Forums / Property Investing / Creative Investing / Investing with Developer to purchase property

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  • Profile photo of MoreshMoresh
    Participant
    @moreshk
    Join Date: 2018
    Post Count: 3

    Hi everone,

    This is Moresh, I am one of the founders at estatebaron.com which is a property development crowdfunding platform. A bit of a newbie to this forum here.

    We assist property developers in setting up the legal structures and the tech to make raising funds for their development projects from small and large investors across Australia (and NZ).

    We have been contemplating setting up a structure where investors in to the development can also buy the end product. So if it was a 10 townhouse development project, and you became an equity investor in the project you would get the right to purchase one of the townhouses.

    Any return that you make on your investment can be rebated against the purchase price thus giving a reduced price.

    We follow all the regulations around disclosure, we do a prospectus for the offer and have an AFSL.

    Developers tend to pay a fortune for their equity requirements to private investors. The idea is to pass on the profit to the buyers and coming up with a win win model.

    The question which I had was would such a structure be of interest to you as an investor? What risks, rewards and other parameters would you consider in making a decision.

    Any other feedback, inputs would be highly valuable.

    Regards
    Moresh

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Is the company an incorporated legal practice?

    Have you considered ways to reduce CGT and stamp duty on a member wanting to take up ownership of a property?

    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/

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

    Hey Moresh,

    This is done by a few developers that I know already – easy way to get funds + presales requirements completed in one hit.

    As Terry has noted, it’s well worth looking at what is the most effective way to structure this to minimise tax and government charges.

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

    Investment Focused Finance Strategist - servicing Australia-wide

    Profile photo of MoreshMoresh
    Participant
    @moreshk
    Join Date: 2018
    Post Count: 3

    Hi Terry

    Did not understand the first question, “Is the company an incorporated legal practice?” what is it in reference to.

    And have not yet completely thought through CGT and Stamps. In case of stamps it would depend on the state and the use of the property, it should effectively be similar to an off the plan purchase.

    While getting investors in at the land site purchase itself and then parceling them the end property through a trust structure could lead to stamp savings, there are a few other issues.

    Such an offer would require the need for a special AFSL authorization to “issue” shares in interests in land. Corralling investors before land is even acquired is quite hard. Doing it after would lead to a stamp duty event due to change of ownerhship. And if there is a debt associated with the project, investors would become liable for it.

    Nonetheless I am sure a structure can be devised, if there is a market demand for it. Just trying to figure out that part first.

    Regards

    Profile photo of MoreshMoresh
    Participant
    @moreshk
    Join Date: 2018
    Post Count: 3

    Hi Corey

    Very interesting, would you be able to share who has done this before? Any introductions will be highly valuable, [email protected]

    Regards

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    Hi Moresh

    “We assist property developers in setting up the legal structures”

    This is legal advice so you would need to be lawyers to do this.

    Stamp duty could be eliminated completely if certain conditions are met – or dramatically reduced.
    No investors wouldn’t become liable for the debts of the developer.

    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/

    Profile photo of vyaw2003vyaw2003
    Participant
    @vyaw2003
    Join Date: 2006
    Post Count: 185

    If i invest $300k with the developer. The build takes 1 year. Total price for project is $3 million including land. The amount of units is 10; the cost is $300k/ unit. How much would the developer expect to sell this unit to me? He need to make a profit, but as the investor, I would not be interested in then having the right to buy it, paying market rates of $480k.
    If there are structures like this around, where the TCO of the unit for me is $320-50k I would definitely be interested in this. Obviously the bigger the unit complex the longer the project.

    If there are developers out there that have such arrangements please let me know. Salim Mehajer please don’t bother replying.

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    If you invest $300k with a developer you will be very lucky to get it back!

    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/

    Profile photo of vyaw2003vyaw2003
    Participant
    @vyaw2003
    Join Date: 2006
    Post Count: 185
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,110

    I am a lawyer and have seen a few people lose everything they put in to projects of developers – biggest loss that I saw was $1mil.

    But clients only come to see you when they lose, there are probably many more that succeed. Just be careful and get legal advice before doing anything.

    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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