Is this possible?

Discussion in 'Loans & Mortgage Brokers' started by TheDon, 31st May, 2022.

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  1. TheDon

    TheDon Well-Known Member

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    Excuse my knowledge of specific legal terms

    Is it possible for a team of investors to create a company for the purpose of purchasing property. Eg 10 people (shareholders )put in 50k each. Use the $500,000 to buy 3x $150,000 properties.

    How does future finance work?

    If some equity is taken out and used as a deposit. Will the banks lend to the company without an individual guarantee?

    Can the company keep borrowing and buying if there is enough equity?
     
  2. Tony Xia

    Tony Xia Structured Loan Advisor Business Member

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    So where would the income come from to service the additional loans?
     
  3. TheDon

    TheDon Well-Known Member

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    The initial purchases will be cash so there will be a mortgage free cashflow.

    Could number 4 possibly be purchased using rental income?
     
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Yes, but lots of legal issues to consider

    The company would be the borrower with the directors giving personal guarantees

    no

    no, serviceability is also needed.
     
  5. spludgey

    spludgey Well-Known Member

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    I think it would probably be possible, however it's an absolutely catastrophic idea that will end up losing you friends and quite possibly money!

    Other people aside, instead of using your $50k to buy a $150k property (and having some money left over), your now only owning 30% of a property, so you're foregoing 70% of capital gains!
    Plus, in my scenario you'd be paying a lower interest rate.
     
    Last edited: 31st May, 2022
  6. TheDon

    TheDon Well-Known Member

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    Ok thank you for your responses.

    So any company that purchases property would need a directors personal guarantee? Even big companies like Apple,
    Bunnings, Hilton ect??
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Unlikely a listed company would. Not much point in getting a personal guarantee for a $60mil property. But they are likely to be guaranteed by the corporate group of companies, partially at least. Not an area that I have experience in.

    Many years ago there was a lender that would lend without personal guarantees where a company was the borrower and the LVR was 40% or less. Can't remember who it was now. A small building society based in wollongong I think.
     
  8. TheDon

    TheDon Well-Known Member

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    Does the personal guarantee cover servicing or is it
    Just in case the company/legal entity can not make repayments?
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    servicing is based on the income of the guarantor and company.
     
  10. TheDon

    TheDon Well-Known Member

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    Thank you
     
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  11. Carol M

    Carol M Well-Known Member

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    https://propertycollectives.com.au/2011/08/how-to-start-a-property-syndicate-in-6-steps/
     
  12. Paul@PAS

    [email protected] Tax, Accounting + SMSF + All things Property Tax Business Plus Member

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    There is a basic legal issue that poses a concern such such cases. It could be a managed investment scheme and contravene ASIC rules concerning a prospectus. However if its OK then the concern may be what right shareholders have to demand their share of income. After all dividends are not an automtic right. Dividends are paid on a discretion of the controllers (Directors). There may also need to be rules (an agreement ?) regarding what costs the company can pay to avoid profits being stripped by the Directors and associates.

    Sometimes these syndicated also use a fixed trust basis and issue units rather than shares to reflect proprtionate rights. However unlike a company the unitholder may have a right to a fixed share of income. A unitholder agreemnet may contain rules as to what costs are permitted. To avoid profit stripping
     
  13. JacM

    JacM VIC Buyer's Agent - Melbourne, Geelong, Ballarat Business Member

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    $150k properties.... what kind of properties are we talking, and where? Not sure such assets would serve you overly well. The entire rent on such a thing would get chewed up in property management, council rates, insurances, compliances, maintenance etc
     
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