buying with a mate

hi, so i have some equity on my existing IP and i have been planning to go halves on a property with a mate. We know each other for long and with emotions aside and all friendship aside, we plan to buy one together and go from there...
Our aim is to raise 10% for around 600k. We will put 10% personal saving and i will take some equity out from my existing IP.....
Assuming that bank approves all this and all goes ahead...i guess the best way is to take a new shared loan and go halves in repayment on this loan.
in terms of equity, do i need to withdraw this as a third loan?

my aim is to maximise returns since this will be IP, but just wondering what's the best way to set up this sort of loans....

 

From a finance perspective is terrible.

When you purchase a property in joint names most lenders with the exception of St George and AMP will take the full debt into servicing and only half of the negative gearing and rental income benefits.

There may be better ways to structure this from an asset protection perspective.

 

It's a great way to break up a friendship too. You're best mates now, but this can change. And get ugly. Please be careful.

 

Will need deeper financing considerations as there are often significant costs:

1. It will have an impact on your future serviceability. With MOST lenders you will only be able to include half the rental and the full debt exposure to your borrowing power. Depending on your goals/plans, this may have a serious dent to both your individual borrowing powers when you choose to purchase again as individuals. There are a few exceptions to this with some lenders (St George, AMP and ME), but you typically don't want to be reducing your lender pool too narrow.

Cheers,
Redom

 

I'm sure people don't go in hoping to break up a friendship or relationship - it's not recommended for a reason.

 

I agree with the above comments. It is the quickest way to break up a good friendship. It is like employing one of your mates and it goes sour when you wouldn't even expect it.

Believe me I have had it happen to me. I thought it would be good to work with one of your mates everyday. It worked out for about 8 months then it went bad over the stupidest little thing.

I learnt my lesson to never employ family or friends again.

 

Agreed.

Seen a lot of plans quickly unravel due to a joint purchase. It sucks the life out of your borrowing capacity. Sure AMP, STG and maybe ING will consider the debt at 50% but they've all got lousy servicing calcs anyway.

Cheers

Jamie

 

I have joint loans I would like to get out of. Dont do it.

 

Thanks for your suggestions...soo whats the best way to do this...
I mean i could be stuck with one IP and own one or two more before dieing.
My aim is to grow a portfolio and in terms of short term i thought its an option to buy together,split costs,probably sell when time is right and make some money...

 

I think the masses have spoken that this is not a great idea..keep family and friends at arms length when it comes to money matters.

 

Keep saving, and do it on your own. It might feel "slower", but you'll be better off.

 

So, in summary:

 

Thanks probably have can this idea for now

 

How much equity do you have?
Could you buy a lower priced IP on your own? Plenty of money to be made at the lower end of the market too.

 

Don't think of it as being stuck.
You would have to split the CGs if you were sharing anyway. And it gets suckworthy if one party has to sell and it's a bad time in the market.
Just save more, or look in a cheaper place. Plenty of places around.

 

Don't mix friends and business. If you look outside NSW there's plenty of properties that you can buy for 300k. Middle-long term it will prevent a lot of problems and complications.

 

I have done it and I have 2 friends who have done it. It worked out well for me, but my serviceability did suffer and I missed one deal because of it. I did not work out well for my friends. Number 1 was a development site and my mate did not want to develop but the other half did. They ended up selling at a bad time in the market, just before a strong uptick, so missed a fair amount of potential profit. My other mate wanted to develop but the other half didn't. They actually put the property on the market but it didn't reach reserve, so wasted money on an auction. They are developing now, but the development is a compromise and is not what either of them wanted.

I wouldn't recommend it either (and I've done it!). I won't be doing it again.

 

This is a tough one.
I purchsed with my brother 3 years ago and had very little deposit so doing this allowed me to get into the market. A heap of people also told me don't do it.
By the market moving upwards and me taking on a subdivision of the site it is looking likely the site will have increased by around 300k in value. Minus costs it could be around a 250k profit.
so that is a huge positive!

The negative is if my brother were not so laid back then this would have fallen to bits and been an absolute disaster! After 1 year he wanted to sell at a loss as he met a girl and they were having a baby. He has been almost non existent through the whole subdivison/renovation process which as per a post of mine in another section has caused me severe stress. A lot of tension between him and my wife as my laid back perception of him she thinks is nothing but lazy.

So I do sit on the fence on this one. Two people pulling together their money can do big things but all I would suggest is ensure you both have and agree on an exit plan. I would in no way encourage a buy and hold strategy! That is asking for trouble. But a strategy with say a 2-3 year exit is not all doom and gloom
Good Luck!

 

Yes, would definitely need to have an exit strategy in place. And something like a minimum time in the deal.

 

I've got a split loan with a friend been about 5 years never had a problem. Both have the same goals for the properties future and we just have it as p and I for security if it did go pear shape. The only issue would be any equity what to do with it? Continue to expand or use for your own goals. Also he is mighty handy with fixing things so that helps maitence issues just thought id add a little positive view to the comments. Just make sure you sit down and really go through each possible problem that could arise and how you would deal with it as a team.