Buying a property with a friend

Discussion in 'The Buying & Selling Process' started by aving1001, 10th Jan, 2020.

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  1. aving1001

    aving1001 Well-Known Member

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    Hi guys,
    Was looking for your insight regarding my partner's intention of buying a bigger property with friend as co-owner. I am not too keen as I am assuming it will bring in too many complications. But she is like we will figure it out.
    What would be the challenges with this approach? I did count her decision making challenges in future and re registration costs if things change etc but that were not enough.
     
  2. David R Sutantyo

    David R Sutantyo Well-Known Member

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    Definitely sit down with a lawyer especially those who specialise in properties to draft up an agreement. There has to be a clear exit strategy agreeable for both parties. Everything else will just be the same as any property purchase.
     
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  3. Marg4000

    Marg4000 Well-Known Member

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    Make sure they have a sound exit plan if one wants out.
    Best time to agree is before buying.
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    it will

    The 5 big ones to consider are

    what happens to
    a) serviceability
    b) if one dies
    c) if one has a family law issue
    d) if one becomes bankrupt
    e) if one loses capacity

    and I guess another biggie
    f) when one wants to sell and the other doesn't
     
  5. balwoges

    balwoges Well-Known Member

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    My advice ... DONT ... :eek:
     
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  6. Morgs

    Morgs Well-Known Member Business Member

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    Experience will also say in many cases it is not "if" it is "when" !
     
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  7. Brady

    Brady Well-Known Member

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    If can be done on their own - do it that way.
    See so many times people have great intentions, but a lot of the time it doesn't work out.
    I've done JV recently, it was my 7th property purchase, I work in the industry - how much experience does each party have?
    I would only enter into a JV if there is clear exit strategy, get in make profit, get out
    Ideally not for a long term hold

    If you're doing it long term, look at CBA Property Share or similar
    Loan setup in individual name w/ guarantee for each other.
    Ideally this will solve the issue of
    a) serviceability with most banks (some banks might still consider the debt of a guarantee - which I disagree with)
    but...
    b, c, d, e, f) all still real problems which do happen.
     
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  8. aving1001

    aving1001 Well-Known Member

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    Close to none. As it will 1st property for them. I shared the insight gathered here with her.
    Looks like their intention is to buy a big chunk of land together ( may be with a dead house on it) , sub divide and build or sell as per individual desire.
    Not sure how practical it that.

    I am assuming it will be significant cost to get sub division done and re register subdivided component in individuals name. Is it a good idea financially assuming other risks are covered.
     
  9. The Y-man

    The Y-man Moderator Staff Member

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    Could be the makings of a horror movie.... for starters, are you aware it can take years for approvals to happen while you are left holding the property? ... and if it is land only, no income, no tax deduction on interest costs.... could be a very fast road to bankruptcy for both parties....unless you are multimillionaires to start with...

    The Y-man
     
  10. aving1001

    aving1001 Well-Known Member

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    Good point i was only thinking on lines of direct cost of approvals....if the process drags on in years it will be super expensive. If we were millionaires would not be considering buying with someone else.
     
  11. Curious2019

    Curious2019 Well-Known Member

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    Big project to do as Property #1. Do either of them have any specific expertise they bring to the table? Example; one party has the cash, the other has the subdivision expertise and network to get it done.

    If they are both property novices, I’d steer clear.
     
  12. Trainee

    Trainee Well-Known Member

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    How did this all start? Did they meet at a seminar or something? It sounds like a very ambitious project for people who have few resources and no experience.
     
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  13. The Y-man

    The Y-man Moderator Staff Member

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    Why not invest in a project run by someone else who has more experience?

    The Y-man
     
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  14. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Unless there is a defined Buy/sell agreement in place, the same as any decent business transaction its got potential to kill future potential.


    The joint and several liability will bit at some point

    ta
    rolf
     
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  15. aving1001

    aving1001 Well-Known Member

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    One has good cash flow and other underestimate bureaucracy challenges.
    I agree
     
  16. aving1001

    aving1001 Well-Known Member

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    At times high confidence can be outcome of little understanding of challenges
     
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  17. aving1001

    aving1001 Well-Known Member

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    Noted as advised by other members will make sure if this happens it goes through a professional .
    I will dig some more on subdivision process and most probably will be able to discourage them.
     
  18. Archaon

    Archaon Well-Known Member

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    Have you done a feaso to see if it would even be worth the investment.

    - Land/property initial cost
    - Subdivision costs
    - Build costs
    - End values

    No point spending all that money to find out it would be cheaper and easier to buy a H&L package etc.

    A lot more factors come into play with developing.

    Need to also think on splitting costs between the parties.
    - Deposits
    - Legal
    - Contingency
    - Stamp duty

    You will also have other issues like losing FHB grant/stamp duty concession for multiple parties, being liable for the total debt, one or more people losing jobs/change in circumstances/abilty to service etc.

    Renting to family can be troublesome enough, buying with a friend? Goodluck.
     
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  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    A buy sell agreement would not change this though.
     

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