Buying structure for a joint venture purchase

[tdluu]

Hi all,

Me and my friend are looking at buying an investment property. We do this because we both like the property but each of us alone cannot afford it. However we are not quite sure which is the best structure to use for this purchase. If you are well versed in this area, please kindly drop a few comments to help. Our situation is as follows:

Property: value around $1.5mil, rental will be around $1300 a week so at a fixed interest only rate of 4.6% it will be slightly positive cash flow at 80% gearing or slightly negative cash flow at 100%.

Me: work for myself, having a good income owning other investment properties so land tax is a consideration

My friend: first time investor, never owns a property and would like to keep his first home buyer status

We are looking at both buying in our individual names with 50/50 shares (tenants in common) or a property trust. Our priority is a flexibility of the structure (just in case one of us decides to opt out some time in the future),
and tax implication for each member.

I am not quite sure whether I have shared enough information for an expert in this forum to point me to the right direction so feel free to question me further

Much appreciate your assistance in advance

CL

 

[Terry_w]

Not enough info to decide, but possibly a fixed unit trust should be considered. How you structure this and the transcation will depend on several things.

 

[hobo]

Hi all,

We are looking at both buying in our individual names with 50/50 shares (tenants in common) or a property trust. Our priority is a flexibility of the structure (just in case one of us decides to opt out some time in the future), and tax implication for each member.

Please seriously - and in great detail - consider how you will deal with the situation where one person has a disaster financially and wants to get out.... does that mean they can sell their half to just anyone? (Which will obviously be difficult anyway.) Or do you put in a clause that it must be sold on the open market at that time (and don't forget to put yourself in the shoes of the party that suddenly needs your equity out....)?

Personally, unless you are going in to it with a clear and solid strategy, AND the returns then outweigh the downsides, I say save up individually for longer and do your own things separately. From experience, joint ownership with "friends" (ie as opposed to your partner, which still has its own set of difficulties sometimes!) is fraught with complications and can limit your own endeavours down the track.

Think long and hard and don't be seduced by the bigger number and the shorter time frame - there's a lot more to think about.

 

[Terry_w]

Consider also

1. death
2. divorce/family law
3. incapacity
4. bankruptcy


of either person involvd

 

[MRO]

Consider also

1. death
2. divorce/family law
3. incapacity
4. bankruptcy


of either person involvd

And prepare an agreement or include in the trust document the way each of these situations will be handled.

 

[Terry_w]

And prepare an agreement or include in the trust document the way each of these situations will be handled.

Ideally your trust deed should specify what happens if the appointor loses capacity. but also you need planning outside the trust as well such as powers of attorney documents, appropriate wills etc

 

[tdluu]

Hobo

Think long and hard and don't be seduced by the bigger number and the shorter time frame - there's a lot more to think about.

Thanks for warning. We have thought long and hard about this. That's why our first priority is a structure with flexibility.

MRO

Thanks

Terry_w

Thank you for sharing your expertise. What are information do you think I should share to make the decision a bit clearer. Any chance I can pm you?

CL