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Plan: Buy house with partners (unknown) and split profits equally?

Discussion in 'General Property Chat' started by Rauri McCann, 12th Nov, 2015.

  1. Rauri McCann

    Rauri McCann New Member

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    Hi my name is Rauri,

    I have 100K in savings and I was going to use this as a down payment on a house of approx. 500-600K in a high growth area with the intention of selling the property in 3-5 years and take the Capital Gain profit.

    After some thought, I have come up with an idea I would like to run by you guys:

    Find partners who would like to go 3 or 4 way in purchasing a property outright in a high growth area. Rental income and the capital gain at the end of the 3-5 year investment will all be split equally. Of course, we will need legal documents to make sure everything is above board.

    Thoughts?
     
  2. Propertunity

    Propertunity Exclusive Real Estate Buyers Agent Business Member

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    This might suit some (interesting results if you google it with the family filter turned off)....but is best left out of real estate investing IMO.
     
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  3. Rauri McCann

    Rauri McCann New Member

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    ....but is best left out of real estate investing IMO.

    Is there a reason why this would be a bad idea for real estate investment specifically?
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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    Lots of issues can occur.

    What if there's disagreement over whether to sell and when to sell and how much for? You might all agree now. But if someone gets pregnant or dies or loses their job or whatever, suddenly their world changes.

    Selling in Australia is fairly pointless due to needing to spend CGT and agents fees to get back out, then SD and LMI to get back on. Tax and lending rules (unlike USA) suggest more towards holding onto property than selling it.

    Other issue is lending ability. If you own say 33% of a house, then when you go to borrow for the next one, you can only write down 33% of the rent, but have to write down 100% of the mortgage in your liabilities column.

    Also - for such a small investment that you could do by yourself, why wouldn't you? You could perhaps build a case for a 10million dollar place, but not a 600k place.
     
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  5. Patamea

    Patamea Well-Known Member

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    Sounds like it could get messy.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    What if one of the partners
    - dies
    - loses capacity
    - family law dispute
    - becomes bankrupt
    - won't pay their share of the bills
    - wants out early
    - 2 of them gang up on you
    - won't pay their share of the land tax
    - does a runner
    etc
     
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  7. Rauri McCann

    Rauri McCann New Member

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    What if there's disagreement over whether to sell and when to sell and how much for? But if someone gets pregnant or dies or loses their job or whatever, suddenly their world changes.

    That was the first thing that crossed my mind. We would need lawyers to ensure things like this are covered. Bare in mind, as long as each of our investment amounts are 'locked-in' we can not take our portion out until the sale (which will result in a capital gain) so there will be no loses.

    Also - for such a small investment that you could do by yourself, why wouldn't you?

    The idea was to not borrow any money from the banks so that there is only positive cash flow from the investment.
     
  8. York

    York Finance Broker Business Member

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    As well as what DT and Terry said, you are assuming that the property/ies will always go up and you can sell for profit after 3-5 years. Have you considered if you get it wrong and it goes down in value. I see the blame game being played between the group unlikely to end well.
     
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  9. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    BTW if there are 2 owners and one won't sign the only way to sell may be to apply to the Supreme Court to put the title in the name of a trustee who will then sell. This would cost about $40k in fees
     
  10. albanga

    albanga Well-Known Member

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    This is a bad idea for so many reasons but mostly because it is based on the assumption that the property will go up in 3-5 years. Many Aussie markets are at their peak and by the time you pay entry costs and then exit costs AND then split your profits if any you will be left with not much more to tell than a very bad storey.

    Also note during this time your investing will be severely hampered as your deposit is gone.
     
  11. Greyghost

    Greyghost Well-Known Member

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    Why would you want to sell so soon?
    Majority of the time (especially now after growth stage in a most city cycles) you will barely break even after 3 years, after taking stamps into consideration etc..

    What would you do once you sell (Partners or no partners)?... Buy again? You are not value adding to the property so just relying on cg to create a profit..

    What is wrong with buying yourself using your 100k, develop a little equity over 3-5 years as you said, then use the equity to fund another purchase....

    To me selling a 600k property just to realise 20-50k over 3-5 years seems a very short sighted strategy..
    What if over 10-15 years that property ended up being worth 850k+...

    Cheers
     
  12. larrylarry

    larrylarry Well-Known Member

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    Agree +1 s66G conveyancing act 1919.
     
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  13. Westminster

    Westminster Tigress at Tiger Developments Business Member

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    At the end of the day it's a high risk proposition.

    I am in a JV and we are set up extremely well but it's not easy.

    If at all possible just go JV with a bank - they will let you play with other people's money all for a low interest rate which is tax deductible. Then you only have yourself to worry about.

    BTW good on you for having a decent deposit. This is not easy and that $100k will put you in good stead for your journey ahead.
     
  14. Ozzie in Texas

    Ozzie in Texas Well-Known Member

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    To avoid any future potential disputes, put in writing now. Have an attorney write it up to protect both of your interests. Treat it just like a prenup agreement. It takes away from any future potential disagreements.
     
  15. ellejay

    ellejay Well-Known Member

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    News flash, property doesn't always go up in value, in fact sometimes it goes down. As DT said the various buying and selling costs mean it's unlikely to be worth the sacrifice unless you spread the risk across multiple properties and/or are very lucky.
     
  16. HUGH72

    HUGH72 Well-Known Member

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    That's what I was thinking, what if it's lost 5% of its value after 3 years but the agreement was sell at this point.
     
  17. ellejay

    ellejay Well-Known Member

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    Would be awesome to buy an ip in a 'high growth area," wait three to five years. If only it were that simple. Even if you managed some equity having to share it after a wait of a few years and costs taken out may mean negative or no gain whatsoever. You have to look at the numbers as they stand on the day with any purchase, not what it might be worth in a few years.
     
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  18. Ted Varrick

    Ted Varrick Well-Known Member

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    Hi Rauri, You should have a good think about how much effort it took to get your 100k. Maybe it took 25 years of working in an Indonesian shoe factory (in addition to some cashies doing landscaping), or maybe you won it with $1200 on the nose on Prince of Penzance the other day. If the former, considering Terry_w's informed posts, maybe the following link will assit:-
     
  19. Michael_X

    Michael_X Mortgage Broker Business Member

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    What are you trying to do sounds like speculating to me. Getting a group together, buying something and then hoping that prices will go up.

    To me, hope isn't a strategy.

    Maybe if you actively manufactured the equity through a splitter block, renovation or development it could work but what you are suggestion is up to the market and you have no control over this.

    Cheers,
    Michael
     
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  20. pugstar205

    pugstar205 Well-Known Member

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    You only have to spend 10 minutes on this forum to realise you'd never find 5 people that agree on the same property. ;)
     
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