Joint Purchase Finance & Structure

Discussion in 'Property Finance' started by Jeffb, 7th Nov, 2018.

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  1. Jeffb

    Jeffb Well-Known Member

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    Hi everyone, I was hoping to get some advice on structure and finance of a potential joint purchase.

    I am looking to purchase a property with my siblings each having a 20% share each.

    Each share will be $190k and each party has slightly different circumstances:

    Party 1 – Will be paying cash, full amount no loan required
    Party 2 – ($45k) 20% deposit and $145k loan
    Party 3 – ($45k) 20% deposit and $145k loan, with $105k offsetting
    Party 4 – ($45k) 20% deposit and $145k loan, with $60k offsetting
    Party 5 – ($45k) 20% deposit and $145k loan, with $70k offsetting

    Thus, the overall loan will be $580k and LVR 64%.

    My understanding on the setup of the loan is that all parties on the title will need to be on the loan, and it will be a loan split between 4.

    My main question is about future serviceability for future purchases for each party:

    Party 1 – has no need to access any additional funds, so consider that locked in.
    Party 2 – has 4 properties prior to this, and looking to accumulate more in the near future. How will entering a loan of this structure impact future serviceability?
    Party 3 – Is looking to purchase PPOR in next 2-6 months. $105k deposit is sufficient for planned purchase, but unsure of impact the above will have on future serviceability.
    Party 4 – Has no further plans or other debts, and would be looking to pay down loan asap.
    Party 5 – Is looking to purchase PPOR in the next 12 months to 3 years. Unsure of impact the above will have on future serviceability.

    Any advice would be greatly appreciated. Thanks
     
  2. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Hi Jeff,
    All up, it's going to be a nightmare for everyone moving forward who wants to buy again. Even if one of the normal lenders can help, each party will have to show that they can service their share of the loan ongoing, and if even one can't (looking at app 2 specifically) the whole thing is stuffed up for all the others.

    I'd avoid this structure at all costs, unless the property is a project that will be sold.
     
  3. Trainee

    Trainee Well-Known Member

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    This is a good deal because....?
     
  4. Jeffb

    Jeffb Well-Known Member

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    Thanks for the response Jess.


    So hypothetically if the servicing for one party does not cover their share for any reason (ie loss of income, lending rule changes), this will have negative effects on others when they want to borrow at this time?


    Curious on your thoughts as to why specially party 2 (me) may be a problem?
     
  5. Jeffb

    Jeffb Well-Known Member

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    Amalgamation of multiple properties as we own next door :)
    But aiming for a 15 year hold.
     
  6. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Because you're looking to purchase again in the future and you'll be considered to be liable for all of the lending and expenses, but only receiving 20% of the rental income.

    This structure will be a significant drain on your serviceability in the future. The same could be said for person #5.

    This may be a useful deal due to ownership of the property next door, but if you can do it on your own, that's the way to move forward. This property will be a serious serviceability drain on everyone involved until the day it's sold.
     
  7. Jeffb

    Jeffb Well-Known Member

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    Thanks Peter,


    Are lenders going to look at me (or any party wishing to purchase in the future) as a 20% debt of $580k or as a debt of the full debt on the property?


    I would have thought with a low LVR, and ability to make LVR lower as all parties pay P&I that the property would have equity that may counteract some negative serviceability issues? (does that work?)
     
  8. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    They will assume you're responsible for all of the debt, not just your 20% share. The same goes for other property holding costs (some lenders are starting to break this down).

    At the same time, they'll only assume you get 20% of the rental income.

    There are exceptions to this. A few lenders assume you're responsible for all of the costs and receive all of the rent. You'd be restricting yourself to a very small handful of lenders in the future that may not be suitable.

    Once you go into a partnership with someone, you're really restricted to doing everything moving forward in that same partnership, until the partnership is dissolved entirely. I can't stress how seriously this will likely mess up any future plans you may have.
     
  9. Jeffb

    Jeffb Well-Known Member

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    Thanks Peter, this advice is much appreciated.

    Is there a way around this, ie through a different structure? My potential thoughts are:
    • Party 2 has the option to get finance unsecured to this property. May not solve everyone’s problem
    • Or long shot: Party 1 (due to wealth and assets) has option to buy only in their name, and then take loan for $580k. Which can then be split 4 ways with other 4 parties through internal agreement… but not on title or on loan.
     
  10. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Get some legal advice on ownership structure - from a lawyer.
     
  11. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    DONT



    Life is what happens to you while you are making other plans - Lennon

    ta
    rolf
     
  12. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    Party 2 getting finance from another source doesn't really help anyone. Party 2 still needs to be on the everyone else's loan because they're on the title and what I said earlier still applies as far a expenses and rental treatment is concerned. It's a slight benefit (by about 5%) to the others because they're not responsible for Party 2's loan.

    The second idea probably creates a hideous legal mess if something goes wrong. If you're thinking along these lines, let Party 1 buy the property. If you all ever do a joint project with the neighbouring property, then that's between Party 1 and whoever owns the other property.

    Another thing you may want to consider. What's more important to everyone; getting this property or maintaining good relationships with your family? This is the sort of thing that can tear a family to pieces.
     
  13. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Just re why App 2 - you - will stuff it up for everyone, the issue that you bring is that you already have 4 properties, and for most people that's going to push you to someone like Liberty/Pepper for your next purchase. If you keep buying, someone like St G (who will use a common debt reducer, handy when there's multiple applicants) will look at your position when assessing one of the other applicants application, and say you can't afford your commitment because it doesn't work on 'their' calculator. It'll break the deal for literally everyone else when they want to buy again.
     
  14. Terry_w

    Terry_w Mortgage broker licenced 4 tax/legal advice Business Member

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    Legally, the property could be owned by a company as bare trustee for the 5 people with it structured in such a way that a personal guarantee need only be given by some of the people - just enough to get the loan approved.