Anyone ever did a JV using serviceability

Discussion in 'Property Finance' started by Trev13, 14th Jan, 2019.

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  1. Trev13

    Trev13 Member

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    Hi All

    I was looking at how possible/common is it for a joint venture with an experienced investor to partner with a newbie who has decent serviceability?

    Here is my idea:
    My partner and I currently have our own home with LVR of approx 80% (Hence cannot pull equity for a deposit). We are able to service another 800k - 1M or so, but don't have a deposit to purchase. It will take us another 2 years or so to save up a deposit and buying costs. I was thinking of "selling" my serviceability as part of a JV to help both ourselves and an investor for the next year or two.
     
  2. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Yes some of my clients have done this. I don't arrange the meetings between the parties, but advise on the structuring of the JV and the lending issues.
     
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  3. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Not uncommon, but the legal side and the exit strategy for all concerned has to be very very well defined.

    Lending side is usually straightforward unless the Legal structure side is so loopie that it cant be used

    ta
    rolf
     
  4. Trev13

    Trev13 Member

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    Thanks guys... I thought that it should be doable.

    Obviously partnering with the right people on this would be the key to success.

    How do people generally go about finding these kind of deals. I have had a look through some angel investing sites.... not much success on those.
     
  5. Ian87

    Ian87 Well-Known Member

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    My good friend does this. He is an architect, he has limited funds but a high skill set so he designs and manages the development using other people’s money, he has done very well from it.
     
  6. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    all of my clients that have done it have done it with people they had already known. A bit of trust will be needed so I wouldn't like to do it with strangers.
     
  7. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    The thing that makes this scenario stand out is:
    1. The skill set of the architect is extremely high, there's an enormous amount of value being added.
    2. There's a very, very clear exit strategy.

    Bringing serviceability to the table doesn't actually count for much. For someone with a lot of cash and the right skill set, serviceability really isn't that important.


    @Trev13 I'd look to doing this on your own. It may take a year or two to save a deposit, but that's also an opportunity to do a lot of research and figure this out for yourself.

    You'll probably be a lot better off in the long run. I've seen what happens when enthusiastic people team up with an experienced investors that are strangers. They often get taken advantage of and they get a few very harsh life lessons.
     
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  8. Trev13

    Trev13 Member

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    While I agree with this, I believe that if you are prepared and armed using the right legal/accounting resources available, you could potentially move forward. The idea is to potentially go on doing this into the future so I take it more as a learning step rather than a one off risky adventure just to make up the deposit.
     
  9. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Afterpay for property ? The dramas associated with OTP deferred purchases is one of the issues to consider. If you cant fund it today, what guarantee is there you can be assured of it in 2 years ? eg loss of job, health etc. You bring different risks to a JV.
     
  10. Harry30

    Harry30 Well-Known Member

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    I am reminded of an interview I saw with Barry Diller, who used to work for Rupert Murdoch. He tired of just being an empliyeee in the News Corp business, went to Rupert and said, ‘Rupert, I now want to be a principal’.

    Rupert said, ‘!Barry, there is only one principal around here’.
     
  11. albanga

    albanga Well-Known Member

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    It’s definitely doable but I wouldn’t want to be doing it with strangers. As others have said you really need a solid defined exit strategy.
    For me personally when it’s property related I would only ever consider a JV for development.
    A development allows you to create growth in a quick time frame (unlike buy and hold) and has a pretty defined exit strategy.

    Consider starting small.
    Surely you have some family/friends who have equity that are keen to try and build on that.
    Put together a detailed analysis for say a more simple subdivide and build. If you have no experience yourself I think going all guns blazing for a development might turn people off.
     
  12. Trev13

    Trev13 Member

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    Thanks for the feedback... I really appreciate it.
    I definitely was thinking small scale development. i.e.:
    1- Buy, subdivide, build and sell.
    2 - Buy, DA approval and sell.

    This would allow clear and quick entry and exit strategies as suggested.

    I guess the next bit will be putting together a business case, funding model and the legal stuff.
     
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  13. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    One way to do it with friends or strangers and keep some distance is to borrow money from them and not to have any joint ownership.
     
  14. Paul@PFI

    [email protected] Tax Accounting + SMSF Business Plus Member

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    Like Westpac does to me. I would never do a JV with them and they wont do one with me and I'm glad they never ask. If a JV was a guaranteed way to make $$ you can bet a bank would have found a way to get a cut.
     
  15. jefn89

    jefn89 Well-Known Member

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    Trev, can work, others have covered it well but what I'll add in from my experience is how comfortable are you with risk i.e. what happens when something invariably goes wrong i.e. if you can only sell for break-even or worse for a loss?

    If you're going to do it.. Do with very clear parameters around roles/responsibilities for almost everything.. Set the expectations up-front, communicate as clearly as possible, write it down and get your solicitor/accountant/mortgage broker etc to vet the arrangement otherwise especially if you're teaming up with strangers you may not know what you've gotten yourself into until it's too late!

    You can find people who require this through Facebook property groups, LinkedIn, Property meetups etc..