Taking the Plunge

P

pauls51

Hello All,

After lurking through these forums I have managed to learn quite a fair bit and for that I would like to thankyou all!

Apologies for the newby post;

What are peoples experiences with going 50/50 with another sibling in an investment property? The reason I ask is that the wife and I are going halves with my sister...
My main reason for this is that by combining our borrowing capacity with that of my sister we're able to look at suburbs closer to the Melbourne CBD.
We are looking at Footscray at the moment, this is due to the fact that, it is 6k to the city and is still somewhat afforable. Also the $$ the government are investing there, makes it look even more attractive...
Our budget is the 480k mark... We are looking at a 2 bedroom unit.. Are there any area's worth looking at before going ahead with Footscray?

I tell you what though, it is fairly daunting doing this for my first time!

Thanks

Paul
 
If you invest with another person, you take the risk that your priorities become different. e.g. in the future your sister has trouble making payments, wants to sell to fund something else (holiday, wedding, business, other investments, etc), has a different opinion about growth prospects, etc etc etc.

You have to consider the possibilities, how likely they are, and whether you're willing to take the risk.
 
I have known the strategy of investing with someone else to be very successful, and also for it all to end in tears and disputes.

The first thing you have to do is sit down and work out an exit strategy. What if one party wants out at a low point in the RE cycle?
If one party wants the other to buy them out, what valuation system will you use?
What if one party loses their job and can't make the repayments?
Are you both prepared for the fact that this joint venture will restrict future borrowing?
Have you sorted our your finance?

These arrangements are always entered into with the very best of intentions, but life has a way of throwing curve balls at all of us, usually at the most unexpected times.

It is not easy to unscramble eggs, so I suggest you have a very clear "way out" strategy agreed before you invest, definitely in writing, preferably prepared by your solicitors.
Marg
 
We have relo's who bought 50/50 some time ago.

Now one lot wants to sell out to unlock capital, the other ones want to keep it for rental income.

The ones that want to keep it can't afford to "buy out" the other half.

Bad blood one the way....

The Y-man
 
Without knowing details about your relationship with your sibling(s) I would say it would be an ok idea provided you agree on all things mentioned by the earlier posters before hand. Provided you both are clear that this is an investment and as such it should be treated like a business and that you set out some rules then if it can help get into the market it is not a bad idea.

While I personally would not feel it necessary to put it in writing should I choose to invest with a sibling it may be a good idea for you to put down your agreed stategy/rules in writing. Even then minimised heartaches are not guaranteed.

My 2c :)
 
I'd suggest a solicitor-drawn-up contract, including exit strategies - even if you all get on extremely well (things change when a lot of money is involved)
 
If your interests/priorities diverge, you're in for major heartache and pain. My stance on business partnership is not to take on a partner unless you absolutely need one. Sure, you can improve your profit making potential by a few percent but your overall risk goes up many times that. If you want to sell and they don't or vice versa, you have problems. If they become financially distressed or vice versa, you have problems. If they are forced to sell by some twist of fate or vice versa, you have problems. If they gift/will it to someone else, you inherit a swathe of potential problems. If the partner is family, multiply heartache by 10. If it were me, I would forego buying an expensive property with a partner and buy a cheaper one on my own.
 
Thanks for the advice so far....

I have had a chat to her and we both agreed that a contract will need to be drawn up that will include our exit strategies based on several scenarios occuring.
 
Try to avoid partnerships with family if possible. Deltaberry's advice is very sound because it will just become a lose-lose situation.
 
While I was researching today under what circumstances blocks of land could be negatively geared against other income I learnt something wrt joint ownership.

If you do decide to go that route make certain that you each assess your tax positions. It may be that a 50/50 split is not the best for both of you.

It is unlikely that you both have the same incomes and if that is the case a 60/40 or 70/30 might be a better proposition. Check before you do anything as it will be difficult to change later without an acrual of capital gains liability amoung other issues.

I should say (at the risk of flogging a dead horse) I reckon negative gearing is not a particulalrly flash policy idea and worse learning today that legitamate development as an individual is less likely to allow it then simple buy and hold loss making properties was pretty disappointing but I can understand the benifits to an individual of using it particulalrly when combined with the concession on capital gains.
 
Wunderbar said:
How can you negatively gear blocks of land? There's no assessable income...
Click to expand...

You can if the intention is to build a rental on it.

Thats why I asked in the other thread (tax / accounting) how long you can get away with it for assuming you do intend to make it into rental accomodation.

No takers it would seem though so clearly a contentious area.

Edit:

As I see it buying say a development block where the intention is to actually capitalise on it heavily enough to make a positive income from it is a legitamate time to negative gear in a philosophical sense. Buying a loss making venture on the other hand which is likely to remain loss making for several years seems less so. Ironic that it is more difficult to negatively gear on the one where you actually intend to make income beyind interest payments from it in the shorter - say 3 to 5 year term.

Sorry Edit 2: Negative gearing comes off your non investment income. In theory if just having an income was the hurdle you could sell the grass mown off it as feed stock and then negatively gear your block of land.

I am thinking but far from 100% sure that applications to council etc would all class as evidence to show you intend to develop it? Spending some money on surveys and studies would be another way I guess.
 
Nah the test is whether the property in question will produce assessable income when you bought it (i.e. rent). Since the empty block of land can't produce any income of itself - you can't claim negative gearing
 
tom32 said:
If you do decide to go that route make certain that you each assess your tax positions. It may be that a 50/50 split is not the best for both of you.
Click to expand...


Before I make my decision I want to cover all my bases, so that includes the Tax benefit each of us would get...

Once we have crunched the figures then I will feel more confident as to whether or not we can or should go ahead...

Again thanks to all for your advise thus far... My advisor is away for the next week so will keep you updated on how things are progressing
 
Wunderbar said:
Nah the test is whether the property in question will produce assessable income when you bought it (i.e. rent). Since the empty block of land can't produce any income of itself - you can't claim negative gearing
Click to expand...

Are you sure, or are you using common sense / logi with the knolwdge you ahgve to come to a conclusion ?

It has been suggested that what you have said not entirely accurate before, which is why I'm asking......
 
Wunderbar said:
Try to avoid partnerships with family if possible. Deltaberry's advice is very sound because it will just become a lose-lose situation.
Click to expand...

it can work but all depends on your relationship with the family members and their understanding of financial matters etc. if everyone is reasonable and understands what they are doing it can work

ive got partnerships with family and have for a few years now, no problems but we're an exceptionally close family and very open with each opther when it comes to finances. i do agree though that things can quite easily go pear shaped when it comes to such deals
 
pauls51 said:
Thanks for the advice so far....

I have had a chat to her and we both agreed that a contract will need to be drawn up that will include our exit strategies based on several scenarios occuring.
Click to expand...

Hi Paul,

That's a sound plan of attack. Working through your exit strategy and all the what if's is a crucial step to take before you decide to move ahead with your strategy.

As plenty of contributors have noted there are risks involved with investing with family or friends but these can be managed if you put the time in to work through all the scenarios and make sure everyone has the same expectations going into the venture.

At the end of the day you need to decide whether it is better to have 100% of nothing, or in your case, 33% of something!

If you would like a hand to cover off what issues you should consider and some advice on what type of contract to use I'd be happy to have a chat...
 
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