Servicability & Investment Partners

If I buy a property with a friend as tenants-in-common then how will this affect serviceability?

Say, a property worth $500k and we both pitch in equally for the borrowing costs and ongoing maintenance.. When lending, would the bank look at my share $250k as my debt or the whole thing as my debt? Same thing with serviceability?

 

It'll affect serviceability a lot because of the "Joint and Several Liability" clause.

What this means is, when you go for a loan on a subsequent property afterwards, you'll have to declare the whole $500k debt, but only half of the rent eg 250pw instead of 500pw towards your income calculation. Obviously this tips the calculation away from your favour.

You might be able to get around this a little bit by either
a) Having one of you loan the funds to the other, then that person investing in their own name
b) Using some form of trust structure. Do some homework

 

There are only a couple of lenders that will look at the debt separately, most will treat the entire amount as though it's yours PLUS only give you credit for half the rental income. Yuck.

If you can avoid buying with a partner who isn't your life partner I would definitely try to find an alternative.

 

Life partner?
Even then I probably would only for PPOR, never for IPs.

 

what do you suggest a rich sugar daddy now I am totally being silly
I think you are spot on Jess.


My g/friend does this -
She has the money partner source the loan, and a contract is drawn up where there is Joint responsibility/ownership for the funds, however bank has nothing whatsoever to do with this and she employs a lawyer who draws up agreement.

What she brings to the table is expertise in developing properties and project management
Partner brings in the money Nice gig if you can get this

 

Nice summary DT.

If i recall correctly the lenders are ME, St George and AMP.

 

haha - I was thinking more along the lines of spending a few more months saving or getting a better job, but that would work too

 

I wouldn't mind me a suga mama - jokes aside, I will be able to buy it by myself but no more after that for a while. I am just looking for ways to accelerate my acquisition phase in post-APRA world.

 

@JohnPropChat Unfortunately in reality it will limit you significantly in the long term rather than accelerate.

Is deposit the issue or servicing?

 

That sounds interesting. So she funds the deposit and the partner sources the mortgage and the property is in partner's name?

The private contract between them dictates what can be done with the property and how the sale proceeds are split between them? How about tax issues? Sounds legally complicated but I suppose anything is possible with the right lawyer and accountant @Terry_w @Paul@PFI

 

For the one after next, deposit.

 

Legal owner would be taxed as per normal. Any payments of interest may be claimable if a commercial agreement entered into.

 

It might be worth thinking about changing strategies slightly then - for eg, buying something you can split to generate the deposit more quickly than you ever will by saving or (most likely) waiting for organic growth.

 

Unfortunately don't know the finer details.
She has no funds whatsoever in the deal. She is the person who sources the site, completes feasibility study and the project manages the deal.

The person who funds the deal is prepared to do this because the in effect they are making from her expertise, that is the idea anyway.
How it is split I don't know? Not necessarily 50/50

It works for her because she currently has difficulties servicing Loans

 

Spot on. I am not overly interested in a buy-and-hope strategy. I am saving up to do a small development, splitter blocks are an option too. Just not brave enough to do it interstate and Perth is a downer at the moment so have to get the numbers right.

 

Just out of curiosity - can trusts also get 90% LVR loans?

 

Yes

 

Can the agreement be such that the one who is not on the title have claim/responsibility to say 50% of all net(after legal owner pays the teax) profits and losses?

 

Yes, but the legal owner would still be taxed on the lot unless there was a partnership or a trust like relationship.

 

Yep, and if it's needed for investment purchases , AMP is out of the market and STG is at 80%.