I have found someone that I would like to enter into a partnership with for property investing. How should I go about this legally. What issues should I be looking into when entering into this kind of arrangement
Don't do it … we are currently in a property dispute with a partner we thought we could trust, money changes everything.
If you really want to do it, make sure you have a partnership agreement in place, talk to your lawyer, prior to any purchase. Make sure your agreement has an exit strategy, how to calculate cost and distribute profit. Who will be doing the administration, will they be compensated etc. What/how the property is to be utilised ie: rental etc (our partners moved into the property without our consent and won't move out or pay rent). Also make sure you have a dispute process and steps for a sale should one partner want out and the other not be in a position to purchase them out. Also consider if one partner wants out, should you purchase/sell the share at market value, or an agreed cost for the first 5 years.
Oh and also if the partner or you are married, make sure divorce settlements are covered and death of either partner
Good luck, this is something I will never be doing again … I'd rather not invest.
I'm sure there is more, this is just of the top of my head. Talk to your lawyer, accountant and make sure you are absolutely certain you have covered as many bases as you can, to protect yourself and your partner, if one of you cannot afford to cover costs etc
Thanks for the cautionary tale. That sounds a nightmare. Your experience has given me a good heads up with discussions to have with a lawyer.
Also look into how you purchase the property; I've seen few basic partnerships from time to time where they just put both names down on the Title. This can cause servicing implications for borrowing when it comes to the next property. It depends on the type of project; I’ve seen people do it through a company or trust as the entity which owns the asset and they own shares in this body. Talk to all three, JV solicitor, accountant and fin broker – one who looks to the future. Make sure they are all happy with the structure.
I would also suggest you don't do it, or try great caution in doing it.
CSRA has some good points, you need to plan for (or either party or their spouse):
– Divorce,
– Death,
– Insolvency
– Tax issues
– Financing
– Exiting
– etceg. Imagine the spouse of your partner goes bankrupt. Her trustee in bankrutpcy could possibly come after your partner's share of the property.
or
You partner dies. His lovechild surfaces and makes a claim on his estate. You may end up with 2 more partners!
or
Your partner's spouse puts a caveat on the property (under family law issues) and you are unable to finance at a crucial time.
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
As mentioned above ,,, take great care in the set-up ie: company, trust, partnership etc
We used a trust, which is administered by a partnership, and found we could not split the mortgage 1/2 an 1/2. So we have one mortgage which both partners are guareentors for.
This is now a problem and hinders our finance options, as in the banks eyes, each partners owes the full amount.
My story is a great one of how not to do it!!!
and it was all under the advise of our accountant (who is no longer our accountant) and our banker who did not know that the complication regarding the trust and being unable to split the mortgage.Please talk to everyone you can, and maybe two of each, before you buy anything. I wouldn't wish our situation on anyone!
Hi Jo,
Some great advise for you. CSRA and Kent are spot on with the points they make about what to look out for and what you need to think through.
You particularly need to be careful around how you structure your joint venture from a finance perspective. Like CSRA says, be very careful with your structure because you don’t want to not be able to split the mortgage. You definitely don’t want to be jointly and severally liable for the full amount of debt you take on as it will impact your ability to make future purchases either within or outside of your syndicate.
Investing with friends is not for everyone but it can work. I’ve been involved with 3 syndicates. Two have been for property developments and one is for long term buy/renovate/hold purchases. Although there have been some trying moments, for me they have never proved insurmountable.
Like CSRA says, a comprehensive legal agreement is a critical component as it goes a long way towards managing everyone’s expectations around all the “what if’s”.
I’ve written a step by step guide to setting up a property syndicate which might help you make up your mind as to what your next step should be. You can request it off my website. Best of luck. I think if you have a strong relationship with your partner(s) and take the time to negotiate a solid agreement you will have put yourself in a great position to make your venture a success.
and it was all under the advise of our accountant (who is no longer our accountant) and our banker who did not know that the complication regarding the trust and being unable to split the mortgage.
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