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Need some expert views on this type of commercial investment

Discussion in 'Commercial Property' started by Arashi87, 1st Dec, 2015.

  1. Arashi87

    Arashi87 Well-Known Member

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    Gday,

    I am really new to commercial investment and would like some opinions on the following strategy:

    Investment type and location: 150-200m^2 office at center of Sydney CBD

    Price guide: just under $1mil

    Strategy: "unit trust" with 12 people(trustee)of each $36k deposit equally at around 60lvr.

    Tenant will pay for the insurance and strata fees.

    Worked out to be netting 7.4% return.
    Commercial depreciation 25yrs.

    Rent goes into trust acc monthly and someone will reconcile it out to all trustee monthly.

    Now because this is the first time for me, what are the things to look out for this those type of investment?

    Appreciated
     
  2. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    So each trustee would potentially end up with <$2k/yr net from the deal, but destroy their serviceability due to joint and several liability.

    Pass.

    Having that many people in one deal is just asking for headaches, whilst not receiving any real amazing benefit.
     
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  3. hobo

    hobo Well-Known Member

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    Yeah, that doesn't stack up for me either, for the same reasons listed above.

    How would you make any decisions - would the trustees sign over control (ie decision-making) to one person? Or would everyone vote??

    Sounds fairly messy.
     
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  4. Arashi87

    Arashi87 Well-Known Member

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    Could you please explain why it will destory serviceability? Thanks
     
  5. Corey Batt

    Corey Batt Finance Strategist Business Plus Member

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    Joint and Several liability - each member will be liable for the entire debt from a serviceability perspective with most lenders, but only able to claim 1/12th of the income. talk about a kick in the pants.
     
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  6. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Corey is right - unless you all plan to never buy anything individually ever again, it's going to put a huge spanner in the works for all 12 of you.
     
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  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    All 12 as trustee?

    From a legal point of view = crazy... The trustee position is a single office, not a majority vote sort of thing so it will be very difficult to operate.

    If a company is set up as trustee it would be better, but still difficult to manage with so many people. There will be no joint liability unless you provide person guarantees. A lender usually asks for personal guarantees from all unit holder, but since each unit holder will have less than 10% they may only require guarantees from the director. but which of you would be willing to be director and take all those extra risks.
     
  8. D.T.

    D.T. Adelaide Property Manager Business Member

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    Perhaps a separate thread is needed, but in a multiple trustee scenario, how are differing viewpoints/directions resolved?
     
  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Supreme court!
     
  10. Arashi87

    Arashi87 Well-Known Member

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    What about using "lease doc" : rental covering interest 1.5x

    With one trustee director and the rest "trustee" then they will not be associate with the debt? Is that how it work?
     
  11. D.T.

    D.T. Adelaide Property Manager Business Member

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    He's not talking about serviceability for this property. He's talking about every future property for the rest of your (and the other members) life.

    You see - you'll go to apply for a home loan later on. They'll calculate in your portion of the rental income from this property at say $6,000 per annum, and they'll calculate in the whole debt at say $600,000. Do you see how this would actually be negative?
     
  12. Scott No Mates

    Scott No Mates Well-Known Member

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    Something that you haven't considered for the number of people involved it will be considered a syndicate and you would need to prepare a prospectus etc.
     
  13. Arashi87

    Arashi87 Well-Known Member

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    I understand this part but what i mean is, trustee as in a corporate (company) with director who need a guarantor, and the rest 11 member will not even need to show their payslips. Thus those 11 members will not have any debts because its all trust income ...

    And for the director, i think they might nominate two directors with guarantor, and becasue its 60lvr, it is actually servicing itself so it will not affect the two directors debt in future. Lease doc does not rely on income doc but rental return

    I actually dont know how to put it.
     
  14. hobo

    hobo Well-Known Member

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    You initially said all 12 people would be trustees, no mention of a corp trustee.

    Now there's a corporate trustee.... so are all the 12 investors directors of the company, or just shareholders? And if just shareholders, how are the directors chosen?
     
  15. Arashi87

    Arashi87 Well-Known Member

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    Sorry im very new to this, i am learning this whole thing just today so maybe I misinterpreted ealier on.

    All 10 unit/share holders, 2 directors picked already.
     
  16. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    Without knowing the specifics of your situation and not being an expert myself on the matter, I can only provide the following comment: given your limited understanding of the situation which does look rather complicated, are you sure you want to be investing in something you do not fully understand and control? I think there is a lot of merit in keeping things simple and under your control. Keeping things simple is in fact not easy, we tend to be attracted towards complex solutions first.
    One thing you might want to consider: how do you exit? Let's say you want out because you wish to put y our money to a better use somewhere else, if you are a shareholder of the company, then you need to find another shareholder to buy you out, or sell your shares to another entity. That might not be an easy task. It's not like with a property you own, or some listed shares that you can liquidate if need be.
    Just don't rush into this, make sure you gain a full understanding of it and the implications before you do anything.
     
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  17. Scott No Mates

    Scott No Mates Well-Known Member

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    Last edited: 2nd Dec, 2015
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  18. Mr RD

    Mr RD Member

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    on the face of it i would not get involved. Who put it to you, whats the benefits they see, i'd like see the other side of this to try to understand how they see what appears to be a nightmare as a good opportunity.
     
  19. Omnidragon

    Omnidragon Well-Known Member

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    Personally just don't like strata high rises in CBD. What's Syd office vacancies like
     
  20. Marg4000

    Marg4000 Well-Known Member

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    Always look at the exit strategy. What happens if you want or need to sell?
    Marg