Hi All, I have a 10% share in a Commercial Property with my brother in law and his brother, and I always have this problem when applying for more finance. I have to explain that although I only owe $70k towards the CP, I have a contingent liability of $600k including my JV partner’s loans, although it is well and truly covered by their securities. I would have to list all of their financials to fully justify that my contingent liability is very unlikely. Do any of you have this problem?
We are about to redevelop part of the CP, with a total cost of about $1M which will greatly increase my liability, but not so much my debt.
I am endeavouring to convince my B in Law to simply obtain an equity access loan based on his $2M or so worth of residential property, and I will do the same with my equity in IP. The CP will then be totally unencumbered, and our loans will be totally independent, with no contingent liability. I know we won’t be taking advantage of the CP equity, but it’s a lot simpler with the banks. Does this sound like a viable solution?
Regards, JimNo answer was the stern reply!
Anyway I just had a quick chat to a Westpac home loans consultant who tells me that you can’t use a loc loan to purchase commercial property, even if it is securitised with residential property. I was under the impression that once the loc is established, we could use it for whatever we wish, but apparently it is in the terms and conditions of the loan that it will be used for private use, shares or property. Sounds like banks just see more dollar signs when CP is involved.Jim
Hey doogs
I thought your idea sounded feasible, but only if you could handle having all that equity tied up, and the CP unencumbered. That’s why I did not comment. I have lots of issues with banks and others credit, as I too have joint ventures, so any new loan involves the bank examining every one of them’s loans etc. Pain in the @#$$
As for the LOC issue, I have never been asked by the bank what I am using the money for when I withdraw it, so I really don’t see what the issue is!!
Cheers
MelThat’s the trouble with joint loans. You are liable for all the debt, but only your share of the rent.
Some banks have conditions on what they will let you use the LOC for. But how are they going to know once you already have it. Weren’t you going to buy some shares as well Jim?
Terryw
Discover Home Loans
North Sydney
[email protected]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 your replies Mel and Terry. Yes I was going to buy shares but now this new development has finally come close to reality. It’s only been ten years of similar maybes! BIL has made such a hash up of the current loan, with the original ratios being mucked up because they paid bits of theirs off. It’s a real pita maths wise. He doesn’t care about his wasted equity because he is so leverage averse, and I thought it would be so much simpler if we each had independent locs. I’d be willing to forgoe the shares investment to get this monkey off my back. Mine is only a minor amount compared to his though. I’m sure I could pay my share of the CP under the bank’s radar, but $1M might attract a bit more attention.
I’ll keep investigating though. At least I would like to see some form of flexible finance, so that we can reduce the debt easily, and redraw it as needed to fit out the remaining shops if we manage to find new tenants (hopefully this may be easier once we get the new development {small supermarket} in). So far BIL has just been letting rent accumulate in an MLC account at about 4.something% which goes against my normal IP philosophy of using 100% offset accounts. I don’t know what’s available for CP though.
Thanks again, Regards, Jim.
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