I currently own a property worth around $450K and have a mortgage of $290K. I intend on living in the current property and am using the equity to purchase an investment property with a 2nd party at a cost of $370K + $20K fees. We are splitting the costs 50/50. My net income is around $70K annually. Rental income will be approx $300wk total which will also be split. We expect a property value increase of 5% per year. Any advice on whether this is a good financial investment???
Expected result of a joint property investment??
= tears
Unless you have in writing an agreed plan on what to do when:
– one person needs to bail on the investment
– how the property will be valued if one party wishes to buy out the other. Who pays the stamp duty on transfer of the title into one name and the associated costs – is it the buyer or the person wishing to get out
– the investment holding time if all goes well
– how a decision will be made to sell
– who is going to be the primary contact point for day-to-day management of the property
– what type of legal structure will be employed
– is it to be a single mortgage in joint names or two separate mortgages.You will probably not be able to borrow against the property in the future to make more acquisitions because you do not own it outright, therefore a bank won't lend against it if you wish to purchase an investment on your own.
People make successful joint investments all the time, but only when they approach it professionally and structure themselves that way from the start. Mates who, over a beer, say 'hey let's buy a house together' usually end up regretting their decision when one goes and gets married/has kids/goes overseas/loses their job – basically has any sort of life change. I've seen it happen a couple of times.
Why are you doing it and what do you hope to achieve by investing with another person?
I would only do so if I had no other options.
Ciao,
Hi. Thankyou for your reply. The plan is to rent the property for 5 to 10 years and then sell or hold on to it as a family holiday home. The 2nd investor is family. All of the legal issues which you brought up have been covered. I guess my my concern is finding out what my estimated out-of-pocket expenses will be annually after expenses and tax benefits. The mortage will be set-up as 2 separate mortgages.
brc wrote:Expected result of a joint property investment??= tears
Unless you have in writing an agreed plan on what to do when:
– one person needs to bail on the investment
– how the property will be valued if one party wishes to buy out the other. Who pays the stamp duty on transfer of the title into one name and the associated costs – is it the buyer or the person wishing to get out
– the investment holding time if all goes well
– how a decision will be made to sell
– who is going to be the primary contact point for day-to-day management of the property
– what type of legal structure will be employed
– is it to be a single mortgage in joint names or two separate mortgages.You will probably not be able to borrow against the property in the future to make more acquisitions because you do not own it outright, therefore a bank won't lend against it if you wish to purchase an investment on your own.
People make successful joint investments all the time, but only when they approach it professionally and structure themselves that way from the start. Mates who, over a beer, say 'hey let's buy a house together' usually end up regretting their decision when one goes and gets married/has kids/goes overseas/loses their job – basically has any sort of life change. I've seen it happen a couple of times.
My wife & I did not want to stretch ourselves too much financially by buying an investment property on our own. The 2nd investor is also my wife's sister and we will either sell the property in 5 to 10 years or keep it as a holiday home as it is by the water. The reasons we are buying it are to either..
1. Aquire a holiday home to use in future years. If we keep it as a holiday home, we may still rent it out occasionally. We are concerned that with property by the water rising so quickly, we need to buy now or we will never be able to afford one.
2. Make a profit by selling in 5 to 10 years time.As I indicated in another post, I'm really wondering what my annual out-of-pocket expenses will be after all of the expenses vs rental income.
Mortgage Hunter wrote:Why are you doing it and what do you hope to achieve by investing with another person?I would only do so if I had no other options.
Ciao,
Well if it is family and a holiday home type thing then that eases my mind somewhat.
The big disadvantage that you need to understand is this:
Lenders will insist that you and the sister be joint borrowers on this property. This means you will both be liable for the full repayments should the other party default.
Now when you go to borrow funds after this your lender will not use half of the repayments on the joint IP. They will use the full amount for you and the sister. This may make future purchases more difficult than they need to be.
Having said that, property located close to water has often proven to be strong capital growth potential.
All the best,
Hello AdamTR,
I think the advice you are hoping for is something like this.
I suspect that the property you have in mind is not new and has been built a few years ago. I say this becuase a property near the sea in WA is most likely going to cost more than 370k if it is new.
You may be abe to get a Free Suburb Profile which will show you the growth for each year since 2003 here http://www.reports.rpdata.com.au/cgi-bin/vgmsg/RP_Reports/subprofile/rprephome.p?type=1
Whenever considering the possible growth of a property you should understand that there exists a Property Cycle.
The Property Cycle that has occured in past years since 1960 in major Australian cities has seen the value of property increase substantially every 7 – 10 years. In some cases the value of property in major metro areas has doubled every seven years.
The last boom that occured was in 2004, so an expected boom is approaching in 2010/11. At present the market is just coming out of the mid point in the cycle that sees the lowest number of sales and therefore growth. I hope you understand.If the property in new you can claim Depreciation of the building and depreciation of the fittings (Curtains, carpets, air con etc) as tax deductions from the income of all parties applying for the loan.
If it is not new than you can only claim the expenses for the property such as property management fees, repairs etc.
An Accountant can help you to fill out and submit a Tax Variation Form which will allow you to pay a reduced rate of tax from your weekly income, this will improve your cashflow and help you to service the loan.
I hope you find this information Usefull but please do get professional advice.
My office is in Brisbane
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