USING OTHER PEOPLE'S EQUITY

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From: Steve Hadfield


My business partner and myself have recently purchased a Home and Land Package for investment purposes in Sydney. While construction on it is about to commence we are a little frustrated with our inability to secure further deals due to our low equity position. Finding the deals is not our problem. Coming up with the money is!!!!

We know people who we could approach with a view to using their equity. How could this be done?

1. Would the equity partner need to lend us their LOC (presuming they have one) which could then be used as the deposit? I am presuming that there would be no need for them to appear on the loan or property title?

We would be prepared to pay them maybe 10% interest on the amount they loan us, plus a lump sum out of the profit of the deal.

2. Would a better approach be to bring them in on the loan and property title, with the bank using their equity as security?

Maybe someone has a better suggestion. I would welcome your thoughts.

Regards,

Steve Hadfield
Director, Hadon Developments Pty Ltd
A.C.N. 085 154 187
 
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Reply: 1
From: Rolf Latham


HI Steve

I like number 1 very much. Clean seperation is possible here. With mixed titles things get really messy.

Ta

Rolf
 
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Reply: 2
From: En-lai Chan


Hi Steve,

How about using the equity partner's equity to obtain a bank guarantee or a deposit bond to secure the deal that you've sourced with an agreement that you will pay the equity partner a certain percentage of the equity that you are using. For example, if the equity partner used his/her equity to obtain a bank guarantee of a deposit bond worth $30,000 to secure a $300,000 property (10% deposit), then if you agree to pay them 10% for the use of the equity, at settlement, you just pay them $3,000. To the equity partner, because it is only a deposit bond or a bank guarantee, there is no need to actually hand over $30,000 in cash and it's an infinity return to him/her, as it is money in return for signing a few documents.
Of course, you will have to enter into a JV agreement and convince the equity partner that the deal is good and perhaps allow the equity partner to take a charge over some of your assets should you fail to settle and the vendor calls upon the deposit bond or bank guarantee.

Hope that helps in some way.

Regards,
En-lai
 
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Reply: 2.1
From: Anonymous


What happens to the equity partner when the music stops.

Not the sort of dance I would like to tango to.
 
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