All Topics / Help Needed! / 3 mates – what structure

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  • Profile photo of kezza111kezza111
    Member
    @kezza111
    Join Date: 2012
    Post Count: 2

    Hi – tried to do a search without luck – sorry if this has been answered many times before. 

    I am one of 3 best mates.  We have a little bit of money saved up together and would like to buy a property together (this year, another next year and so on).  We don't want to buy it as a house in three names.  We want to buy it as a business – like a trust or a company.  It would be a CF+ purchase with potential for capital gains (but not for a few years in this climate).  Each of us has a job – with a taxed salary.  So – does anyone have experience in buying a place with your friends?  What would you suggest. 

    Finally – we all fully trust each other – closer than brothers for the last 20 years – living together etc… 

    cheers

    Profile photo of Steve McKnightSteve McKnight
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    @stevemcknight
    Join Date: 2001
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    Hey Kezza111,

    A good accountant would come in handy, and a lawyer too.

    Accountant

    A unit trust will probably be the structuring weapon of choice, as it gives each of you a fixed interest.

    You can even have the units owned by a family trust if you want even more structuring options.

    Each year you each get your share of the income and declare what you receive on your income tax returns.

    Lawyer

    You will also want to add in a good heads of agreement about how the property is going to be managed, valued, what happens if someone wants to sell, etc. All might be good now, but change is the one constant you can depend on.

    I can't recommend highly enough the wisdom of 'finite period and finite outcome'… that is, nominate the time and money outcome you want coming in.

    Sadly, when money is involved, even the closest friendships are often sorely tested.

    Operational

    From an operational perspective, you might want to consider paying interest on the money you each contribute which (aside from the purchase of units) will be treated as a loan. This keeps it fair.

    All the best,

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Jacqui MiddletonJacqui Middleton
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    @jacm
    Join Date: 2009
    Post Count: 2,539

    Do look into this before you jump in, or when each of you goes to try and make your second IP purchase you might get a shock on your serviceability calcs which will affect how much you can or cannot borrow.  In many cases, all three of you will be considered responsible for the entire loan should the others default on their portion of the payments.  So even though you only own a third of the title, you will have all of the responsibility.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

    Profile photo of kezza111kezza111
    Member
    @kezza111
    Join Date: 2012
    Post Count: 2

    Wow Steve, very fast reply- thanks.  You really do sit on these forums ready to contribute.  It's really appreciated (have lurked for a while). 

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    What can I say… I'm an addict!

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    Yeah, good point JacM.

    Perhaps trotting off to see a mortgage broker about getting a non-recourse loan is worth the effort.

    The LVR will be lower, but the peace of mind higher.

    Then at least the issue of personal guarantees can be taken off the table (which the lender would otherwise probably want).

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of TheFinanceShopTheFinanceShop
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    @thefinanceshop
    Join Date: 2012
    Post Count: 1,271

    Hi Kezza,

    Steve has provided some excellent advice and has well and truly hit the nail on the head in the process.

    Speak to a good accountant to give you advice on how to best structure the entity – don't forget to discuss long term plans such as transfers of owenrship and negative gearing benefits. 

    Regards

    Shahin

    TheFinanceShop | Elite Property Finance
    http://www.elitepropertyfinance.com
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    Residential and Commercial Brokerage

    Profile photo of LilianWALilianWA
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    @lilianwa
    Join Date: 2012
    Post Count: 14

    My son did something similar with his friends and it didnt quite pan out well so just be careful Kezza

    Profile photo of SMSF101SMSF101
    Member
    @smsf101
    Join Date: 2012
    Post Count: 49

    buying something shared by three different person are really have to under goes legal processes i hope it will flourish then you can buy something that you can tag as yours :)

     

    Profile photo of Jacqui MiddletonJacqui Middleton
    Participant
    @jacm
    Join Date: 2009
    Post Count: 2,539

    At kindergarten you are taught to share and play nicely with others and everything will be fine and dandy.  And it is easy for this rule to hold true when the only thing at stake is who gets to play with the red plastic shovel in the sandpit.  Don't expect things to be quite so easy on the matter of sharing finances or property with others.  You're proposing to play in a much bigger sandpit and the decision you are proposing to make could easily slow your early retirement plans by a decade.  Bet you don't feel like sharing with your buddies now huh!

    I say go it alone with your purchases.

    Jacqui Middleton | Middleton Buyers Advocates
    http://www.middletonbuyersadvocates.com.au
    Email Me | Phone Me

    VIC Buyers' Agents for investors, home buyers & SMSFs.

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