Hi,
I am just looking for some advice on the best structure to use for investing for a group.
The basic idea is that there are 3 of us who are looking to pool together our funds. 2 of the investors will be active and will be searching for properties. The other person will be a passive investor and just will input some money.
The 3 of us involved are not related but all have similar goals and ideas on what to invest into.
We are pooling our funds to ensure we have enough cash for multiple properties to share the risk rather then have it all riding on one property each.At this stage we will all be investing the same amount but that may change in the future.
I assume the best structure would be a unit trust which is run by a company on which we are all directors (own 1 share each).
Can anyone else provide some guidance and any heads up on pitfalls/expereinces others have had before we travel down this road too far.
Thanks
This will depend on a lot of factors.
Probably a fixed unit trust with a company as trustee. There should be only 1 director – why have more than 1 when not needed, it just creates extra risk.
Each person can have their nits held by a discretionary trust if they choose.
You must consider a whole load of things before setting this up though. The most important being finance – if you cannot get a loan in the structure then there is no point.
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
Terry is so right.
Be suprised how many times we get deals put to us where the clients have gone down the route of setting up expensive structures (usually recommended by their Accountants) only to find finance is not achievable within that entity or if it is lenders treat it as a commcerial deal or want to charge higher interest rate or impose higher fees on the deal and then you need to think twice about the project viability.
A lot will be determined by your overall strategy as to whether you intend to hold the properties for the long term or are looking to renovate and move on / subdivide etc.
Also believe it or not the name of the Company can be important in getting finance.
If you call the Company XYZ Development Pty Ltd or similar then lenders will often refer this to a specialised department who look only at development deals even if you are only buying a single dwelling. Choice a name that does not give the lender the idea that this is a get rich quick scheme.Other consideration is the borrowing capacity. Whilst i agree with Terry a single Director maybe the way to go the other 2 partners are likely to be called upon as co-borrowers to increase serviceability. This then brings with it issues on relation to Joint & Several liability especially if there are wives, partners involved.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
The advice of one director is a good one for guarantee reasons. But in reality this may not always be possible.
And it may not be acceptable to the other 2 as the director is the one that controls the company. But worth considering.
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
Thanks for all the responses. It was very high class information you guys provided. It gives me a few things to look into before we take any steps forward.
Thanks.
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