Property Investing with others

[timwr]

Hi folks,

I'm looking to invest in a number of properties with some friends and family members but looking to protect all concerned from any disputes and disagreements which may arise and also agree on a strategy (buy/hold, buy/renovate/sell etc.).

Can anyone suggest how to structure the above, such as what legal documents to have in place, a lawyer familiar with such agreements, possible pitfalls to look out for?

Any suggestions would be much appreciated!

 

[NigelW]

there are lots of issues to consider and map out before you even think about the structure to implement it.

the type of "joint venture" project will influence this too. For example, if its a buy and reno then you need a mechanism for "cash calls" ie requiring the JV'ers to contribute funds in a timely fashion to pay for the reno and mechanisms setting out what happens if they don't cough up when they're supposed to...

another issue is pre-emptive rights, ie how can you exit, who can exit and when can they exit and who gets dibbs on their slice of the action...

and during the life of the project how will decisions be made - what if there's deadlocks, how are they resolved.

I don't want to dissuade you from investing with others, just be aware that's it's a minefield of potential pitfalls and problems the key is to anticipate as many as you can (and u won't pick em all!) and have a general procedure to deal with the others in case people get unreasonable.

adding family and friends to an already complex mix can make it potentially explosive just as much as it can help if you trust each other...but be aware that money can ruin many relationships if things don't turn out as you've planned.

There have been some posts on the forum about these issues. look for things like "friends" and "joint venture" ...I'm too much of a luddite to put links in here for you.

ps. definitely see your respective lawyers.

Good luck
N.

 

[Rolf Latham]

Hiya

from a finance pint of view be aware that you will be liable for the lot but only be entitled to your proportion of the income

That can kill your serviceability.

ta

rolf

 

[Sam_H]

Rolf

Are you absolutely sure about this?
My broker has confirmed (in writing) that this is not the case for my situation..which is...

I have purchased an apartment with a family member -50/50

We split everything

Hence I would expect that Im not liable for the whole loan (only my 50% share)

If for some reason a bank decides that I am liable for the full 100%.....then can't I then say that the value of the property is then 100% of the value (not 50%)?

Cheers

Sam

 

[timwr]

Hi Sam,

Can you tell me what documentation you used to guard against disputes, suitable lawyers, possible disputes and clauses?

Thanks

 

[silas]

Hi Sam

In buying property with friends we each got our own loan for our portion which limits our liability however even with this we needed to guarantee the other loan for them to get it.

Silas

 

[Sam_H]

Tim

I purchased a property with my partners father.
We did intend to get our solicitor to draw up a guard against dispute but havent at this stage?
All works well....a bit fiddly though....we have 2 loans in both our names
So we have an agreement I that I pay one (I/O) and he pays the other (P+I)

Our long term plan is to told on for at least 5 years and then discuss what we want to do



cheers

Sam

 

[Gill Bates]

A guy called Geoff Diodge has some information about joint ventures

re joint ventures , look at
Real estate joint ventures: divide and conquer
aca.ninemsn.com.au/stories/1070.asp
and
Chat transcript: Geoff Doidge and Tania Smith ..... look at the 12 keys to great JVs (joint ventures). ...
www.financialsuccesssystems.com/ ACArenoqueensChattranscript.htm


I think there has also been a articale in API magazine

 

[Rolf Latham]

Hi Sam

Unless your loan is secured against another property you are in all instances that I know of "jointly and severally liable" for the whole debt.

Im often wrong but never in doubt, I suspect that if the other party defaults on their part of the loan and YOU dont make up the difference they will recover the property and YOU will have a default on YOUR file.

This is called a contingent liability - it doesnt exist in full but may arise. Under the Consumer Credit code the lender is obliged to take into account contingent liabilities, and yes its an investment loan so the code doesnt apply to that loan but thats not the point here.

Ta

rolf

 

[Gill Bates]

Off topic , but

re
>> and yes its an investment loan so the code doesnt apply to that loan but thats not the point here.

a banker once asked me to sign a form , that when i asked him what its purpose was his answer was "it signifies to the bank the type of lending " ie that the loan was for business/investment and not ppor. My exact question was "what is the significance of this form to me.?" I discovered its true purpose later on, its purpose was to indicate that the loan was not under the CCC. So I consider his answer , quite misleading, since he would have known its purpose was , and its relevance to the ccc. Now , i say to any lenders , that any paperwork i am to sign , i need to have had to time to fully read and review, at least 24hr. Some of them object , because it involves a bit of extra work , but they always agree in the end

 

[Propertygal]

Just make sure that you have a well documented Joint Venture agreement in place, drawn up by your solicitor, so it is legally binding. It needs to document the percentage of any profit / losses each partner is entitled to and how that will work. It needs to document your strategy for the property (if development, then buy /build / sell / hold etc) and it needs to have a clearly laid out exit strategy, so if things go pear shaped, you know exactly how to exit the arrangement, based on the agreement, hopefully with relationships still in tact!

 

[nhg]

As above, you will be liable for the loan. eg. bank wants to make sure they get their money back if one of your partners nicks off.

From experience, unless the plan involves selling the property after a short defined period of time, and the rules have been put on paper (all the what if's, how much you will sell for, what if it doesn't sell, what if someone gets divorced or dies, etc), i wouldn't invest with a partner.

If it is a buy-hold strategy or some variation thereof, i definitely wouldn't do it. Life tends to happen and a change of circumstances could create issues with the venture.

 

[thatbum]

From experience, unless the plan involves selling the property after a short defined period of time, and the rules have been put on paper (all the what if's, how much you will sell for, what if it doesn't sell, what if someone gets divorced or dies, etc), i wouldn't invest with a partner.

If it is a buy-hold strategy or some variation thereof, i definitely wouldn't do it. Life tends to happen and a change of circumstances could create issues with the venture.

+1 for this. The only time I considered a joint venture was a plan to buy, subdivide and sell after a year. And we had laid out how it was to work in regards to any disputes etc.

In the back of everyone's minds was the knowledge that our serviceability would be gimped for the duration of the joint loan, so there was some definite motivation to get in and out of the venture.

 

[geoffw]

Bear in mind that the original post was over ten years ago, and the OP hasn't visited the forum (under that name anyway) for three years.

I'm not sure why such an old thread has been suddenly resurrected.

 

[nhg]

I'm not sure why such an old thread has been suddenly resurrected.

Over enthusiasm my dear Geoff.

 

[Colin Rice]

Bear in mind that the original post was over ten years ago, and the OP hasn't visited the forum (under that name anyway) for three years.

I'm not sure why such an old thread has been suddenly resurrected.

Maybe someone needs to hear it again?

It would be a rare and special circumstance for this little white duck to be involved in a JV especially with friends and family members

I have done it once with the mother in law in the distant past (more out of ignorance than wisdom) and we are still on talking terms if you call the occasional grunt from me talking

 

[nhg]

I have done it once with the mother in law in the distant past (more out of ignorance than wisdom) and we are still on talking terms if you call the occasional grunt from me talking

I only just learnt how to talk to my dad again without it escalating into an all-out yelling match. We are good now. Thankfully.

Other than on the rarest of occasions,
Family and business, DO NOT MIX.

Why risk it.

 

[Deltaberry]

I've purchased properties with friends before and planning to do with the same friends again soon.

What's important is:

- Personality (probably the most important thing in partnering with anyone. How easy going is this person? Are they a swindler? Will they call you up at 12am to ask what's happened to their money? I probably reject deals more often because I don't want to partner with the person. Anything can be worked out if your partner is a good bloke. No water-tight document will protect you if you've gotten into bed with a troublemaker/selfish person)

- Objectives (is this a once-off? Or do we have common goal? What's the big picture? This is the second most important thing for me)

The rest is all secondary.

 

[Redwood]

Hi Sam

Unless your loan is secured against another property you are in all instances that I know of "jointly and severally liable" for the whole debt.

Im often wrong but never in doubt, I suspect that if the other party defaults on their part of the loan and YOU dont make up the difference they will recover the property and YOU will have a default on YOUR file.

This is called a contingent liability - it doesnt exist in full but may arise. Under the Consumer Credit code the lender is obliged to take into account contingent liabilities, and yes its an investment loan so the code doesnt apply to that loan but thats not the point here.

Ta

rolf

I agree ROLF