Joint finance setup

Discussion in 'Property Finance' started by jackbak, 21st Sep, 2012.

  1. jackbak

    jackbak Member

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    Hi all

    Looking to buy a commercial property with my business partner (who happens to be my father) and we are intending to split the property & loan 50/50. I heard somewhere on this site that you have to be careful investing with a partner because when you apply to borrow again the bank will consider the entire debt as your liability (not just your portion) and thus limiting your ability to obtain finance down the track.

    If this is true is it avoidable? I was hoping that separate loans would get around this?
     
  2. tobe

    tobe Mortgage Broker

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    It is true, and dificult to avoid. Some lenders arent as harsh with the 'joint and severally liable' rule as others, but in general it is correct.
     
  3. Aaron_C

    Aaron_C Finance Broker

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    It is not unavoidable but I would assume it is for the purposes of this exercise.
     
  4. jackbak

    jackbak Member

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    Thanks guys, so it's not as simple as just talking out 2 separate loans? In that case I may be better off just buying it myself...
     
  5. Aaron_C

    Aaron_C Finance Broker

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    Yes do it yourself provided that you can service it by yourself. That's why most people do joint loans - neither can afford it without the other.
     
  6. Rolf Latham

    Rolf Latham Member

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    Joint and Several Liability can be avoided if you dont use the same security......obviously rarely possible, but for some it can work.

    The reason that taking separate loans in your own name on the joint security doesnt "work" is that the co owner needs to guarantee your loan and vica versa.

    This means you BOTH have a contingent liability for each others loans.

    some resi lenders take the "real" approach and will assess your next deal with 50 % loan and 50 of the income, but they are rare

    Most lenders will saddle you with the TOTAL debt, and half the income

    Joint and several isnt a problem if all your investing is done with that person ( as in many spousal situations) but it can wreak havoc with your future if you have BIG plans and the other party isnt your spouse

    t
    arolf
     
  7. Mick C

    Mick C Mortgage Broker

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    Can you afford it? and even if you can ....can you afford the 2nd property? i mean thats the whole point of this question/tread right? :)

    Get a broker to run the numbers for you based on buying under your name only and run another set of numbers based on getting a 2nd property.

    Regards
    Michael
     
  8. jackbak

    jackbak Member

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    Thanks everyone, really appreciate all your help!
     
  9. jackbak

    jackbak Member

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    Hi Michael, no that wasn't the point of the thread, both of us could afford to buy the property individually. To cut a long story short we are considering buying the office that we currently rent and we have always split everything in the business 50/50, but from the advice I'm getting here it sounds like it might make more sense for just one of us to make the purchase... And as my Dad is looking to retire soon Im guessing that will be me :)

    Cheers
     
  10. Terry_w

    Terry_w Member

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    Don't be too hasty! There are some super strategies you may be interested in especially if your dad is going to retire soon.

    Imagine getting your dad's smsf to purchase with you paying rent to the fund and claiming a deduction and the fund not having to pay income tax or CGT and dad getting a tax free income stream.

    Plus the other benefits of good asset protection and tax effective estate planning.
     
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  11. Wake

    Wake Member

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    Rolf, can you advise which resi lenders currently take the "real" approach?

    Ta
    Wake
     
  12. Mamaof3

    Mamaof3 Member

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    Terry, if the Dad were to purchase through his SMSF, doesn't it have to be an "arms-length" transaction in relation to who he rents it to? So that strategy although would be ideal probably woudln't work in this case..i'm no expert so i could be totally wrong on this!

    Jackback, i'm pretty sure there's a few lenders that will not consider you liable for the entire debt if you were to go in as joint applicants. Contact one of the brokers here, i'm sure they'll be able to advise on what is best way to structure the loan.

    Good luck :)
     
  13. Terry_w

    Terry_w Member

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    Yes, has to be arms length. Business real property can be leased to a member or associate of a member - Commercial terms and rent.
     
  14. Mamaof3

    Mamaof3 Member

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    Hmmmm, thats great....giving me ideas now :D