Buying property with family and friends
If you’d like to keep investing in more property and you’re thinking you might want to do it with another person or a few other people because your income is capped or you’d like a bit of help, you want to branch out of just investing on your own, what you might look at doing is that joint venture, you know, it’s another name for a partnership.
And what you can do is you can invest with friends, one friend or many friends, family, it might be your close family, might be siblings or your parents or your kids or you can invest with your partner, so it might not be your wife or your husband yet, but it’s your boyfriend, girlfriend, you guys might be even before that you’re de facto.
Using joint ventures for purchasing real estate
So, what do you need to take into account if you’re doing a joint venture and often it’s just called JV, the main thing to take into account is asset protection. If you guys are going in from different positions or you’re planning on accumulating assets separately while still investing together your tax implications.
So, what you don’t want to do is go in there with different ideas of what the plan is and this really comes back to your exit strategy. So, generally speaking, if you’re setting up a JV, you want to have the goal right from the outset aligned. One of you doesn’t want to be a buy and hold investor forever, and the other one wants to get out after two or three years. So, generally speaking, you might say, “Hey, look, let’s invest in this property or in these types of properties and five years after we have bought the property, then we give each other an opportunity to buy the other one out using a registered valuation” or “let’s agree that after five years we get an appraisal from a real estate agent and if we both agree that we sell, if we don’t both agree that we keep the property and that we’re only going to do top-up lending that we’re both equally lending on the property.”
Often you get into situations where family members own the property jointly one of them needs to top up to for another reason and it can create arguments. So, I was talking to, you know, a friend of a friend today, I met him a few years ago, his name popped up in my inbox. He owns three properties, two of them are in trust with his brother, one of them’s worth about 400K, one of them’s worth over a mil and he owns of them half-half and there’s some debt on them.
He wants to keep investing in property quite aggressively. His brother is not as motivated, and basically, he’s going to find it quite hard to use those properties as refinance. What is like a bank pretty much to help leverage into more property because he doesn’t want it to carry his brother along for the ride while he’s doing all the work.
Unfortunately, in this situation, what it might look like he needs to do is to sell one or both of the properties and sort of restart his property investing cycle. He’s moving out of Auckland and he sees a lot of opportunities and, you know, he’s starting to see that he doesn’t want to be 40 and stuck in a job he doesn’t like. He’s around 30 now, he wants to spend the next 10 years buying lots of properties, creating wealth and income from property investing and his brother is not going to come along for the ride.
So, you know, joint venture partnership, they’re in a trust, they don’t have the same goals from the start and they didn’t have an agreement. So, I can’t stress it enough if you’re investing, you know, even if you’re investing by yourself, you’ve got to have a really good property accountant, you’ve got to have good legal representation and potentially you need separate lawyers for each of you.
But as long as you’re going and talking to the lawyer and saying, Hey, you guys need to make sure that we’re both protected equally and the main thing is that you’ve got the same goal. If one of you wants to invest for five years and get out, another one wants to do a buy and hold, you’ve got to at least address that and plan for it in advance.
So, joint venture, very common and it is a way to build up a lot more, you know, property equity, whilst you’re not just doing it by yourself. I know some people that have joint ventures with lots of different people that they’re diversifying in some respects and, you know, aggressively building up their portfolio that way.