What to consider when investing with a mate.
Buying property with friends can be fraught with danger. Having said that the main thing to watch out for is how do you get your money out….
- What if someone is paying extra (deposit etc)?
- What if someone is spending more time than the others working on the property?
- How do they get a better return?
- How are major repairs paid for?
- What about future renovations?
- What is the exit strategy and how will your property be valued?
- Can you refinance?
- How will funds be distributed and in what proportions?
- Will loans be joint and severable or severable only etc.
We often see one party wants to exit and the other does not so (are profits distributed differently if someone exits outside of agreed terms) buying in your individual names would trigger stamp duty and CGT on the whole 100% not just the percentage changing. If the property is newly constructed there could also be GST implications.
You also have to consider that if you buy in a trust then you avoid stamp duty (except maybe in Qld) when changing percentages between the parties. Buying in a trust has land tax implications especially in NSW and depending on your objectives (buy and hold versus trade) different trusts would be contemplated.
The above list is no where near exhaustive but shows a sample of issues which you should consider.
When purchasing together with others either individually or in a trust we would recommend you seek legal advice and enter into a formal and detailed agreement, setting out the terms and conditions including roles and responsibilities of each party and include an exit strategy.
Ken Raiss – Director Chan & Naylor
This information has been prepared as a general guideline, and is not intended to be an exhaustive or a complete analysis of the topics in question or issues raised in this article. There are many particular legal, taxation and accounting matters which have not been dealt with in this article and readers are urged to discuss any aspect of the operation of any of these matters discussed herein with their professional advisers. In particular asset protection, estate planning and superannuation are potentially a very litigious areas of law and you will need specific advice before you take any actions if you want your wishes complied with. Before taking any action or implementing any strategy you should seek professional advice from your lawyer, accountant and or financial planner who will take into account your specific circumstances and objectives.
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