Hi all, general question regarding the finance of a joint venture.
If i was to go 50/50 with someone on the purchase of a property, and we were each using different banks to finance the purchase, will my bank lend me only 90% of MY half share or, will they lend me the total of my half share ?
What implications if any would this involve, in regard to tax, borrowing ability for the future, and is the stamp duty split 50/50 too, or does it depend whos name is on the title ??
thanks heaps
natalie
You would have to have a bank that allows 2nd mortgages over property. Some banks ie NAB will only take a mortgage if they are 1st. Others such as CBA can go second mortgage.
Why wouldn't you use the same bank. It is a much easier process.
And it depends how you go 50:50
jojnt tenancy
tenants in common
50;50 shares in a unit or discretionary trust
or company purchase. Each have their own pluses and minuses occurring to your goals
What is the aim of the "joint venture "?
thanks wilko,
Its not a real scenario, im just trying to get my head around it abit better.
i guess im looking at it from the point of view of whether something like that would be an option in the future. We have limited capital, and I guess the aim of a joint venture would be so it still allows us to invest without having to contribute as much of our own funds. it would be for a reno/sell/ chunk deal that would allow us to increase our investing kitty.
so will banks still only lend up to 90% (generalised, i know some will / wont go higher) of the value of the property that the loan is secured against ??
ie /
property 400k
90% lend $360k
person A loan: $180k
person B loan $180k
or will banks that allow a second morgage let you borrow 100% of your half share ?? Or would that depend whether or not the JV partner had a loan secured against the property too ??
hope that clears up my thinking
Banks will only lend if they can take a mortgage over the property. If there are 2 people on title then both must go on the mortgage/guarantee otherwise the bank will have trouble recovering the property if you default.
Although second mortgages are possible you will not find a lender that would allow what you are proposing. There will need to be one loan with both names at the same bank, or 2 loans with both names – then you can work out an arrangement where 1 person treats loan 1 as their portion etc, or 2 loans one in each name with the other person guaranteeing it.
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
In general lenders won't take 2nd mortgages except in some exceptional circumstances. So you would need to take out the loan with the same lender for that particular property as security.
Depending on the circumstances, the lender may allow up to 95% of the property value. Obviously you and the other party would need to meet the lenders policies and serviceability. Now how you decide to split the overall structure depends on the agreement you have between yourselves.
In terms of tax (assuming it's an investment), it all depends on who is on title and the percentage of the property owned. The same ratio is then used for deductibility.
For future borrowing capability, a lot of lenders will take the full debt into account (even if its a 50/50 split) as they see you as jointly and severally liable, and only half the rent.
Cheers
Tom
I would be looking at lending at %80 not at any higher as well if your strategy was to buy/renovate/sell for a couple reasons
– at 80 percent you have a greater chance of just getting a desktop valuation over a valuation where the valuer comes into the property.
– that becomes a problem when you a trying to buy a property that requires work. Ie bad smells, missing kitchen, holes in walls and doors and treated badly over the years. A number of things can deem the property to be unlivable which means it would get valued at land value.
– if you are at above 80 % ie 80-95 %. It becomes the lenders mortgage insurance responsibility to give the final approval. And if your missing a kitchen the answer will be no. (A kitchen is defined as a oven and sink)
just something to aware of.
Hi Natalie,
We have a lender who specialises with investors which can do split loan in you own name, hence you are only responsible for that debt but it is secured on the same property, but we would need more info to see if you qualify. I would hate to mislead you.
Oh.. have you thought of investing in a unit trust structure? There are other benefits here too.
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