Young People Investing in Property Together

[Surface]

First time posting, and would like some of your thoughts on my situation.

Myself along with around 3 friends have done the University thing and worked a year or two and have some savings. We would like to look at investing in property as a way to lock away some of our saving and do something worth while with what we have. The four of us maybe have around $15 k each that we would be willing to put into this sort of venture. We have done some research into what the best way is to structure this arrangement is...do we set up a company, with the four of us being shareholders for instance. Any feedback on ways to structure this would be great.

Secondly, I guess we could look at getting a deposit on a house of around $250-300k value. It is more likely we would set it up as a rental rather than live in it as there is a high likelihood that some if not all of us will be looking to do the OE thing in the near future. I would like to get any opinions on the ability to manage/own a rental when , we may not be able to gaurantee our income in the coming years and maybe out of the country. Does owning a rental first time require more attention and effort than we are willing to put foward at this time of our lives and should we just forget it till we have got the travelling out of our system and have settled in NZ longer term.

Any talk on this would be much appreciated. [Wanting to lock away some funds so i don't blow them on booze and girls overseas. ]

[Green Fish]

Forget it: In NZ, it is still a lot cheaper to rent than to buy. What does that tell you?

Be patient, and wait. 3.5% on call on NZDs is, actually, a very good rate.

[exnzpat]

Listen to the Fish!

[Dean@Massiveaction]

Ignore the Fish. Find something yielding 8 to 10%, buy it well, you can't go wrong.
Put your 60K in meaning a mortgage of say 240K giving you $600 a week rent.
No brainer. Nearly 50% gross return on your own money and will pay you over $200 a week after all expenses.

[Keithw]

Good Post Surface
Don't let Green Fish put you off, he's old and experienced but very set in his ways

I wish I had done exactly what you propose when I left Uni.
As long as you are in this for the long haul, & not looking for a quick turnaround, this is a great time for you to get started.
If you can find place that is cash positive it is irrelevant whether it's "Market Value" goes Down as GF seems to think it will, or Up which I know it will in a year or 2.
As Dean Says, its all about buying well.

Yes you should definitely have some formal structure for the 4 of you to have shares in the property, & a company is a good way if you can generate tax losses (preferably while still cash positive).
If you find such a good property that there is no likelyhood of tax losses, then maybe a trust would be a better structure.

Money & Business partnerships can be a huge stress on friendships, so you need to make sure all the right things are in place if it should come to "Divorce"

All 4 of you need to understand that you are jointly and severally liable for any debts, so if the company has no funds to pay bills, then one of you must pay up, but hopefully at least one of you will be working and the cashflow will be enough to cover all bills.

The other thing to consider is first home buyers grants and things like the Welcome home loan and Kiwisaver.
Since you are not going to live in this property, you need a structure that still allows you to be classified as a first home buyer when you come to buy your first home. A Trust gives you that isolation from the property, but someone else will need to comment on whether a company- particulary an LAQC also gives you the isolation from the Rental property.

You may as well take as much advantage of what the Govt is currently offering, even if it becomes another way for you to buy your second rental (after you have lived in your "First Home" for 6 months or so)

While it is a good idea to have an input into the management of your rental, so you can keep an eye on the managers etc, it is not necessary. You can hand the whole thing to a property manager and be totally hands off.

[revdev]

Wanting to lock away some funds so i don't blow them on booze and girls overseas. ]

Hey, if it was good enough for Besty....

[Rosco]

Hi Surface,

First thing to consider is the people you are investing with. Are you all after the same thing? If it is different, this is were joint investments fall apart and friendships are lost. Often with four people you might find that 2 are after quick cash (whether they say it or not) and two are after long term hold, ie 5 years +. But time also changes things, say one of your friends gets married late this year, and needs the cash to invest in a personal house? What happens then? Or if someone goes bankrupt?

So ideally, I would suggest you look to invest by yourself first. Do you have family that could help you into the right rental? If you purchased a rental as Dean suggested, why would you want to share this?

If after thinking about whether you could do it yourself, and if you all have similar goals, you need the right structure. I would suggest an LAQC with a shareholders agreement which covers things like what happens if one investor wants to sell out, or goes bankrupt, or dies etc. A company gives a formal, legal structure - for example to make a major decision, a company requires 75% approval, and this can be increased in the company consitution.

If the company becomes a foreign company, then can't be LAQC. Also no tax benefit if all working overseas.

Ross

[freeloader]

Hi Surface,

Two of my friends did exactly the same thing after their first year at uni. They went under LAQC and brought a few properties in South Auckland.

I on the other hand went in myself and brought smaller property near the CBD as I felt it was easier to rent and less problematic with tenants.

A few years later, we actually all left on our OE (going separate places) around the same time. My friends had a property manager for their properties but sold shortly after as it was much harder to manage and one wanted out.

I've kept mine and I have a property manager as I still reside overseas. The capital gains were the same. I'm not sure what the yields on their property were but mine is above 7%.

My recommendation would be to try do it on your own or limit to two people. You will fine that you might have to sell the minute one person wants out. With two people it's easier to reason.

One more thing. Don't forget to spend lots and lots of money on yourself too

[Dazza34]

Dean

My naivety shows: is it possible to achieve 8 to 10% in the cities currently (particularly Christchurch), or would this be only in the smaller centres?

Ignore the Fish. Find something yielding 8 to 10%, buy it well, you can't go wrong.
Put your 60K in meaning a mortgage of say 240K giving you $600 a week rent.
No brainer. Nearly 50% gross return on your own money and will pay you over $200 a week after all expenses.

[Dean@Massiveaction]

It's available in Auckland so it has to be available in CHCH!!

[Rosco]

and in Hamilton.

Just because you live in Christchurch doesn't mean you have to invest there. There always seems to be more happening in the upper North Island, so why no invest there.

Ross

[Orkibi]

My naivety shows: is it possible to achieve 8 to 10% in the cities currently (particularly Christchurch), or would this be only in the smaller centres?

DAZZA34 I can help you with 8% in CHCH and also 8%+ In AKL, call me ASAP on 021 103 6161 if you are interested.

Do you have your finance sorted? what is your budget ?

[Surface]

Thanks everyone for all your thoughts and advice on our situation. I believe our intentions are all similar, in that we want to lock away an investment before we travel, so we have something in NZ when we come back...(if we come back). I do recognise how quickly things can change however, especially with 4 people in their early 20's.

This has given me the push I needed to get into this further, and hopefully stop the talking and start doing. I am sure I will have alot more questions soon...

Any further info or ideas would be appreciated, but thanks heaps so far it has been very helpful.

Actually one more thing, what is the order of events to get this rolling....set up company, org finance, look/find property...where is the best place to start?

[mortgage broker]

Look at finance first. I would recommend going through a good mortgage broker, it will save you a lot of running around especially when there are 4 people involved.

You want to test the lenders to see how much cash you will need to put in.

[Dunning]

Surface, good on you and your mates for thinking long term.

Decide first what you are looking for(sounds like long term hold, low maintenance)

Decide exit strategy(eg, if one wants out then get a reg valuation and then sell to other people, or just put on market, pay off mortgages and split)

Decide what happens if someone forfeits on repayments.

Financial setup. I recommend 2 bank accounts and 4 mortgages on the property, one for each of you. One account for day to day expenses, one for 4 weeks vacancy. With the 4 mortgages you can each have control over personal repayments. If one of you wants to make extra payments or go interest only then you have the options. Be advised you are all liable for the total debts in the eyes of the bank.

What ever you decide on, make sure that you have it in writing and that you all agree to the conditions. These may not be legally binding but it gives you a framework to work within.