Hi,
My friend and I bought a property together 18months ago for $300k and we have just had it valued at $380k. Our joint mortgage on the property is $270k.
I want to buy another property ASAP and am hoping to use my portion of the equity as a deposit for the next place. I need some advice as I’m hoping to buy within the next few weeks.
Can someone please tell me how I can access 50% of the equity in this property so I can buy a place on my own?
Cheers
Rex
You will need to lodge a joint application with your friend to access the equity. You would also need to seek legal advice if you are going to be using these funds exclusively for your own use as your friend will be liable (called joint and several) for this debt if you default on the security the funds are borrowed against. Same applies to you if you default towards your friend.
You will also need to be aware that with the majority of banks will assume worst case scenario that your friend will default on payments and you will be responsible so will be entered into the new banks servicing calc as the full debt and only half the rent. You may fail servicing as a result depending on your circumstances. You may be stopped in your track sooner than necessary as you move forward in your journey. Your friend would need to be aware of this as well if they intend purchasing more properties in the future.
There are a couple of exceptions to the above with some banks. Speak to an investment savvy broker about this as it is important to “future plan” so you dont get any nasty surprises. There are a few good ones on here :)
Can I ask why you went halves with your friend in the first place?
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This reply was modified 8 years, 2 months ago by
Colin Rice. -
This reply was modified 8 years, 2 months ago by Colin Rice.
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This reply was modified 8 years, 2 months ago by Colin Rice.
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This reply was modified 8 years, 2 months ago by Colin Rice. Reason: bit rusty on the editing options :)
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Colin has hit the nail on the head and identified the many issues with joint ownership of property with non spousal partners – there’s so many gotcha clauses and negatives which limit the long term potential to grow an investment portfolio.
The basic TL;DR is that you’re going to have your friend as either a borrowing co-applicant or guarantor, in either case leaving them liable for the debt just as much as you if something goes wrong. This ownership then flows through to your borrowing capacity, as you will be seen as liable for all debt but only 50% of rental income with most lenders – destroying your long term borrowing capacity. The common trend I see with investors with joint ownership like this is after realising the actual issues, end up either selling the property or removing the joint ownership by buying out the other party or selling their share – trigger tax, stamp duty etc. This can be costly, but sometimes pulling the bandaid off is better than having an ongoing issue hanging over your head for the next 30 years.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
Get your mate to apply for a loan with you or to guarantee your loan.
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
Ok thanks Not the best news…
Last year we noticed an opportunity to purchase a property below market value but neither of us had enough deposit at the time so decided to buy it jointly.
So if I want to use 20k equity from the house I own jointly with my friend to buy a $200,000 property on my own are you saying my friend will be liable for only for that 20k or for the entire amount of my new loan for the 200k property? Just trying to get my head around the implications of joint ownership.
Cheers
Rex
Rex – it depends how you structure it. Generally they will be liable for any loan they are a part of or any guarantee they give.
If you go to a separate lender for the new loan and get the loan in your name only (or without them) they they cannot be liable for this.
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
Thanks Terry. So can my friend and I approach the current lender and release some equity, say $60k, then I can approach another lender and simply use my portion of that $60k as a deposit for the next property? That way my friend and I would only be jointly liable for the 60k equity release and would not have any interest in any subsequent purchases we make individually. Is that how it works?
Yes Rex, that is 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
What is the best way to own/buy property jointly? Is there a way of structuring it so it is possible to own property jointly without negatively impacting on the borrowing capacity of each co-owner in the future? Can some kind of legal structure be set up (trust or company) that be more suitable?
Best way would be to pay cash or to borrow against other property. But this is not possible for most.
If you use a trust structure personal guarantees will be needed. There is a way to structure it so that only 1 guarantee is needed – and it thereby affect only one, but whether this is suitable or not will depend on other factors.
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
So whenever I apply for a new loan in the future the lenders will assess me for 100% of the debt on the property I own jointly but only take into consideration 50% of the rent? Is there any way around this?
Yes use a lender that assesses 50% of the rental income and 50% of the loan commitment.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Is it easy to find a lender that assesses it this way? Could it work for multiple properties if we were to find the right lender or would we be better off keeping everything separate from now on?
Is it easy to find a lender that assesses it this way?
Yes.
Could it work for multiple properties if we were to find the right lender or would we be better off keeping everything separate from now on?
Yes can work for multiple properties with same lender.
Colin Rice | CDR Finance
http://cdrfinance.com.au/
Email Me | Phone MePerth Based Mortgage Broker - Investment Property Finance Specialist | E: [email protected]
Keep in mind there only about 3 lenders that will assess you on your share of the joint debt. The default is you will be assessed on all joint debt but your share of the rent.
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
Rex, I reckon you are just delaying the inevitable being that one day you will get married and have a third wheel in the equation which will stop you in your tracks. I have seen this many a time and it all works out poor in the end. Colin has nailed the issues and obviously knows his finance.
I would suggest you quit the existing property while the market is good and take your share and start your own property portfolio with no disrespect to your partner at the moment. Just remember short term pain for long term gain!
Rex, Consider what could happen if any of the following were to occur
You
1. die
2. divorce
3. become bankrupt
4. become incapacitatedAnd what would happen if the other person were to
1. die
2. divorce
3. become bankrupt
4. become incapacitatedTerryw | 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
Great points Terry. Rex I think u need to think this one through.
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This reply was modified 8 years, 2 months ago by
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