Forums / Property Investing / Commercial Property / Commercial Portfolio Structure

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  • Profile photo of RichardRichard
    Participant
    @richard31
    Join Date: 2015
    Post Count: 4

    Hi Guys.
    Im wanting to start a commercial portfolio. I would like to know what structures people are using to buy and hold commercial?
    At the start, I will be buying a commercial under $1m all cash, then using that as equity for the next purchase. Possibly after that, I will have family members also wanting to invest with me. So in the end, it could become more like a syndicate, whereby ‘x’ family member puts in $500k for example in exchange for ‘x’ percentage of the portfolio.
    Does anyone have experience with Syndicates or trusts where this could be a possibility?
    Lots more questions, but lets start with that.

    Thanks in advance.

    Profile photo of Scott No MatesScott No Mates
    Participant
    @scott-no-mates
    Join Date: 2005
    Post Count: 3,850

    @richard31 – there are multiple restrictions around setting up sydnicates (depending upon the number of members, you may need a product disclosure statement and very specific legal advice). You may need to speak to a ‘structuring’ solicitor like @terryw who may advise that you use a unit trust where you can sell a number of units to members.

    Profile photo of Corey BattCorey Batt
    Participant
    @cjaysa
    Join Date: 2012
    Post Count: 1,010

    Is the intention to purchase this via cash, or having enough unit holders/investors to pay cash for any proposed purchase? Any group/syndicate purchase with finance can cause a nightmare for all those involved for their personal finances thereafter as each party will be liable for the entirety of joint debt in borrowing capacity calculations, whilst only being able to count their percentage of entitled rent.

    The last thing you want to do is have a structure which stops any individual being able to buy another PPOR, investment property, anything in the future.

    Corey Batt | Precision Funding
    http://www.precisionfunding.com.au
    Email Me | Phone Me

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of RichardRichard
    Participant
    @richard31
    Join Date: 2015
    Post Count: 4

    Thanks Guys,
    Yes the first few purchases are likely to be with cash, but obviously as the deals progress, finance will be sort. So yes, it is important to structure it so as not to bind everyone involved. A unit trust sounds much simpler. I wonder what @terryw can add?
    Cheers again

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,190

    With commercial the risks with tenants are higher than with residential so you would want to more carefully consider asset protection. Paying cash can be done, but would be more risky. A way to improve asset protection could be to pay cash indiretly by having a sepapate entity own the property to the entity that owns that cash – with a private loan agreement.

    The owner would generally be a company – whether in its own right or as a trustee. Which one you use will depend on the situation inncluding the land tax issues for the state.

    The next property after that should probably be a separate entity for various reasons including asset protection, land tax, etc

    If you are going to have people buying in later you need to consider the stamp duty laws including landholder provisions.

    You also need to consider the borrowing implications with banks – how to maximise borrowings and issues if transferring shares or units of a trust.

    Terryw | Structuring Lawyers / Loan Structuring Pty Ltd
    http://propertytaxbook.com.au/
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Aust wide) http://propertytaxbook.com.au/

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