Investing as common tenants

Hi there, I thought to ask about a second property from a tennants in common unit. My sister her son and I are close to purchasing a unit together. My goal is to purchase a another one after that on my own with the view of purchase to occur within a 3 to 6 year period. I know finance maybe be difficult so the question is, has anyone done this and if so what is a good direction or some options I could look at. Thanks in advance.

 

Best thing to do is not do it. It really will limit your borrowing capacity a great deal down the track.

Depending on your reasons for wanting to go down this path, there may be other alternatives.

 

Hey Jess thanks for the reply, the reason is asI am based in SYD the market is tough and also the unit we are looking at is purchased from a family member whom is retiring and the price is really good in a really good CBD location.

 

Can you buy it on your own rather than with others? Or let them buy it on their own?

 

Unfortunately I dont have enough for the deposit, I thought maybe even purchase then at the 5 year mark sell my 33%stake to them then purchase on my own with the profits. I supose the best option is to purchase another with them when the time comes?

 

Too many issues other than finance as well. What if one wants to sell and the others don't etc. Can't access equity unless all agree. Can't really use an offset account. Death, Divorce and Disability, Bankruptcy?

 

In this instance you will need a solid agreement and understanding about how the relationship will work if your goals and objectives differ. Quite often I see the relationship break down and change and cause a forced sale of an asset in distressed circumstances.

I know of a family in Fremantle who owned a shopping centre. The disputes among different family members was so great that eventually the Supreme Court ordered a forced sale. You do not want that to happen.

The advisory bills would have been immense.

 

I have heard some horror stories, we do intend locking up the co-owner agreements, sales agreements etc but if course my biggest concern is pulling my equity to start a portfolio as the majority of lenders wouldnt touch me as an investor. I know however as an example st george have "common debit reducer" options

 

perhaps you could borr the deposit from the other family members?

 

I can see it happening..
In 5 years time when you want to sell your 33% and take your 'profit', the other parties won't have any money to buy you out, and will disagree on current market price.

If you can't afford to buy it without them now, what says they will be able to afford it from you in 5 years? Lets say its $333,000 each ($1 million for a CBD location, excluding stamp duties etc)) - where are they going to find $333k in 5 years ($66.6k/yr) to buy you out? This doesn't include your 'profit'?
How much will it go up? 5%/yr? 10%?
Could be looking at $400k (3.8% increase per year) to buy you out (maybe less, maybe more) in 5 years ($80k/yr they'd need to generate in addition to their repayments etc).

I'd avoid it. You could get very stuck, for a long time. Speak with a broker on here and research other options. You'll be glad you did.

 

If it's a family sale under market value you may not need a deposit.

As everyone else has said, don't purchase it together. It severely limits your options.

Speak to a broker about exploring other options.

 

Yeah, generally not a good idea.

But...

If it's a "too good to pass" deal, maybe another option would be to lend them the deposit in return for 33% of the valuation price which will be determined by the lender's valuer in x years?

This way they will know your plans and commit to paying you back, otherwise the contract between you all will force a sale so you'll get your money back (Hopefully for you the market won't be lower than now at that point...)

That said, it does put the parties in a conflict of interests as they will prefer the property to be valued less in x years than you would (so Reno, maintenance, TLC etc would put you in odds with them).