Forum Replies Created
Hi Michael,
Thanks for your response.
I agree that having a good legal agreement helps avoid problems – that was the whole thrust of my first post. However, I (respectfully) don’t see how that supports your point regarding partnership liability.
The terms “joint venture” and “partnership” have fundamentally different legal natures. Many people use the term “partnership” in a loose fashion, to encompass the different legal structures that could be used. But that is the same as calling apples, oranges and mangoes “fruit”. Sure, use the term “fruit” in general discussion, but lack of precision leads to confusion, especially when you’re trying to explain what’s specifically good and bad about mangoes, which has nothing to do with apples or oranges.
Similarly, I was referring specifically to a legal “partnership” in my first post, for the purpose of making a precise point.
You could prepare an agreement to take all the “bad” things out of a partnership, but then it would no longer be a partnership, but perhaps rather a joint venture? Add transferable rights, and you might as well call it a unit trust?
Many structures comprising multiple investors are called “syndicates”. But what is a “syndicate”? When you look closely at it, it’s usually a unit trust type of structure (which is the case for many managed investment schemes, even if they don’t call the interests in the scheme “units”), or a company structure (where each investor owns shares in the company which carries on the particular project).
I don’t intend to discount your experience, and in fact have no right to do so, since I don’t know you. But I maintain my view that a partnership structure, as opposed to a unit trust, joint venture or corporate structure, is fraught with risks, especially for first timers. An agreement costs pretty much the same to prepare anyway, whether it’s a partnership agreement, joint venture agreement, unitholders’ agreement or shareholders’ agreement, so if you’re going to all that trouble, why bother with a partnership, when you know that the risk (of a partner binding the others) can be simply avoided by using one of the other structures?
I also disagree with your point regarding the “entity”. I agree that the “entity” is separate from the commercial structure. However, the “entity” can either be a person or a company. The vehicle, or structure, dictates relationships between the entities involved. A trust is merely a structure, as is the case with a joint venture. In the case of a company, the entity is the structure, and the two are inextricably intertwined. Of course, the shares in that company can either be held by people, companies or through a trust. And the trustee of a trust can be either a person or a company.
I think that being more precise in using terminology helps avoid confusion.
In any event, I think we (or more precisely, I!) may be splitting hairs for the purpose of this forum. Sorry for boring the rest of you forumites.
Cheers *yawn*
Elysium-MIf you’re looking to set up a trust for tax advantages, there are a couple of lawyers in Perth who are really good. By the same token, they are also quite expensive (I’m talking several thousand bucks for starters). If you’re still interested, let me know and I’ll email you the names.
Steve – stamp duty, which is state-based, may also have a significant impact on what you can do with your trust. For example, there’s a neat little trick called the refinancing principle that works from an income tax perspective (ie Federal law). It’s a bit too complicated for me to describe here – I’m just using this as an example.
But the peculiar way in which WA stamp duty legislation is drafted completely stuffs up the usefulness of this principle – if you try and pull it off in WA, you get hit with stamp duty at the conveyance rate (ie the rate you pay when you buy a property).
It’s another reason why getting good local advice is so important. So be careful about relying on “general” books on trusts and other investing structures.
Cheers
Elysium-MHi fellow sandgropers,
I’m going into a consolidation phase for the next 6 months or so. Don’t plan to buy another property until after then.
Got a bit of equity in my portfolio, so I’m going to put money back into the stockmarket – I figure that if the property market is plateauing, money is going to flow back into the stockmarket (as shown by historical economic cycles). Rather than buying shares on market, I’ll be trying to put money into placements and IPOs.
Many on this forum may disagree with me, but I believe that you can make money from more than one type of investment.
Cheers
Elysium-MHi guys,
A great little program that could help you crunch the numbers is EZ-Rent.
Go to http://www.ez-rent.com to download the free program (last I checked it was free).
It shouldn’t be the only tool in your toolbox for evaluating properties, but I’ve found it helpful for my purchases.
Cheers
Elysium-MHi Michael,
Thanks for your input.
I’m simply stating the basic position.
You may be right technically, in relation to limited partnership structures, but technicalities rarely work in real life. The circumstance in which you’d be arguing that technicality will more than likely be in the courts. I’d rather take a different path and avoid that altogether.
As I said, it’s simply an issue of risk tolerance. If you’re going to have a legal agreement prepared anyway, why use a partnership when you can use better structures (from a liability limitation perspective), like a joint venture, unit trust or company structure?
Cheers
Elysium-MHi redwing,
It looks like a strata titled office to me.
If you do the calculations, you’ll realise that YOU are the one paying the rates and taxes, not the tenant. This is typical of these types of property, although what you said about the tenant paying rates and taxes is true for the majority of commercial properties.
I’d check to see if those “blue chip” tenants that they advertised are actually the ones renting the office that’s for sale. Sounds more like an “attractant” – they might just be renting other offices in the building.
In my opinion, these types of properties give you the worst of both worlds. They usually rent out on the same basis as residential properties (ie 6-12 months), which doesn’t give you the same security as a decent commercial property (where the lease usually runs from at least 3-5 years). The floor area is usually much smaller than a residential property you could buy for the same price. And it’s much harder to sell, because it only appeals to a very narrow spectrum of investors, which may equate to lousy capital growth.
Of course, my views are based on my own experiences. I’d love to hear some positive experiences.
Cheers
Elysium-MHi Shelly, welcome to the forum.
I posted a detailed reply to a similar question a few months back. Here’s the link:
https://www.propertyinvesting.com/forum/topic.asp?TOPIC_ID=2939
As you can see from reading that post, there are quite a few issues that you need to seriously think about. Sure it’s a good friend, but that doesn’t necessarily mean you have the same views and ideas on particular matters.
For example, 2 of my best friends are avid property investors/developers, but I’ve never been able to get into a joint venture with them. That’s because while we all talk about property development, we’ve got very different approaches on how to do it.
And now’s the best time to put all these things in writing, when everyone is happy and wants to work together – NOT when a disagreement arises.
And if you’ve worked out all these issues, and go to a lawyer to draw up the terms of the JV/syndicate, it’ll be a heck of a lot cheaper than having the lawyer walk you through each issue.
melbear’s suggestion of a unit trust is a good one. From a legal perspective, it’s the most flexible vehicle, especially in terms of exiting your investment. However, you do need to get some taxation advice on what’s the most appropriate vehicle for your circumstances, since different structures may result in different tax treatments.
But one structure that I’d suggest you DO NOT adopt is a partnership. At law, each partner is able to legally bind all other partners with their actions, even though the other partners aren’t aware of the obligation or liability. VERY DANGEROUS!
Anyway, don’t let all this put you off. At the end of the day, assess the risks of not dealing with any of the issues up-front. If you’re comfortable, then by all means go ahead, but remember that the risk remains.
Good luck!
Cheers
Elysium-MHey hwd007 – sorry to hear about your problems.
You know, at common law (regardless of whether there’s a written contract in place), an agent is under a duty to act in the best interests of his principal (ie the landlord). The contract between you and the agend may try to exclude this duty, so check the fineprint.
The tenancy agreement may also have some clauses which prohibit the tenants from making a nuisance of themselves to their neighbours. If they’ve breached the contract, you may be able to kick them out (although I admit it’s much easier said than done for residential tenancies). However, if they’re friends of the dodgy agent, you may have some leverage over the agent for failing to properly discharge his duties to you, and maybe you can pressure him into “facilitating” the departure of your lousy tenants.
Oh, and before you try to play hardball, make sure your landlord’s insurance is in place and covers intentional/malicious damage!
Good luck.
Cheers
Elysium-MHi Jess,
One trick I learnt when sanding my floors is to sprinkle flour over the area I’m about to sand. It keeps the paint from sticking to the paper. It’s not 100% foolproof, but I’m sure you can see the results straight away.
I’d also wear a cap (otherwise you’ll get sawdust in your hair, which is a pain to get out), dust mask for the finer grades of sandpaper and overalls (preferable but not essential – again it keeps the sawdust getting everywhere).
Also, you might want to close the doors to other rooms while sanding, so you only need to clean up one room at a time. Otherwise, you’re going to find sawdust everywhere for months to come!
Cheers
MHi all,
Check out this old thread:
https://www.propertyinvesting.com/forum/topic.asp?TOPIC_ID=3394
Blossom – I don’t think it’s a loophole. It’s a deliberate, specific provision.
And the cut-off date is actually 1 July 2000, not 2001.
Cheers
MCheers big ears!
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Mquote:
In WA, th REIWA recommended rate is 8.5%, altho you ncan negotiate of course. Just watch for the add ons thoughWow that’s low. I’ve talked to 4 real estate agents about managing my rental property, and the rates I get are 10-11% (around $200pw), not including property inspections/condition reports. What am I doing wrong? Maybe I look like a sucker.
Cheers
MHi guys,
I’m in the process of writing a guide on doing your own settlements in Perth. the launch has been delayed because some major things in the settlement process have recently changed (eg stamp duty). But I had a few people use the guide earlier in the year for properties they bought, and everyone’s settlements went smoothly.
That said, conveyancing in WA seems a heck of a lot less complicated than in NSW.
I think it depends on how complicated the process is in the particular State or Territory you’re buying or selling in, and whether you’re dealing with someone you know or a stranger on the other side.
Cheers
MI agree with Enduser – the higher the risk, the higher the return.
Sure these are finance companies. But they’re smaller outfits without the same level of financial security as the banks.
What is the worse case scenario? Interest rates go up, property prices crash. People who borrowed money from them can’t service their loans and default. But when the secured properties are sold, there is simply not enough to cover the loan. If enough of these incidents happen within the same period, the company could well go to the wall.
That’s why they’re offering a higher interest rate.
Don’t agree? When you get your hands on the prospectus, have a look through the “Risks” section. Something similar should be there.
Cheers
MBetter make sure your landlord’s insurance is up to date if you’re going to try to put them in their place or kick them out. Nothing worse than vindictive tenants who decide to trash the place as a going away present.
Cheers
MDon’t forget the requirement for plant and equipment, electrical wiring, gas, water and sewerage plumbing (yadda yadda) to be in good working order.
And also make it clear in the contract what fixtures and fittings are to be included (eg light fittings, curtains, curtain rods, blinds, etc).
Unfortunately, while you can accurately identify most of the important things that need to be included in the contract, the trick is to get the wording right. Most real estate agents have absolutely no legal drafting skills (not surprising, since they’re not lawyers!!), and the quality of the conditions they write in the contract is extremely variable. I’ve seen some decent ones, but I’ve also seen many dodgy ones which are not worth the ink that was used to write them (ie they do absolutely nothing in the event something goes wrong, or even worse, puts the buyer in a difficult position).
As a tip, you should think about what are the real deal breakers for YOU. Is it termite infestation? Is it an unsatisfactory building report? If so, you should add in another clause – if any of these problems exist, you have the right to terminate the contract and get your deposit back.
Of course, nothing beats getting a lawyer to draft the conditions for you. But it does cost money and I guess it’s only natural for people to be reluctant to pay incur those costs before they know they’ve secured the property.
Cheers
MIf I remember correctly, if you get caught out, you have to pay back the $7,000 and they can slap a $7,000 penalty on you without any conviction. If convicted of providing false or misleading information to the government, it’s a criminal record (fraud-related, which will completely DESTROY your credit rating for years to come) and a further fine of up to $20,000.
If you can’t pay up within a certain period, the government has the power to force the sale of your house.
Personally, I’d rather save up the money than risk all that pain.
Cheers
MHi Salaberge,
As a general rule, I believe that if the turnover of your enterprise is less than $50,000 per year, there is no need to register for GST.
If you’re not registered for GST, you don’t have to remit any GST on your rental income. Therefore, you don’t have to (and in fact CANNOT) charge your tenants GST on the rent they pay you. ie your commercial rental property is essentially GST-free.
The downside, as creach pointed out, is that you can’t claim back any credits on GST which you have to pay (eg on the purchase price, on managing agents’ fees, etc).
Cheers
MHi Casey,
Thanks for sharing your experiences. I’ve just come across an investor who specialises in student shared housing. He bought a $180,000 house a few months ago, and is renting it out to 3 different students for a total of $400.
Now that’s clearly positive cashflow. In the metro area too (close to a university).
However, you do make a valid point about problems with shared facilities. I wonder if the solution is simply to make all occupants responsible for any damage to shared facilities, regardless of whether they personally caused it.
You’d probably need specially drafted clauses in the lease to deal with this.
what are your thoughts?
Cheers
MOnya Steve!
It’s also written in the scripture that you can’t please everyone. Quite true.
Cheers
M
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