Dearest Everyone,
I am looking for a little advise or precedents from anyone who has formed a syndicate (long time friends) to purchase property to renovate and sell. I have two other people in the syndicate with enough funds to secure about $300k, we were thinking about an Interest only loan to repay the debt. Brisbane and surrounds are are target market. Any pitfalls or tips that can help would be appreciated.
Cheers
Colin
You will no doubt receive advice on the wisdom of doing a project with friends.
I will mention ownership and finance.
You need to consider whose names it goes into.
All three so you have each a registered interest?
In the lowest income earners name only so that any CGT is calculated at the most favourable rate.
In the name of whomever doesn’t own a home so that he may occupy it and avoid the CGT plus perhaps getting the FHOG?
In the second two options the other parties may register a caveat for a measure of asset protection.
If you can each seperately raise a third of the purchase price then you will not need a loan against the property. ie you each draw $100K from a home loan etc
If you all own the property and the property itself is used as security for a joint loan then understand that you will each be liable for the whole amount. This could leave one or two of you carrying the whole interest load should the partnership fail. It will also mean that should any one of you go for another property loan then you will be assessed as having the entire debt as a liability.
I don’t mean to rain on your parade – just raising some points for your discussion!
Simon Macks
Mortgage 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.
I’ve done this twice. first with a PPOR in a country town where rental accommodation was scarce. Two other single people and i purchased a house. We had an agreement about getting out. We did not use the house as security and each did our own borrowings. After one year one person, a teacher, was transferred and the other person and I bought her out. Then some months later the other guy got engaged and bought me out.
Then a few years later I and two other friends bought a block of land together initially with the view to paying it off and building some flats. A few years later our plans had changed and we sold the land.
In both cases we were structured so that the finances weren’t a strain on anyone so that even when we decided to sell the land wwe did not need to sell quickly.
Renovating for a profit might cause some additrional issues. Are you going to do the work yourselves? If so, how are you valuing time? There have been one or two articles in Australian Property Magazine on the pitfalls and benefits of working in a group (in 2002 I think)
Hi crj,
How did you work out the price at which each party was bought out? Did you get a formal valuation done (or just an appraisal by an R/E agent)? Or did you just do your own research to come up with a back of the envelope figure? Or was there a formula?
Also, was there some argy bargy about the dollar amount before you agreed on the price?
I’m always interested to find out the different ways in which people deal with the most sensitive of things – price.
Cheers
Elysium-MDIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
Elysium-M
We had a clause in the contract on how it would be calculated and what would happen if there was disagreement, but just relied on a real estate opinion. No major change in prices had occurred
crj
Thanks crj
DIY Residential Property Settlements in WA – the book coming soon! When I can get my act together…
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