Joint venture structure for buy and hold finance

[Williamyuan]

Hi, I have just bought a property and used up all my spare cash & equity for deposit, but still have borrowing capacity. I have a family member who has cash to invest in property but does not want to use their overseas business income on their loan applications. They would like to do a partnership where they contribute deposit, and I find deals and get finance. It will be for long term buy and hold investment, with 50% of capital growth profits going to each partner. we will organise appropriate loquidation and partnership dispute clauses in agreement etc, but main concern is how to structure it so I can get finance, and use the full income of the purchased investment property to help service it rather than just half the income? Should they be on title of property to get the entitlement of 50% of profits, or can they own 50% of a company/trust etc that owns the property and we guarantee finance?
Thanks for any help!

 

[RPI]

Yuo could use partnership of trusts. Unit trusts or other structures. Much more info needed. I would suggest Terryw on here for a NSW pirchase as he is both a lawyer who is a gun on structures and a finance broker.

 

[Terry_w]

Yes, many ways to structure such a deal. Partnerships of trusts, unit trusts, private loan agreements and a combination of the above.How you do it will depend on where the property is, your individual and family circumstances, serving factors, ability to give guarantee or not give etc

 

[Paul@PFI]

A Partnership of trusts isnt a great idea in NSW. More often that not its mucked up and really unnecessary and can trigger some issues. A fixed unit trust strategy can be just as efficient and effective and also access the refiancing principles as well as NSW land tax threshold issues.

A fixed trust (NSW land tax unit trust) esssentially is a trust with a company trustee that issues units to unitholders (Say $1 each). The trustee then uses the $$ subscribed to buy a IP. Each owners owns units in the trust NOT the property. the property is owned by ABC PL and always remains smae. If unitholders change the legal ownership doesnt change and its often free of NSW stamp duty. Its also gets the NSW Land Tax threshold saving $6kpa v's all other trust structures (except a SMSF). Important that the trust is a specific deed for NSW land. No other trust (eg Disc Trust) should own units or land tax thresholds get stripped back. Unitholders borrow against other property usually so that each carries their own debt and each can negative gear their respective interests. ie One can be + geared and other neg geared. A SMSF can buy units if the property being acquired is NOT subject to mortgage. You can change unitholders without NSW duty in some cases - YOU DONT TRANSFER UNITS....This change of unitholder can be ideal to bring in new unitholders or to exit one. Units are issued and redeemed as a fixed % of the market value of the property at any time.

The LTUT (land tax unit trust) should avoid owning more than one property as it contains a CGT issue that can bite novices incl many accountants !!

One of the prevalent benefits is that a fixed unit trust gives absolute right to a fixed share of income and capital gains. The unit pricing clauses are also MEANT to give a fixed basis for valuation. Some fixed unit trusts fail or contain poor / outdated redemption provisions which can be a worry. The one I use is very good as it contains a "right of redemption" rule which doesnt give trustee discretion to delay or refuse and imposes all the new and revised NSW Office of State Revenue rules on how to value units. Many deeds dont - The one I use has always met this condition. That's essential if a unitholder is a SMSF for example. These fixed entitlemnets can avoid the need for an agreement as the deed can address amny of these concerns...

If your relative is a non-resident they can be a Director of the Trustee Co and a unitholder. However any share of trust income may be assessed tax to the Trustee Co and complex (and stupid) crediting applies when they lodge a personal AUS tax return to claim the same amount of tax paid by the trustee. (So one pays the other gets refund!!). Its an annoying issue for non-resident unitholders.