Hi Guys, I am really loving these forums and appreciate all the great knowledge sharing. I am just about to settle on my second IP but will start to hit the serviceability wall now. I live in rural Victoria and a friend of mine who has been a stock manager for over 15 years for a large lamb supplier is now looking at doing his own thing. He needs a second party to invest a small amount ($20k-$30k) and also be available to do some part time work with the stock when needed. The return for this will be around $20k to $30k income per year. This would be additional to the income my wife and I make in our normal full time jobs. My question is, how does this affect serviceability? Do they count the full $20k or is it discounted because its farming / self employed / second income etc. I have an ABN and a family trust that I can run any income through. Any advice would be appreciated.
Some banks will look at at after 1 year, others 2. They'll take 100% of the taxable income and any add-backs. Mostly you'll need 2 yrs worth of ABN, which may be fine given you've got a trust set up already.
Even if it didn't increase servicing, the extra cashflow will be useful to reduce debt/save deposits/invest in shares etc.
Off topic, but is depreciation considered an add back? Eg cars used for business use etc, depreciation schedules on IPS? Do you have to explain this to brokers- or do they automatically know what to add back?
What type of farm are they operating? A $30k repair bill is just a bad day on the header. I would be concerned about a farmer offering equity for $30k plus a bit of casual labour. Normally a farmer will determine the market value of their property and then triple it if you ask to invest. Their is no point in trying to get a few more points from your investment return when the alternative is for all of your capital to disappear.
The OP mentioned also doing some farming work... so some of the return would essentially be wages in return for work done.
It's basic buying and fattening of lambs. Can be done 3 or 4 times a year. Buy lambs, fatten for 12 weeks and sell again. Some work required when drenching, unloading, loading, moving paddocks etc. All done on leased land which is cheap. No heavy machinery involved like headers etc. a couple of motorbikes, a good dog and some portable yards.
Generally, yes. A good broker should spot them on your tax return and add them back but always good to have a chat and confirm s/he didn't miss anything
Id get a little more clarity, whats the $30k for if its not a very capital intensive business? buying the lambs? the motorbikes? bond on the leased land? What percentage of the overall cost/business worth is that $30k? Id want a profit split based on that, and ideally wages paid from the business (as a deduction to the business income) rather than working for free.... But thats city-slicker, no trust, get everything in writing talk.....
Yeah I absolutely understand where you are coming from but it is way over the top in this scenario. My investment is basically buying half the lambs. When we sell the lambs a percentage will be taken from the sale of all the lambs to cover costs of fuel, cartage, drench, vet fees, fencing gear etc. It will be a 50/50 split. I understand you wanting more clarity but its a simple deal over a beer with a long time mate who has a very, very good understanding of farming. The reason he wants me involved is because I have helped him out labouring for him on weekends in the past and he can't physically do ALL the jobs by himself, some tasks require two people. Also we are very good mates. So we both put in equal cash, he is the brains, I assist on the two man jobs and check on the sheep when he can't, we have 5 boys between us who will assist (lifestyle), we will both drink a lot of VB cans after we have "moved" a few sheep around every Saturday arvo. This will all be on the back of a handshake, I would be far more scared if this bloke tried to put a legal agreement in front of me.
If you are looking for a bit of fun go for it. The banks will require around two years of history before they will consider the income stream. I have seen these mates deals in the past go sour and you can lose a mate. Nobody likes documented contracts but they have a purpose. You could do a simple loan contract to protect your capital and then help out and charge a rate for your labour. It will get the same outcome.
It could be all right for a bit of fun and it can be very profitable in the right circumstances at the moment the circumstances aren't right. Can you get a forward price contract ? Fat lambs are bringing about 500c/kg at the moment, store lambs are in high demand bringing 620c/kg, you will be competing against buyers wanting to reduce very high grain and stubble residues for the main purpose of reducing mice numbers and avoid expensive baiting. You would need to source your feed very cheaply. I sometimes fatten lambs on my cropping IP and sometimes finish them in a feed lot for a couple of weeks on my share of the grain if prices warrant it.. This year the margins are slim and I don't think its worth the trouble for the monetary gain, though it is for he agronomic gain but I think I will just adjist the stubble out and possibly make almost just as much for no effort or risk.
What price do you expect to buy in? what price do you expect to achieve? transport cost, commisions deaths and yard fees can take a lot of the profit.
Its not hard I have done it a number of times buying joined ewes before the autunn break @ $30 or $60 a few weeks later the value of the ewe has doubled after its rained and 6 months later the lambs @120% have been born and sold for more than 150% more than the cost of the ewe. You can do the same buying and shearing boat wether once or twic, fattening and selling.
Fargo I'm not all over it mate as farming is not my go. I know we are looking at store lambs at $95 a head and fattening them up to sell at $140 a head (16 weeks). Feed is not an issue as we have access to 900 acres of very fertile country. I know he also has in the plan some joined Ewes that will drop lambs for bigger profit. You are right, it won't be a huge income but I will enjoy it a lot and an extra $20k+ a year will be great for serviceability.
