APIA Blog

RSS Feed

Ryan Smuts: How to finance a deal when you are investing with someone else 

Tuesday, January 21, 2020

IMAGE CREDIT: UNSPLASH

When it comes to investing in properties with a partner*, be it a spouse, a friend or colleague, funding rules can differ from lender to lender and would depend on the nature of the relationship between the parties. The key things to be aware of are outlined below:

For the most part, lenders would assess applicants jointly if the partners are also (de facto) spouses. For example, in the case of Mr & Mrs Smith, their combined assets, liabilities, income, and outgoings would be assessed, this would be the same across all banks and regardless of purchasing entity (personal names, company, trust) assuming both parties are part of the proposed entity that is owning the property and borrowing the debt.

Non-spousal partnership applications (e.g. friends, parents + children, colleagues) are treated quite differently. Generally, applications are assessed on a household basis. For example, if you have Mr & Mrs Parents & Mr & Mrs Children applying for funding, the application would be assessed based on the Parents’ ability to service the loan in its entirety as well as that of the Childrens’ ability to service the loan in its entirety. Harsh much? Not really. Home loans commonly make all debtors jointly and severally liable for the total amount of the debt. While the parties may agree to service the loan in equal portions, the reality is that each party (i.e. household) is responsible for the TOTAL debt. If one household fails to meet its repayment obligation, the other household will be liable for the full amount. Look at it this way, in the case of a mortgagee sale where the bank is trying to recoup an unserviced loan, it is not as if they could sell half of the house that’s why the applications are assessed on each household's ability the service the entire debt.

Still, there isn’t a hard and fast rule. From time to time, lenders could take a more global view of the partnership and arrive at the conclusion that because each household can look after its own portion of the debt that they will be assessed on that basis. This is rare but it does happen. If you want to explore this option further you would be well served to work with a broker who knows about each lender’s rules and appetite for market share.

Similar but understandably more complex rules apply when there are more than three partners involved.

You also want to make sure that you are getting good legal and tax advice so that every partner’s interests are taken care of. The best advice I can give you is that while a good personal relationship would normally underwrite the partnership, at the end of the day partners are proposing to enter into a business transaction and therefore should treat it as such.

As always, I am more than happy to answer any further questions you may have regarding this or any other property finance-related matters. You can contact me at ryan@krispedersen.co.nz or on 021 193 9333.

* For the purpose of this article the terms ‘partner’ and ‘partnerships’ refer to two or more people jointly applying for property funding. They are not intended as specific legal terms.


 


ABOUT THE AUTHOR

Ryan Smuts 

Ryan is a Key Accounts Manager at Kris Pedersen Mortgages and Insurance as well as a property investor. 

 

 

 

 

Recent Posts


Tags

debt enforcement skill shortage bond form rtaa2020 LIM twg report election2020 tenancy services Holler property apprentice cash-flow letting fee house prices property maintenance advice legal development ocr warm up new zealand HHS Case study anti-social behaviour sale and purchase buying rules rental wof Gluckman mortgage housing affordability ring-fencing speculator government bond DTI Property (Relationships) Act Must know parry v inglis Standards New Zealand will relationship beginner investor buyer's agent partners off the plan financial advisers act wins water bill damage trust property management winz short-term rental investment strategy boarding house trespass banking watercare principal and interest interest rates market How to insulation investor subdivision letting recycling equity landlord smoke alarm data security property cycle privacy productivity ask an expert gluckman report housing bubble fixed-term tenancy market rent yield building structure CoreLogic kiwibuild robert kiyosaki HHGA personal growth maintenance initio capital gain airbnb RBNZ tax cgt Must knows p lab business inspection Investment tip Sponsored post trademe bad tenant ird rent arrears early termination tenancy tribunal termination lvr election 2017 heater khh minor dwelling insurance rental market return meth contamination RTAA 2019 property value Level 4 scotney williams television tenant HSWA buying rent increase first home buying rent Investor story management commerce commission asbestos Editor's Choice education holiday house auckland TCIT anz cat Tribunal case study warren buffett Guest blog worksafe clnz Market report sublease tenancy issues Q&A mindset nzpif renovation interest only re agent Landlording rta reform extractor fan Jeff Bezos covid-19 CCC negotiation shower dome heating sale and purchas Question and answer income rta property Kris Pedersen Mortgages and Insurance opes partners equity positive cash flow meth finance ventilation auckland council wealth creation reserve bank unitary plan barfoot and thompson

Archive

Introducing Our Partners
Principal Sponsor - Kris Pedersen Mortgages & Insurance logo Gold Sponsor - Barfoot & Thompson logo Gold Sponsor - CoreLogic logo Property Apprentice logo The Insulation Warehouse logo The Renovation Team logo The New Zealand Property Investors' Federation logo
09 360 2376
info@apia.org.nz

The Tenancy Practice Service and TPS Credit Control work closely with the Auckland Property Investors' Association. Our vision of bringing helpful resources, documents and high quality services to Auckland Property Investors and Property Managers is shared by APIA, so its a partnership that works well. 

The Auckland Property Investors' Association is a great organisation for those who want access to advice and information from a range of industry experts and partners. 



Mathieu Holt- Managing Director, The Tenancy Practice Service & TPS Credit Control
Through the Association I found the channels and methods to fund the purchase of property I never dreamed about. Grant Brown

All round it has been one of those things Neil and I felt was really worthwhile belonging to. We have learned so much it has just built our confidence in what we are doing.

Janice Bieleski
I read two articles in the monthly magazine that saved me over $5,000. That is my membership fee for the next 26 years and I am sure I will learn a whole lot more! John Duncan
Fantastic organisation. The networking opportunities are brilliant and provide us with information and opportunities that cannot be obtained anywhere else. We learn something new at every meeting and we've been in this game for nearly 20 years. Pauline and Gyanen Kumar

I find the information obtained from various APIA meetings very useful in guiding my own property investment and rental management.  I also enjoy the networking opportunities with like-minded investors.  I am inspired by other investors’ success and find the more experiences and knowledge that I share with others, the more confident I become.  

Thanks to all APIA event organizers and administrators for your brilliant work. 

Stella Shao

I like talking to people and learning from their experience because it gives me the confidence to invest well. I think it is a knowledge thing. I now know I am doing things the right way.

Stephen Weatherall

My APIA membership has become a total success.

Every time I attend a monthly or regional meeting I come away with so many useful and positive tips that have added value to my property investments and management.

Not only that, the website is a great place for practical advice and useful information. It has now evolved into an important resource for my business.

Talk about value for money! The discounts I have been getting at Bunnings when I present my APIA membership card have more than paid for my annual subscription!

Tim Duffett, Plan A Investments Limited