Hey Guys,
I have been thinking about this idea which will allow people to get into the property market with only a small amount of capital… please let me know what you think of the idea, if its currently been done, or any flaws i might run into along the way.
The idea is this: A property syndicate. Here is a hypothetical example of how it could work.
1. A group of 10 people (can be strangers) all have $30,000 cash. They want to get into the property market, but are looking for a cashflow positive properties (which we all know are hard to come by).
2. These 10 people join together, and buy a property for $300,000 including closing costs.
3. You make an agreement to sell the house in 2, 5 or 10 years as long as the properties value has grown by a specific amount (adjusted for inflation of course).
With the weekly rent, you could have two options.
1. Pay profits to investors each month/week/year
2. Put money into a term deposit and allow it to accumulate interest.I believe that this model would benefit as it would allow investors to:
a) receive instant positive cash flow with only a minimal capital investment (as there is no interest expense)
b) allow the investors to make a capital gain when the property is sold
c) allow the investor to be diversified in the market. For example: every year, you purchased a 1/10 share in a property like this. In this scenario, if a house was to become vacant for a few weeks, its effect on your cash flow would only be minimal.If anyone has any comments i would love to hear them.
Cal
I have seen such syndicates run by the accountants of some wealthy individuals which works well so long it is run by a trusted advisor. usually they have run such syndicates under a company name to avoid/ minimise individual liabilities. You can also borrow against the property if you can't find enough investors and the proposed LVR is low with limited recourse guaratee from the directors/ shareholder. Let me know how you go with this idea.
I think the idea sounds great in theory,however in practice would not be so good. In your hypothetical example above, each investor has invested 30k. If for example rent was $350 per week,disregarding pm fees,they would get $35 a week,or $1820 p/a before tax. This is before all other costs,rates,insurance etc. The same 30k invested in a term deposit or similar would give $1800 p/a before tax. You would have to have a property that experienced excellent capital growth for it to be worth it in my opinion,and the CGT would have to be apportioned between all ten investors,sounds like a lot of paperwork.
agree with solomon.
It is an itneresting idea. Although, I think you get more leverage by getting a loan yourself, and keeping majority of the cashflow for yourself without having to split it with other investors
Agree with mattsta's suggestion of borrowing themselves and keeping the cashflow.
There are some great properties all around Australia in the lower price bracket which have nice returns.
Interesting concept and one I have seen before but generally for commercial property or developments.
I would think that a unit trust could be an acceptable way in which to set this up, with each investor “purchasing” or controlling 1 (or more) units within the trust at a fixed unit cost (eg $20k per unit, 15 available, some may purchase 1, some may purchase 3). If investing in commercial property the trust can have an agreement of the length of the commercial lease, perhaps 3-5 years. During this time an investor may onsell their unit if they wish to reclaim their capital.
I think commercial makes more sense than residential, due to the tenant paying outgoings, long term leases etc.
There is nothing new here and you would be close to a MIS – Managed Investment Scheme. Do it twice (20 people) and you are in the sights of ASIC & Corporations Act 2001, S708(1). Get it wrong and you are automatically guilty of a criminal offence and jail beckons.
1. Use a trust, why ? it does not pay tax, and it has the 50% CGT discount., and its simple.
2. Because of depreciation there is unlikely to be any taxable distributions or very small and they will be non taxable as they are accounting profits.
<moderator: delete advertising>
AnthonyMight be a silly question but, why wouldn't I buy a whole, affordable, fully rentable $30K property in a good spot (still available in many places around the world), then add another every year, not depending on anyone else, nor on leverage? What's my advantage banding up like this? Even if something absolutely unmissable comes up at twice or three times my budget, as mentioned above, I'm still better off getting a loan, no?
Ziv Nakajima-Magen | Nippon Tradings International (NTI)
http://www.nippontradings.com
Email Me | Phone MeZiv Nakajima-Magen - Partner & Executive Manager, Asia-Pacific @ NTI - Japan Real-Estate Investment Property
Hi,
many fund manager/ investment manager ( such as superannunation fund manager) use investors money to purchase commercial property. this is not new, but as above mention, over 20 people you need to comply with all the ASIC requirement.
it is a good way to start, but if you think about it, many fund manager already doing it, and most of people here would like to have direct control of the property without paying fund manager fee,,,, or any middle man fee.
Hence, if you want to be a fund manager may be look up some of large super fund ( property sector ) see how they invest in property.
Tracey B said
“Agree with mattsta’s suggestion of borrowing themselves and keeping the cashflow.
There are some great properties all around Australia in the lower price bracket which have nice returns.”Completely. When making an investment sure it would be nice to buy a property right on the safe strip with a nice bathroom and touched up decor but the reality is if you look further afield there is much more money to be made, both in terms of rental returns and capital gains
I would rather take a 20% profit from one of Mark Roltons Massland property option deals, than consider doing something like this. I am a total beginner in property investment in comparison to most people on here, but I would rather get a deal together where I could at least earn something quicker, so that I could use this to build on something else, rather than be part of some syndicate that I only got $35 bucks a week for, with the possibility of selling and making a small profit 3-5 years down the track.
Just not good enough of a deal as far as I can see.Sounds like you might be better off in a unit property trust or something like it.
Better to go alone, maybe some reno flips, if you want to grow personally and financially.
Cheers
thecrestthecrest | Tony Neale - Statewide Motel Brokers
http://www.statewidemotelbrokers.com.au
Email Me | Phone Meselling motels in NSW
these happen every day in the US… within the confines of small investor groups and tightly held consortiums..
One can use a LLC and just have 5 or 10 members of the LLC and which is governed by the operating agreement IE purpose and how your going to run the transaction,,, One or more members are the managing members and have the responsiblity to the partnership.
the other vehicle we use is a PPM Private Placement memorandum… same theory little different structure.
Nothing criminal as long as all is disclosed.
I would think you OZZIES could benefit from this form of Investing in the US… Appoint a manager that actually knows the US intead of trying to DIY. could have merrit.
JLH
You must be logged in to reply to this topic. If you don't have an account, you can register here.
