JV and loan applicants

[beachgurl]

I've been approached by someone in my network to do a joint venture with them. Is a 6-8 month residential deal but requires a commercial loan. The intention is that I would supply the cash and she would take care of the loan.

We will be seeing a lawyer to get a contract prepared on the JV relationship to cover ourselves if the worst happened and to be clear on the profit split.

Do I need to go on the loan application as a cash partner or can I be separated from that part of the deal? The deal itself looks pretty good but just want to get a feel of the finance/legal side prior to getting on board.

Has anyone been a part of a JV and have any feedback on anything to look out for? I'm normally very independent with my property transactions so going into uncharted territory here.

Thanks in advance

 

[devank]

Last Sat I learnt something called 'partitioning' at a property seminar.

"Its a method used to do j.v developments so that each partner is left with say 100% of two units each rather than both owning 50% of all four each. And so I think stamp duty and cgt wont be payable as its set out from the start. " - Thanks HD_ACE.

something you may want to explore.

 

[Terry_w]

I've been approached by someone in my network to do a joint venture with them. Is a 6-8 month residential deal but requires a commercial loan. The intention is that I would supply the cash and she would take care of the loan.

We will be seeing a lawyer to get a contract prepared on the JV relationship to cover ourselves if the worst happened and to be clear on the profit split.

Do I need to go on the loan application as a cash partner or can I be separated from that part of the deal? The deal itself looks pretty good but just want to get a feel of the finance/legal side prior to getting on board.

Has anyone been a part of a JV and have any feedback on anything to look out for? I'm normally very independent with my property transactions so going into uncharted territory here.

Thanks in advance

There are a few ways you could do this.
1. Just lend the money
2. Go on title.

From a risk pov you would probably not want to go on the loan as if the project fails you would not only lose your money back possibly personal assets

 

[Aaron_C]

Simple. If you are going to be giving the cash - get on title in some shape or form....either as a direct tenants in common or as a unit holder.

 

[Paul@PFI]

Last Sat I learnt something called 'partitioning' at a property seminar.

"Its a method used to do j.v developments so that each partner is left with say 100% of two units each rather than both owning 50% of all four each. And so I think stamp duty and cgt wont be payable as its set out from the start. " - Thanks HD_ACE.

something you may want to explore.

Did they mention the GST issues ?? Partitioning is considered a taxable supply and therefore GST registration etc all must be considered. It can act as an income, CGT and GST trigger. And as far as CGT is concerned its often not the case - Often partitioning involved an netreprise so its ordinary income. This can affect cashflows too if a outflow of GST isnt considered.

 

[devank]

Paul.. no they didn't talk about GST (or I don't remember).
Say beachgurl & landgurl buy an old house for 700K. They spend 800K on a 4 townhouse development. At the end each townhouse is valued at 500K.
Can you please run the numbers in 'Partitioning' way?

Here is a rough calculation for the standard way.
Purchase cost = 700 * 105%= 735
Holding cost at 5% = 35K

Total cost = 735K + build cost = 1570

CG for 2 townhouses = 500 * 2 - 1570/2 = 215K
CG tax = 215 * tax rate = 215 *32% = 68.8K

New stamp duty + legal at 5% = 500*2 *5% = 50K

Final profit = 215 -68.8 - 50K = 96.2K

 

[beachgurl]

Thanks for your replies. It's just a re-titling and renovation exercise on existing property. I had looked at partitioning but want to sell as all my cash will be stuck in the deal. Maximum hold time will be 6 months.