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Servicability & Investment Partners

Discussion in 'Property Finance' started by JohnPropChat, 8th Oct, 2015.

  1. JohnPropChat

    JohnPropChat Well-Known Member

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    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?
     
  2. D.T.

    D.T. Adelaide Property Manager Business Member

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    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 ;)
     
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  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
  4. D.T.

    D.T. Adelaide Property Manager Business Member

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

    MTR Well-Known Member Premium Member

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    :p
    what do you suggest a rich sugar daddy:p 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
     
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  6. Redom

    Redom Mortgage Broker Business Member

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    Nice summary DT.

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

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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 ;)
     
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  8. JohnPropChat

    JohnPropChat Well-Known Member

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    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.
     
  9. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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

    Is deposit the issue or servicing?
     
  10. JohnPropChat

    JohnPropChat Well-Known Member

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    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
     
  11. JohnPropChat

    JohnPropChat Well-Known Member

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    For the one after next, deposit.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    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.
     
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  14. MTR

    MTR Well-Known Member Premium Member

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    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
     
    Last edited: 8th Oct, 2015
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  15. JohnPropChat

    JohnPropChat Well-Known Member

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    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.
     
  16. JohnPropChat

    JohnPropChat Well-Known Member

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

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes
     
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  18. JohnPropChat

    JohnPropChat Well-Known Member

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    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?
     
  19. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    Yes, but the legal owner would still be taxed on the lot unless there was a partnership or a trust like relationship.
     
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  20. euro73

    euro73 Well-Known Member Business Member

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