advice given to you in life, but a good student listens, considers/evaluates and then applies according to their own situation. Frankly, and as a fellow person in this category it pains me to brand someone with the very term I hate, but you strike me as a stereotypical Gen Y - you're happy to listen to those who give advice that already aligns with your own thoughts, rebel against anyone who says something you don't like and you want everything now (oh but mum, I want to go to the zoo now!).

If you are genuine, go back and read marg4000's post - it's the best piece of advice specifically for yourself that I've seen yet (although, deejay, redwing's points above are also all excellent).

Cheers
Greg

 

[navjit6]

i totally agree, i have learnt a lot, and the replies have given me plenty of ideas that i can look into more closely. The stuff i dont agree about, i understand its importance, and we definitely will talk about that...we have to consider everything, like you say good and the bad, and try to make the best decision for ourselves.

Hi Navjit,

There's some great advice in the thread thus far and worth consideration as you move forward, even some of the stuff you may not agree with is worth talking about between your group? You need to look at both the good and the bad when you plan, as you want to mitigate your risk as a group as best you can; after all, its a business venture not a family picnic and a lot more costly

As well as exploring unit trusts, research joint ventures or joint venture partnerships

 

[13910]

The stuff i dont agree about, i understand its importance, and we definitely will talk about that...we have to consider everything, like you say good and the bad, and try to make the best decision for ourselves.

Is that light I see shining through the cracks?

Cheers
Greg

 

[navjit6]

Navjit, you seem to think that because we aren't just talking about trusts or tax law, we are ignoring your request for investment advice. You seem to be assuming people are commenting on cultural norms that aren't relevant to investment. That isn't really the case.

Investment isn't something that happens "over there" completely detached from the rest of your life. It all has to connect up and make sense, or it won't work.

You have received a lot of investment related feedback on this thread, even if you don't see it as such. Let me point some out and elaborate on others:

- Investing with family is fraught with problems around trust, conflicting monetary goals, and input from future spouses (further complicated by inlaw dynamics). In this case, you're really talking about six people, only three of whom are currently known - a recipe for disaster. If you must go ahead, go in with your eyes open and a contract with responsibilities, consequences, conflict resolution provisions, and exit provisions.

- Borrowing and buying as one of three is particularly problematic because the bank sees you as having all the responsibility and only one third of the profit. Find another way. Help each other into your own properties, build and subdivide a triplex, or buy a small group of units on one title and convert to strata and then refinance separately. Think outside the square.

- Because of your culture of pooling funds, you are at risk of accepting liabilities you could never service alone, on the expectation that your family will help. They may genuinely intend to but be unable because they get sick or they lose their job, and you can't insure against that because it is not money Australian law recognises you as being entitled to. Bottom line - help and be helped all you like, but don't accept legal responsibility for a debt you can't manage alone, or for which you do not get the benefits of ownership.

- You need to balance quality of life now against your investment goals.

- Don't assume your goal and your brother's or cousin's are the same. Yours is to be financially independent by 35. Theirs might be to enable their wives to stay home until the children hit a certain age. If, because of that, they pull back to minimum repayments, you might be frustrated and want to unwind the arrangement. Make sure you have laid the groundwork to do it.

i know i have received plenty of advice, and i am grateful for that. i was planning on investing as one, because i didn't know that it would be 1/3 profit and 100% liability. As i said before i wont be doing this anymore. I understand the risks involved with doing investment with family, and when we are married then there will be 6 people and it has potential to cause trouble. I understand everything has to be planned properly. I have a good quality of life. I am happy with how I live and my quality of life, my parents always sacrificed a lot for me to have a quality life, that was the reason they came to Australia 25 years ago, to improve their quality of life. I dont need to assume my brothers and cousins goals are the same, because its not an assumption its a fact. Off course they have different goals personally, but investment goals are the same and we are 100% committed to working to achieve this.

 

[navjit6]

I'm skeptical about how genuine a student you are. You don't have to take all the advice given to you in life, but a good student listens, considers/evaluates and then applies according to their own situation. Frankly, and as a fellow person in this category it pains me to brand someone with the very term I hate, but you strike me as a stereotypical Gen Y - you're happy to listen to those who give advice that already aligns with your own thoughts, rebel against anyone who says something you don't like and you want everything now (oh but mum, I want to go to the zoo now!).

If you are genuine, go back and read marg4000's post - it's the best piece of advice specifically for yourself that I've seen yet (although, deejay, redwing's points above are also all excellent).

Cheers
Greg

I am committed to learning a lot. I listened when you guys told me about the risks involved...but everyone continues to go on about it(probably because i say it wont happen to us), whereas i am looking for different things

 

[navjit6]

Is that light I see shining through the cracks?

Cheers
Greg

haha the light was there and is always going to be there. I know people have concerns about the risks involved, i will take them into account. Thanks for all your help people!!

 

[vsdabhi]

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?

I understand, it is emotion, familythings and and security. I am from India, migrated before 2 years. I was also thinking in the same way but I controlled my emotions and bought 3 IP and helped my 2 friends to buy their First home and a IP, They also helped me to show bank balance.
The family structure and the way of thinking is totally different. And also it is not unusual in India to buy properties with family members and friends.
But good option is to buy first property on your name with the help of 2 cousins. Or you can help one of them to buy. Thanks.

 

[steveadl]

Yikes! Just read through this thread and talk about a messy proposition!

Navjit, you're obviously going to invest with your 2 relatives so that's fine. But before you start down the road, why not at least take steps before hand to prepare for possible eventualities.

For example, buy the properties in the name of a company that you each own 33% of. Then if something down the track happens, it's as simple as the party selling his 33% stake to the two others. Provides much more protection in the face of fallouts, divorces with nasty spouses etc. And hey - if it's all smooth sailing then it hasn't really hurt to set it up this way has it?

Now obviously this is a very large generalisation and you would need to look into the details of a company structure with your MB's, accountant, lawyers etc - but I hope you get the idea.

 

[navjit6]

HI Steve,

i've heard its not good holding property in a company structure....??? and it has no 50% capital gain discounts etc if in the future you decide to sell IP's.

Yikes! Just read through this thread and talk about a messy proposition!

Navjit, you're obviously going to invest with your 2 relatives so that's fine. But before you start down the road, why not at least take steps before hand to prepare for possible eventualities.

For example, buy the properties in the name of a company that you each own 33% of. Then if something down the track happens, it's as simple as the party selling his 33% stake to the two others. Provides much more protection in the face of fallouts, divorces with nasty spouses etc. And hey - if it's all smooth sailing then it hasn't really hurt to set it up this way has it?

Now obviously this is a very large generalisation and you would need to look into the details of a company structure with your MB's, accountant, lawyers etc - but I hope you get the idea.

 

[steveadl]

HI Steve,

i've heard its not good holding property in a company structure....??? and it has no 50% capital gain discounts etc if in the future you decide to sell IP's.

Oh I'm sure there's many different things to consider, I haven't bought in a company so not fully aware - though I thought they paid profits at the corporate tax rate of 30% anyway. There are however many down sides to the route your proposing as well. Just saying it needs to be thought out well.

Plus remember, if you and your friends are looking at getting big - there are always ways to structure transactions. You don't think Harry Trigbouff (sic?) buys properties in his personal name do you? The big guys use companies, so for every negative there would be just as many positives - you just have to work out what's best for your situation. Blindly going in saying 'everything will be alright,' buying in each others names but owning parts of this and that without any fail safes is not the best risk mitigation strategy, regardless of how much you love your family. Remember, business (and property is certainly a business) is a matter of the head, not the heart.

 

[geoffw]

HI Steve,

i've heard its not good holding property in a company structure....??? and it has no 50% capital gain discounts etc if in the future you decide to sell IP's.

That's my understanding.

A trust may or may not suit your needs.

Pay someone for appropriate advice.

 

[DeeHwa]

That's my understanding.

A trust may or may not suit your needs.

Pay someone for appropriate advice.

I guess the point is we will be here all day arguing about which structure is more appropriate, however, given this type of situation, intuitively, I would have thought a company to be the most appropriate in purchasing the asset and perhaps have a trustee operate the company.

Sure, you don't get the 50% capital gains discount, and yes, you will be borrowing on business finance (higher financing costs) and other disadvantages as compared to partnership, individual, trusts, exotic syndicates etc. but property acquisition is business and it should be treated as a business.

Also, who the heck wants to have a 1/3 share of an asset, yet be liable for the entire debt? If you are gearing to the max (chip in $200K each and have 80% LVR), then I certainly don't want $2.4mil hanging over my head. For me, I like to continue private acquisitions (or perhaps borrow some money to get VIP seats to Taylor Swift concert) and by having $2.4mil debt, this would certainly be near to impossible. The personal liability of a partnership structure, in the absence of an alternative structure that nullifies this, is definitely not ideal.

Anyways, at the end of the day, as what everyone seems to be saying, a partnership structure has too many cracks (things can and will go wrong, other people come into play like kids, spouses, change in circumstance, inherent greed), and sure, some have worked in the past, but I personally would not take the chance.

 

[navjit6]

please read all the posts before replying. i was thinking of going down the road buying together, however after finding out about the significant liability and effect it has on borrowing i am not going to do that...and i have said that numerous times now.

Also, who the heck wants to have a 1/3 share of an asset, yet be liable for the entire debt? If you are gearing to the max (chip in $200K each and have 80% LVR), then I certainly don't want $2.4mil hanging over my head. For me, I like to continue private acquisitions (or perhaps borrow some money to get VIP seats to Taylor Swift concert) and by having $2.4mil debt, this would certainly be near to impossible. The personal liability of a partnership structure, in the absence of an alternative structure that nullifies this, is definitely not ideal.

 

[DeeHwa]

please read all the posts before replying. i was thinking of going down the road buying together, however after finding out about the significant liability and effect it has on borrowing i am not going to do that...and i have said that numerous times now.

secondly, from a rough skim, since when have you mentioned about the possibility of forming a company structure with a trustee to operate it and commented on whether this is a more superior and appropriate structure?

 

[marg4000]

please read all the posts before replying.

There are SIX pages of advice here. Surely you don't expect everyone to go through every reply, make notes about what has already been said, and ensure that nothing is repeated???

This is the second time you have put conditions on those good enough to reply to you.

Do you really want constructive advice, or are you just waiting for someone to tell you that you have the best ideas and your plan is perfect?
Marg

 

[navjit6]

There are SIX pages of advice here. Surely you don't expect everyone to go through every reply, make notes about what has already been said, and ensure that nothing is repeated???

This is the second time you have put conditions on those good enough to reply to you.

Do you really want constructive advice, or are you just waiting for someone to tell you that you have the best ideas and your plan is perfect?
Marg

i don't mind anyone putting their two cents in...but how does that become constructive advice? if you want to give constructive advice you have to read the posts as then you know all the details. i thought that would be just common sense!

i think about 10 people have told me that its not worth getting property under 3 names as it limits your borrowing power, and i have stated about 5 times that i am no longer going to do that.

If my plan was perfect i would implementing it right now. I know my plan is ****, thats why i came on here, to find out how to improve it and learn things.

 

[skater]

With all due respect, Navjit, you come here on a forum and ask for advice. The people advising are doing so free of charge. Some will be good advice, some won't. Some will apply to your situation, some won't. That is the nature of the game. BUT, if you expect to get ANY respect from those people trying to help from the goodness of their hearts, then don't give sassy backchat like these quotes taken from yourself.

thats personal, how we do things, what is that to you?

our family works differently. u dont get the culture...and no i wont pay the bills...mum n dad will continue to pay the bills haha, you dont understand our culture!!! i am here for advice to help invest in property.

please read all the posts before replying.

Sure, there maybe some cultural differences in some regards, but from where I'm sitting right now, this is a multi cultural forum. How do you know that the person giving advice is not from the same culture as yourself. If there are things that are personal, then don't put it out there in forumland, or if you do, then expect someone to comment on it.

It appears that you are used to having things your way & don't much like it when someone has opposing views. Well, if you have come seeking advice from those (mostly) older and more experienced, treat them with respect. Listen to the advice given and quietly filter out what does not apply to yourself.