Joint ventures -what are the basics to protect each party?

My mother is wanting to do a JV together, buy untitled land, put house on it and flip it with a 3 or 4 year period if there's enough growth, alternatively happy to keep it tenanted if growth isn't worth selling. House/land isn't my ideal type of deal but I wouldn't mind doing one for short term small profit to mix things up a bit. My main goal is actually to assist my mum in making some cash to pay down her mortgage so she can retire sooner. She can't do anything without me though

I have 200k usable equity. I only want to use a minimal amount for this project so I can continue doing my own thing.

I want to know what the basics are when you do a JV?
The main things I can think of are;
-Equity- both contribute same amount deposit to keep things equal.
-get lawyer to draw something up in case things go bad between us, one of us die etc (can't see it happening but you never know)
-both split everything 50/50 bills/gains etc

Anything else we should be aware of?

 

Ownership structure
Structure of the structure
Funding structure
For starters

 

A unit trust would allow you to define specified percentage of ownership. A discretionary trust would be more flexible.

A solid agreement that outlines who does what when things go bad is the key.

 

Fixed rights to income
Passive or active involvement ?
Limited liability for debts
Property security may expose asset loss (maybe not 100%)
Trading losses and security eg mortgage, guarantees etc.

Lawyers are the people to assist.

Personally I would start by costing the project. Developments dont have to be profitable and often arent when started by people who have never done one. Allow for GST and all other incidentals incl selling costs etc. Ensuring a sizeable profit is budgeted would avoid a lot of problems from having insufficient cash to complete etc.

A project plan without a profit is a plan to fail.

 

Very overwhelming

 

I don't understand why GST comes into this when it will be tenanted for a year. If that's the case what makes it different to when people sell off IPs over the years? I'm genuinely interested to learn more about this

 

We were planning to just do it in joint names @The Y-man

 

What are the drawbacks of doing it just in joint names?

 

Joint liability. No flexibility to minimise tax. Stamp duty on restructure. Asset protection. Death of an individual etc etc.

But this doesn't mean joint names are not the way to go

 

Is it possible to still have a legal agreement if just in joint names? I had assumed tax would just be split between the two of us (liable for half each)

 

Yes you can have a legal agreement but this may have minimal effect in some aspects. E.g borrowing capacity and joint liability

 

I'd be happy with that. We both have secure employment and are responsible. I think my only concern would be if she were to die and my sibling tried to take my bit!

 

If mum stops paying the son has a choice to either pay the lot or the bank will take the property and sell it.

If there is a shortfall the bank may come after either or both of them by selling g assets until the debt is paid.

 

Im the daughter, but I would be okay if if I had to pay it all, after all it would be tenanted anyway, and if it come to the point she could no longer afford it the plan would be to sell it.

 

New residential property is a taxable supply when first sold. (Unless for some bizarre reason its value is under $75K) If its continually rented and no other purpose for at least 5 years then the GST issue can go away. But within 5 yrs it doesnt. If your intention to do the dev is to profit then its likely caught. If you build your own home and sell it may not be. If you think that this emans you can live in it and sell the one you lived in and keep others that wont work either. In fact it may mean the home isnt a CGT exempt home.

Isnt affected by entity or personal names or joint names etc.

 

Okay that makes sense. 5 years is doable anyway

 

Holding off 5 years can actually cost you.

Selling on completion can have the same outcome and its brand new - Far far easier to sell at a good price than after 5. Benefits of selling when new:
- Can claim 100% of the GST on build...After three months, three years etc it will reduce how much you can claim. Possibly $0.
- Margin scheme when sold may reduce GST by half (?)
- 5 year rule comes with risks - Its not simple
- After 5 years GST may be more if it goes up or less if value falls. Most devs want to just bank the profit and walk on.

If you are thinking of 12months and CGT discount think again. Doesnt apply to developer intentions.