International Joint Venture - All in our name?

Hey guys.

My sister-in-law from South Africa wants to invest in Australian property. She’ll provide the cash but the not cashflow. My wife and I have very little spare cash of our own, but just enough cashflow to gear her deposit up to about 85% LVR, but are dying to buy another IP because we can tell the market’s ripe.

I heard that with the complications of foreign law, we could be looking at $10-15k in legal fees to set up a proper International Joint Venture. It's probably going to be hard enough just getting the money out of South Africa. So we’re looking at ways to make it simpler, and this looks simplest:

We agree on a % to split the profits. At the end of the day we both get back the money we put in, plus our % of the profits (equity growth + rent). Sis puts her money in our account, we borrow & invest completely in our name, then when she wants her money back we harvest her equity from our bank, and pay her back the cash. (We intend to hold it forever.) If we want to harvest equity for our next IP, we probably have to ask her first, to check that she doesn’t want her share any time soon, as it’s likely that the bank wont let us harvest equity too often.

What problems do you see? Of course we'll need to get it watertight legally, but Rob Balanda says it's best to get all the possibilities nailed down before you see a lawyer.

Will we be stuck having to harvest equity together and invest in every subsequent property under the same arrangement? If all goes swimmingly that would be fine but it’s worth having a viable get-out plan. What if she moves to Australia once she’s a millionaire and we have to move her share into her name? Aside from giving her the cash from our equity, I cant see any other option to avoid CGT.

We’ve read the recent API mag articles on JVs, and bought the Rob Balanda CD, but we’re having a hard time finding anyone who’s actually done a JV like ours before.
 
1. I've met Rob Balanda and he is an amiable fellow, very pleasant to talk to and always ready to help. Like all lawyers and accountants, I suspect he may want you to do the most complicated thing which would bring in ongoing billing hours every year. *wink* The more complicated the better.

2. You are reading API, an intelligent thing. Far better than listening to naysing friends. Pay close attention to median figures at the back of the magazine....better still go get old copies of API, going back a few years. There's lots you can learn.

3. Harvesting equity.......we all do it when we can. But are you sure there is going to be equity to be harvested? Much of the low hanging fruit in Aussie property is gone, it may take some time to becoem cheap again, relative to peoples incomes. I've lived through economic slumps where banks asked me to return back a portion of equity that they once freely lent me, even when all my payments were current. Be prepared, this is not something property gurus tell you.

4. Only invest with others if you can trust them absolutely. Even the most iron-clad agreement can be challenged by others in the family if, heaven forbid, one of the co-investors dies. Deals are best done alone, in my experience. If one does not have the cash one needs, one can save, borrow, beg or perhaps even steal. *wink*
 
She’ll provide the cash but the not cashflow. My wife and I have very little spare cash of our own, but just enough cashflow to gear her deposit up to about 85% LVR, but are dying to buy another IP because we can tell the market’s ripe.

How about LMI, stamp duty and buffer for rate raises? Have you take these into account?
 
I've lived through economic slumps where banks asked me to return back a portion of equity that they once freely lent me, even when all my payments were current. Be prepared, this is not something property gurus tell you.(QUOTE)



Hi Meconium,

Just interested was that on residential or commercial property loans that you had to reduce the loan amount?

Cheers

BT
 
I've lived through economic slumps where banks asked me to return back a portion of equity that they once freely lent me, even when all my payments were current. Be prepared, this is not something property gurus tell you.(QUOTE)

Hi Meconium,

Just interested was that on residential or commercial property loans that you had to reduce the loan amount?

Cheers

BT

Happens for both residential and commercial, although it is worse for commercial property. The banks happily lend me money in good times and then, when the economy takes a dive, the first to ask for it back - even when I have made payments punctually. I don't hate the banks for any of this. It's business. If you cannot accept this, you may not have the stomach to be a property investor.
 
Happens for both residential and commercial, although it is worse for commercial property. The banks happily lend me money in good times and then, when the economy takes a dive, the first to ask for it back - even when I have made payments punctually. I don't hate the banks for any of this. It's business. If you cannot accept this, you may not have the stomach to be a property investor.

been in the game 10 years never seen or heard of it happening to anyone on resi property unless it was somehow tied to commerial property,
 
been in the game 10 years never seen or heard of it happening to anyone on resi property unless it was somehow tied to commerial property,

Been in the game 20 years. Trust me, it happens - even to solvent people who have great credit histories. And there's more to come - the mortgage insurance industry is running scared and often jumps at shadows. Several people I know (all of whom were current with repayments) were asked by their banks to refinance elsewhere.

Banks are not charities. Get used to it. Try to work with them, there are few alternatives.
 
How about LMI, stamp duty and buffer for rate raises? Have you take these into account?
I think we can ask Sis to cover all purchase costs, so LMI, stamp duty, etc can be included in that. The buffer for interest rate rises will be our (meagre) savings, as the loan is all ours. But it might be sensible to allow provision for Sis to help out with cashflow if things get tight.
 
2. You are reading API, an intelligent thing. Far better than listening to naysing friends. Pay close attention to median figures at the back of the magazine....better still go get old copies of API, going back a few years. There's lots you can learn.

Where do I get old copies of the API?

I've lived through economic slumps where banks asked me to return back a portion of equity that they once freely lent me, even when all my payments were current.

I heard that one of the best ways to prevent a bank from asking for their money back to make sure you dont have all your accounts with the one bank, so they cant get a full financial picture of you. Do you think this holds water?


Any suggestions on what an equitable % profit split should be?

What kind of legal structure(s) do we need?
 
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