I was just sitting thinking as I often do, a friend of mine is urgently trying to sell her house here in Perth as they have already purchased a home in Queensland. They need a minimum of $385,000.00 for their home.
Now what if I could find 10 people to go shares in the home, well 9 including myself as I am very impressed with this home.
It would work out $38,500 ea plus sales costs, the house is currently going through a realestate but that contract runs out in 1 month then may be able to buy privately if that is better.
I am not certain how I would go about it as I am new to the realestate game, I only have my own home which I bought back in 1992.
Could anyone give me advice on whether it is a good idea/bad idea.
It would be rentable at around $250/$300p/w I believe.
Do you think 10 shares is breaking it down too much, I mean people could buy more then 1 share I suppose.
And how would I work out breakdown of the rent to shareholders or would I be better to just collect it all in one account joint in 10 names.
So many questions, I need some answers either positive or negative is fine.
Jenny[blink]<edited>, 10 people will be hard to manage. And the profits will be so low, will it be worth the effort? If you do go ahead, probably best to look at a unit trust type structure where there are 100 units and each person owns 10 units. You will need a written agreement on how the expenses will be paid and the rent distributed. eg what if you are doing all the management side of things, do you get an extra bit of the income? And then what happens if one person wants out? Can they sell their share to anyone or should the members of the deal have the first option to buy. If they do, how will it be determined if 9 want to buy one share? Will it be even, or a ballot type arrangement. What happens if one of the unit holders goes bankrupt or gets a divorce? This could drag the others into a legal battle trying to defend themselves. And what about the equity, what if one or more want to access the equity, who will guarantee the loan etc
Lots of things to think about. It may be a good idea if short term, but if long term there will be many potential problems.
Terryw
Discover Home Loans
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Yes Terry there would be a lot involved. I think the unit idea is a good way of going as you said.
I had sort of worked it out as 13,000 income a year (at $250p/w rental), minus $3,000 for rates and such would pay $1000 p.a each.
Yes priority would have to go to current shareholders (for want of a better word), with the value reassessed every year maybe.
If they wanted to pull out they would be paid their initial investment if during the 1st year then perhaps after that, their percentage of the current value of property.
Like I said I am just throwing the idea around.
I would be tempted to get 2 shares straight away, only because I trust myself, lol.Another thought would be to not pay yearly dividends but to give loans to shareholders from the monies collected at a low interest rate up to their value in the project, that way if they don’t pay it back it is taken from their share of the property investment and broken down between the remaining shareholders.
So then it would need to be set out as say 1 unit for every $10 spend as an example.
Try to not get new people in on it at all, so shareholders can pay as little as $10 for a share when someone pulls out, if you get my plan.
I am not terribly up on finance, but am facinated by it.
JennyWhy don’t you just buy it yourself?
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Because I can’t afford it by myself, like many others out there.
Like I said before, it was just an idea and I wanted to get feedback as to any other ways.
At present here in Perth rental houses are so hard to get, they have started a bidding war, so the highest bidder gets the house.Why can’t you afford to buy a $385K house with strong rental growth? Has a banker or broker told you that or is it a belief you hold?
Simon Macks
Residential and Commercial Finance Broker
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
If you buy property for cash, it may lose some of its attractiveness as an investment. Property is usually considered a good investment because it can be geared. You might be better of just in shares.
Terryw
Discover Home Loans
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Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
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Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Yes Terry maybe you are right, thanks for the feedback.
Mortgage Hunter –
Yes I know myself I cannot afford to invest fully in the property at this point of time, I am a sole parent and have just bought a second-hand clothing business so am surviving on minimum income at present. I have a line of credit on my home which I am keeping to a minimum.Im very new to this but im giving it a go. It seems to me that a 385k investment to return 250/300 rent only is not a good return
nadiaz, it may also depend on other factors such as capital growth potential.
Terryw
Discover Home Loans
[email protected]
Send an email to get my newsletter.Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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