Partnership structure

[MRCCON]

I've got to a stage in my life where I'm looking at turning to property development fulltime, something I've been working towards for the last few years.

I'm a builder by trade with a carpentry and engineering background.

I'm looking at structuring a partnership with my father who's a commercial property developer, who's looking at retiring in the next few years, but start making money for himself in the caper, rather than for large conglomerates.

Basically I was putting the feelers out on here as to anyone that had undertaken this with someone else, and anything they've learnt in regards to setups and structuring and any do's and dont's. Of particular interest is the structure that maximizes borrowing capacity, especially when down the track there's multiple developments on the go.

Initially the plan is to start in 2-3 unit subdivisions, and building over the first 3-4 years possibly into apartment developments and industrial and commercial developments.

The plan is to leverage off the 6 properties my father owns and the 2 that I own, contribute deposits from our own cash, and possibly sell and try to retain a unit within each development, then once the portfolio increases leverage will purely be what has been retained from previous developments.

Any advice would be fantastic.

 

[Terry_w]

I have a few clients doing similar things at the moment.

Besides the more obvious things you need to consider:
- inter entity loans
- legal incapacity of one or more members of the parties and families including death, mental incapacity and insolvency
- The effects of the above on the various entities
- GST - many only consider this as an after thought!!

I have been coming across many many trusts which have no back up appointors - if the appointor dies it could be the Legal Personal Representative (such as the public trustee) that controls the trust and its assets.

 

[GaryT]

Maybe consider a partnership of trusts with a common corporate trustee.

It has many advantages. Obviously you would need suitable professional assistance in setting up.

 

[Rob G.]

Maybe consider a partnership of trusts with a common corporate trustee.

It has many advantages. Obviously you would need suitable professional assistance in setting up.

I think the GFC has proven the worth of the partnership of trusts structure.

Especially with boom/bust industries.

 

[Paul@PFI]

The common corporate trustee issue can also be a concern. Many accountants muck this bit up and in the haste to save $ they can end up creating stamp duty, asset protection and CGT concerns. Not to mention that immense confusion will reign as all correspondence will be sent to the one company.

eg XYZ Pty Ltd lending to XYZ Pty Ltd may be a problematic loan and so might the security. (How can a company contract with itself? is the trust a sham arrangement ? A charge cannot be recorded in name of a trust - Only the trustee Co.) Also have seen a unit trust "restructured" so that the trustee is same as the sole unit holder triggering a merger concern.

The leverage issues need to be carefully considered. You dont want recourse against earlier property assets from a future / present development that goes wrong.

I'm a fan of a sacrificial company (or two?) to perform the construction activities. Company can fail and fold. Need to seek advice on insolvent trading of course as that remain a personal risk for Directors also pheonix activities remain a concern. Co "buys" construction from tradies and onsells to the land owner on completion with profit mark-up. Land owner is the vendor. Ideally with a fixed return to each "owner" especially if loans are involved. A unit trust or land tax unit trust may suit ? Land owner using trusts not necessarily with same trustee co especially if trusts are fixed v's discretionary. Loan between Co and land owner ?? I would avoid this. Its these loans a liquidator / ATO might see as an asset and attack.

Invest in great preliminary advice would be tip #1