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?
The initial purchases will be cash so there will be a mortgage free cashflow. Could number 4 possibly be purchased using rental income?
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.
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.
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??
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.
Does the personal guarantee cover servicing or is it Just in case the company/legal entity can not make repayments?
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
$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
