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Discussion in 'General Property Chat' started by Liam Blanden, 28th Dec, 2015.

  1. Liam Blanden

    Liam Blanden Well-Known Member

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    Hey guys, gotta pick your brains again if i could.

    I have been talking to a friend of mine who is a town planner and shares an interest in property investment the same as me. He lives in Melbourne, has a really good, steady wage and wants to investigate purchasing a number of properties together to get the ball rolling.

    The problem lies in that all my pre research has been to create a strategy based on my petty income. Buy to hold, reno equity release blah blah. With his combined income we can afford to enter the market at a slightly higher median point, but as he lives interstate, the prospect of renovating to create equity goes out the door.

    Obviously to acquire numerous properties without sweat equity, my strategy must change and i dont really know where to start.

    Has anyone else partnered up in the past or have any previous posts (somersoft etc) that i can troll through for a kick in the right direction?

    Xo
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    I'd suggest don't - it will be expensive to separate later and will greatly lessen your borrowing capacity down the track if you want to borrow on your own. Unless you plan to sell everything, I'd avoid.
     
  3. jpcashflow

    jpcashflow Well-Known Member Business Member

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    Hi Liam,
    As Jess mentioned your borrowing capacity can be restricted because of individual circumstances.

    I have just completed a joint venture with a builder of mine in Melbourne we just finished two x town houses in Melbourne but our intention was to sell the properties once finished. I sold mine and he kept his and no problem there.

    When it comes to holding properties different ball game all togehter.
     
  4. bob shovel

    bob shovel Well-Known Member

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    Getting into a higher median property may not be super great.

    Say your in a position to get a 300k ip Reno etc increase value day 10% you'll have 30k in your pocket.
    If teaming up and you get that higher median prop say 450k and Reno increase val 10% you'll both have 45k but then 50/50 you get 22.5k.
    Plus you both get the headaches and financing issues. Not worth it.
    You know the areas and market, buying smart and hard work you'll do good.
    Just get going
     
  5. willair

    willair Well-Known Member Premium Member

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    Just have a very strong exit clause that you both sign prior and both understand ,sometimes other people have peculiar sense of hospitality in the start,that unfolds as the problems surface
    as they will,myself i'm not into 50/50 splits,"if" there is just 2 then it may work,but that's not always the case if one of you are in a relationship or both and the #### hits the high speed fans and you the only one standing there..imho..
     
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  6. MTR

    MTR Well-Known Member Premium Member

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    +1
    never been involved in JV, but never say never.
    I would want clear exit strategy with this arrangement and without saying all ticked off by lawyer with legal contract in place etc
     
  7. The Y-man

    The Y-man Moderator Staff Member

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    The main thing as alluded to above is a joint venture agreement (or at least MOU) between you and the partner.

    Things that need to be on there include:
    - How much is each of you putting into the venture (and therefore your share)
    - What happens where more capital is required (eg running costs, holding costs)
    - What happens if a partner refuses to pay up (or simply has no money due to circumstances)
    - How long to keep the property or properties for (open ended? closed ended?)
    - what is the exit plan (eg the agreement might state neither party can take any money out for 7 years)
    - will you distribute or retain all profites within the JV
    - can either of you on sell your shares or can more shares be issued for a capital investor
    - how will each property be purchased? (trust? TIC?)

    The important thing is - how will YOU make money from this venture (from the rent? from selling it?).

    Keep in mind:
    - Lending criteria may be different and/or more expensive depending on the ownership structure
    - Tax considerations

    The Y-man
     
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  8. Liam Blanden

    Liam Blanden Well-Known Member

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    Thanks for all the information. Sounds a little too messy for a buy and hold situation, perhaps down the line with a buy and sell strategy once the market starts to do things or more capital becomes available. If it does happen ill ensure i am contracted till the cows come home with all of the things mentioned above.

    Thanks mates and happy new year :D
     
  9. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Investing with another person? I’ve got some great advice.

    DONT. DO. IT.

    No upsides, a whole lot of downsides. You don’t gain any real benefit from this, other than reducing your ability to borrow, tie up your ability to make investment decisions, leave yourself open to changing circumstances (what if one partner decides they want to sell – tax issues, you might not be able to buy them out etc).
     
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  10. The Y-man

    The Y-man Moderator Staff Member

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    Joint B&H works ok for commercial.

    Also works best if the holdings are unequal - so one partner has the call.

    Eg if you went in 40% and mate goes in 60%. No argument when it comes to executive decision, but you still get a cut of the rental income etc.

    The Y-man
     
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  11. D.T.

    D.T. Adelaide Property Manager Business Member

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    Which is fairly pointless if residential since:
    A. There probably wouldn't be any rent worth distributing after related expenses
    B. Its something within your own reach so you don't gain much you don't already have (and cop the downsides as others mentioned)
     
  12. MTR

    MTR Well-Known Member Premium Member

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    works incredibly well with the platinum DB group, money partner tips in funds and wears any losses, sounds fair, NOT
     
  13. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    The others have shown the financial risks in terms of borrowings etc.

    The potential here is if you change strategy as you say. In this instance the only scenario I would consider if leveraging his Melbourne town planning experience and you do duplex in Melbourne and you just throw some money at it. 50:50 buy in of site, 50:50 construction loan and 50:50 split of product or profit at the end on sale.

    I wouldn't do JV for a hold, only for a sale and only for a bloody good profit project that you with your income can't do at the moment.

    I'm one of the few crazy people who do a JV and @Blacky and I haven't killed each other yet as we insist on being in different countries 99% of the time. We'll both be in Japan next month though so might have the opportunity to spoil the business relationship. We are both pretty laid back, thank fork. Our time schedule is WAY behind but we both understand this is the risk. We have a very tight agreement and agreed on MANY items before buying the site - how to make decisions etc etc. Premaking as many decisions as possible and having it in writing really helps. When our project is completed we sell and our company splits the profit.
     
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  14. bob shovel

    bob shovel Well-Known Member

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    @Westminster if they were to go jv for the build, then once completed, say 2 town houses. Can they keep one each to do as they wish? Hold, sell then making the jv complete and no longer in contract together and would it then no longer affecting finance?

    If so, do that @Liam Blanden. Forget buy, Reno, hold. Make some cashola plus get a new property out of it to hold long term!
     
  15. Blacky

    Blacky Well-Known Member

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    You need to be careful with JV's.
    As @Westminster said we are a bit crazy entering into one. However, we are both experianced enough to know the risks and pitfalls.

    Before even starting we documented everything. From structures, roles/responsibilities, tasks, decision making, strategy etc etc etc.
    As such - a lot of the 'decisions' have already been made so its just a matter of getting on with it.
    Sometimes decisions need to be made without full consultation of the partners (esspecially as I am overseas). So trust plays a (big) part. You need to be comfortable not having 100% control and that can be hard to overcome.

    The end product can be split in a number of ways. We decided not to go down this path, as there is the potential for different end values of the same product (ie, the front unit is often valued slightly higher than the rear ones)(a unit with additional views etc). So it was decided at the begining to get in, develop, get out.
    If we havent killed each other by the end of the project, we may decide to re-invest in another one, or go our seperate ways. Either way, there is no onus to stay in the partnership beyond this project.

    Our JV, albiet behind schedule by about 12months, is going well and I am happy with it. WM is one of the few people I think I could do a JV with and still be able to talk to at the end of it.

    Blacky
     
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  16. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    yes - that's why I said 50:50 split of product or profit. Only works for product split if there is equal value - ie two side by side houses of same size and value.
    I'm not a legal, accounting expert but there should be a way to set it up so that they can then have title of one each.
     
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  17. dabbler

    dabbler Well-Known Member

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    I say no.

    You can have discussions, set up agreements etc and when it goes wrong, you get to litigate.
     
  18. Blacky

    Blacky Well-Known Member

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    I remember a thread a while ago (probably one of @TerryW 's) where there was a way to enter into the partnership, and the end distribution was the properties.
    However, there had to be clear agreement to the splits prior to purchase.
    To me it just seemed a bit messy and fraught danger - esspecially with two unrelated parties.

    Blacky
     
  19. bob shovel

    bob shovel Well-Known Member

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    Yep go develop! End up with a new place vs a dump you need to fix up
    But look at contracting the lot out to reduce risk of you two having any lovers tiffs along the way. You'll both still have input but if needed let others have final say, you'll lose some profit but could be the edge your looking for to get going
     
  20. MTR

    MTR Well-Known Member Premium Member

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    I would only go JV with someone I know that I could trust and have similar experience/background to me, the reason I would want this is because I don't want people going into panic mode. If we have the similar experience then we probably are on the same page and makes life a lot easier.

    Not really interested at this point in time, but if perhaps looking at larger project down the track it may work well?? As I said never say never.

    MTR:)
     
    Last edited: 1st Jan, 2016