Investment Structure for joint development

One of my friends offered me an option to buy a share of a property investment in QLD. Total investment would cost around 3.5 to 4 million. It?s a development site comprising of 24 town houses. The owner is keen to sell the property to us.
The owner offered 3 options to buy
1) We (six of us) buy the entire land and build.
2) We buy half of the land and current owner hold on to half of the land using a company and shareholders jointly build the property.
3) Owner completes the entire development. We buy off-the-plan from the builder at a discounted price than market (i.e. apportion current land price + actual development expenses). We would make 10% deposit towards the purchase now and rest of completion.

Appreciate if you could comment on the pros and cons of each option above. What kind of account set-up would be practical to us?

We all have around 150K in super. Is it possible to buy the property using super. The development would take around 1.5 to 2 year to complete. If we buy off the plan, is it possible to make the deposit using our savings now and later buy using super?
 
Consider

1. Loans - are you willing to guarantee a $4mil loan and possibly lose everything you own?

2. GST
3. Tax
4. Stamp duty
5. Bankruptcy/Insolvency
6. Death
7. Divorce
8. Incapacity
9. control
10. SIS Act - are you related parties?, will the property be mortgaged, etc
 
If you use partitioning and intend retaining any of them, that can greatly reduce 2,3,4 of Terry's list.

No 10 and No 1 on Terry's list are going to be a big one.
 
Partition

Partitioning comes with a GST issue that no lender normally will fund. Partition for the 50% could be considered once you do the maths.

Joint and several liability might apply if struture isnt right...Unit trust land ownership can assist to give fixed entitlements and allow individuals to finance their own shares without several / joint liability say if a trustee were to do the borrowing. SMSF ? See below.

Build should be conducted by a company, not the owner. Unless they like idea of bankruptcy. Company doing the build is an asset protection safeguard...Not against insolvent trading but if it all goes pearshaped worse might be the company is liquidated with debts > assets.

Super ??? Related parties ? Gearing, loan security etc all must be considered. Can SMSF do a development , Not normally as a developer. That a business & prohibited. But might be able to hold the land though. Allowed to make a profit from that as long as arms length etc. Depends also who all parties are. s66(2) SIS doesnt allow a member to later sell to a SMSF. Maybe this is business real property ?? That could make a difference and s66 exception is satisfied? I can only guess. Its a question only a adviser can give. et it wrong and YOU and all parties could have non-complying funds. There are some exceptions...Again unit trust "might" work if trustee doesnt transfer units. ie Dave redeems his units and trustee issues new units to SMSF. Some critical safeguards need to be considered first...

My first advice is get advice. The issues you raise are typical developer queries.
 
Real eye opener for me. Thanks for all your comments.

After further thought, we think the option 1 or 3 is feasible for us.
If we choose option 1, basically we are thinking of buying the land using equity in our current properties. Once the property is bought can we get construction loan as the land is without mortgage? Yes. We need a unit trust and trustee a company.
Once the building plan is approved, can our superfunds buy the townhouses off-the plan?

If we choose option 3, I think the risk and return is less? Can we make 10% deposit using our equity now and later when the SMSF is established, can the townhouses be bought by SMSFs reimbursing the 10% deposit.
We all are not related parties. Each party need their own SMSF and loan against the fund.

Appreciate if you can also comment on - Is any security that can be put in place on the 10% deposit that we pay to a builder in case the builder is a owner builder and also if the builder is company?
 
Real eye opener for me. Thanks for all your comments.

After further thought, we think the option 1 or 3 is feasible for us.
If we choose option 1, basically we are thinking of buying the land using equity in our current properties. Once the property is bought can we get construction loan as the land is without mortgage? Yes. We need a unit trust and trustee a company.
Once the building plan is approved, can our superfunds buy the townhouses off-the plan?

If we choose option 3, I think the risk and return is less? Can we make 10% deposit using our equity now and later when the SMSF is established, can the townhouses be bought by SMSFs reimbursing the 10% deposit.
We all are not related parties. Each party need their own SMSF and loan against the fund.

Appreciate if you can also comment on - Is any security that can be put in place on the 10% deposit that we pay to a builder in case the builder is a owner builder and also if the builder is company?

SMSF can buy as long as the seller and members of the SMSF are not related parties.

Security for the 10% deposit is keeping it in a trust account until your settlement.
 
Partitioning can be done without GST being incurred if it is structured correctly. GST only becomes payable if the title owner post Partition sells the property.
 
Can we make 10% deposit using our equity now and later when the SMSF is established, can the townhouses be bought by SMSFs reimbursing the 10% deposit.

You need to be careful doing this as an audit of your SMSF may reveal that at the time you signed the contract and paid the deposit the SMSF did not exist, and therefore can not have entered into a contract to purchase the property.

If considering this option I would suggest at least setting up the SMSF prior to paying the deposit.
 
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