Is this gut feeling of risk/reward leading me in the right direction?

I've basically settled on the fact that I'm not ready to take the plunge on a PPOR with my SO as she is career focused, and we've worked hard to save so far. We are fortunate to have some gifted friends who have succeeded in the market and also work within RE and finance industries professionally.

For over the best part or 2018 we've been mulling over this on and off. We are looking to dip our feet in as a group of 4 and think it's time to get serious and up the leg work. We've been eyeing off moderately priced IP's around regional areas within VIC (not sure if Geelong etc has sailed?) and have the goal of purchasing a modest property to get under the belt that we can put some DIY work on and try to learn the right way. There would be a medium term goal of development if possible as the financial means are there, but I don't feel experienced enough to over-commit yet.

After many hours reading it seems that a discretionary trust may the first step to have sorted, but this is where my limited financial knowledge and further research could use a hand.

Please hit me with a stop sign if I am going about this all wrong!

How does this work between partners who all have outside business/family interests? Would we be setting up a new company to be the trustee controlling of the trust and then have each partner named as a beneficiary?

Sorry for the long-winded essay I hope some inklings are right and any advice or opinions/criticism would be very much welcome!

Cheers

 

My thought is that if you can do it yourself - do. Don't involve others unless absolutely necessary as it can really complicate things, and ruin your borrowing capacity if you ever want to do anything on your own down the track.

Furthermore, buying in a trust will also kill borrowing capacity as you can't use negative gearing. It could work for you, but I'd suggest you look to be project based rather than buy and hold.

 

Thanks for the perspective Jess,

Financially, I could do it with myself/SO, however I'm not sure she is ready to take on the full financial responsibility with other business interests and the 9-5 grind currently.

How badly would our borrowing power be affected in the futuer? Wouldn't that depend factors like capital gains and rental yield? Overall dream plan is build a solid foundation through some smaller measured investments, then go for the PPOR in ~3ish year if say the stars line up to dev and flip the IPs.

Is negative gearing going to be a huge factor in a ~300-350k IP or is that really up to the economic gods in the bigger picture (rates/demand etc)?

Project-based is definitely the *plan*. I guess on a reasonable amount of savings and have some passive online income, in miy mind this would alleviate pressure let us get stuck into really learrn the game. I guess maybe a bit of fear of putting too many eggs into one basket..

I've also noticed a flood of agents who barely wanted to acknowledge us at inspections earlier in the year have turned into spammers!

 

Discretionary trusts are not suitable for business partners.

If you’re going to use a trust where you each invest a fixed share of the costs, the appropriate vehicle is a unit trust, where each unit holder enjoys a fixed share of the capital and income.

A unit trust is a pass through vehicle, so the unit holders can enjoy the benefit of the CGT discount, depreciation if eligible etc.

But there are other issues to consider, too many to elaborate here.

If you’re going to go in as partners on a property with business associates, get some advice from an accountant and a lawyer.

Not advice.

 

Great insight to the rationality level of things thanks! I guess even though we are life long friends and have quite different streams of income and professions lines can get a bit blurred, at the end of the day day it is a business agreement and should be treated as such I see. I am interested still to hear if anyone else has similar experiences and how they went about things

Will definitely be speaking further further professional advice thanks!

 

Without a full picture of your scenario and also your biz partners, it's impossible to know the extent it could wreck your borrowing capacity.

Suffice to say - going halves means with most lenders, you'll be treated as though you own the whole debt, but only are entitled to half the rent. Even if your IP is getting great cashflow, this will hurt. There are some lenders who treat it differently, but if your partner has multiple properties, or has gone in other JV's it won't work. I suggest seeing a broker who can assess the full picture for you so you can avoid an expensive mistake.

If you can see the IP's before buying a PPOR, it will be less of an issue so long as you continue to buy with your JV partner. It becomes problematic when you want to buy on your own and still hold JV's.