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Best way to buy a property with friends

Discussion in 'Accounting & Tax' started by Pash81, 8th Apr, 2016.

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  1. Pash81

    Pash81 Active Member

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    Hi, i am looking to buy an acreage worth around $1.5m along with 2 of my friends. Can someone tell what is the best way to do this? Should we just buy it as 3 individual partners or should we create a unit trust first and then a company as a trustee to buy this?

    What are the pros and cons of both scenarios?
     
  2. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Is it for recreational, hobby farm or primary production use ?
    Any loans to acquire the land ?
    What is the occupation and net financial positions of the three parties ?
    Will the property produce income ?

    I'm not expecting answers but the above indicate typical questions that may influence the advice . Some of the concerns address asset protection from each other and others relate to how costs may be shared etc. Further what happens if a cost is to be shared but one the parties cannot pay ? How would voting powers be addressed for the trustee and what may occur if one party is absent, has incapacity etc ? What may occur if one unitholder dies and a beneficiary acquires their interest ? Could the trustee refuse a redemeption or impose a onerous requirement limiting the asset ?

    A trust may be one way but how do the redemption clauses work ? Geared or ungeared trust ? Could one party use a SMSF and if they do is that going to affect others now or later?
     
  3. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    will it be the main residence of one or more?
    Which state is it in?
    Are the parties related?
    What is your favourite ice cream flavour?
    Do you want to borrow to buy further properties in the future?
    What is the plan on death of 1 or more?
    etc


    Just like ice cream, there are an infinite number of ways to structure this (well, i might be exaggerating, but many ways).

    One way might be for one person to buy in and for the other 3 to lend the money to him/her.
     
  4. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    BTW, if you create the trust first and the trustee second there would be no trust!
     
  5. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    How can you create the trust first so that there is no trust...eh. Chicken or the egg for lawyers.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes it would be a trust without a trustee hence not a trust!
     
  7. dabbler

    dabbler Well-Known Member

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    I don't worry about all the technical or legal eagle stuff, what I worry about when I see this is how do you get out ? or how does another get out ? and why are you all intent on ruining friendships ?

    often you can buy rural land as multiple lots next to each other, but a 500k one each and stay friends :)
     
    Whitecat likes this.
  8. Kate Moloney

    Kate Moloney Well-Known Member

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    Money and friends can sometimes be the fastest way to no money and no friends.

    So be careful with this one, structure yourselves so one can get out if need be, have a legal agreement between all of you and plan for everything that could possibly go wrong in advance and how you will handle it. Eg. death, divorce, if one party wants to sell, disputes and disagreements.
     
    Bran likes this.
  9. Paul@PFI

    Paul@PFI Tax Accounting + SMSF Business Member

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    Beware of joint loans...The bank doesnt care which one of you makes up the shortfall if others stop paying their share. Each partner potentially may be liable for the total loan. Banks dont care who they chase to get paid. Often the easiest assets to sell are their prey (like your home)