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Chapter 1: What are the benefits of co-owning a property?
Hello and welcome along to the Property Academy podcast by Obus Partners. I'm your host Stephen Knight. And I'm Andrew Nicholl. And this is the show that helps Kiwis go from zero to five investment property so you can be financially free and stick around for the next 15 minutes because you're going to learn if you co-own a property, how do you buy your next one?
The six siblings targeting 250 grand a year in passive income and why getting out of a co-owned property might not be as easy as you think. Now, co-owning can help you get into a house. Like if you buy a house with your sibling and you both put in 50% of the deposit each, well, there you go. You just bought a house with half the deposit you would otherwise need.
So that can mean that you get onto the property ladder faster. But There are some issues. We sometimes see ex-partners, siblings, friends and family stuck on the same mortgage.
Chapter 2: How can co-ownership help you buy your next property?
And I suppose the other thing, Andrew, is that some of the standard paths to building a portfolio that we talk about on the show start to get harder if you co-own a property. So let's go through the four different paths that you could use to build a portfolio if you start by co-owning a property.
But before we get into that, what do you see most often right now when people walk through the door and co-own a property? Like, why are they doing it?
I mean, other than like your usual partnership, like someone gets into a relationship and they decide to invest in property or buy a property to live in relatively early on, potentially, before they might, you know, automatically have joint assets. I think probably the most common would be a couple of mates wanting to invest together. That seems to be fairly common.
But to be honest, I don't get a huge amount of it personally.
Oh, that's really interesting. I saw a case recently where there was this guy called Robert and his brother buying a property together. They did this about 18 months ago.
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Chapter 3: What challenges might arise when selling a co-owned property?
They decided to combine their deposits together rather than buying separately. Just cash deposit? Yeah, because if you've got a smaller deposit, like from your KiwiSaver or your savings, then if you're less than 20%, you're going to have to pay a higher interest rate. So these brothers thought, all right, let's combine our deposits. get over that 20% deposit threshold.
Then we're going to get access to the standard interest rates that you see, or rather actually they're called the special interest rates that you see advertised by all of the banks. Now the brothers are both living in that property. They've taken on some borders to try and pay off that mortgage faster.
And the next move is to use the equity they've built within that owner-occupier home to fund the deposit to go buy another property that they're going to move into. and then turn the original property, the first one, into a rental.
Chapter 4: How do siblings plan to achieve $250K/year in passive income?
That's great. I think that kind of works because they're both on the same page right now. They've got a shared goal, i.e. buy a house and then build their wealth. And they're buying essentially as individual households, but collectively. Now, where it gets a bit more complicated, though, is when Robert meets a lovely young lady. Oh, hello, I'm the lovely young lady. Yeah, well, look at me.
Is that what you wanted? I thought you were going to say, oh, man. Well, it could be. It could be. It could be anybody. Yeah, it could be anyone. And then... How much equity has he got? Double income, no kids. Nothing wrong with that. And so then all of a sudden, you've got another partner to consider. She might not like living with Robert's brother.
and or they might want to find another house that's more suitable for them to have a family. So that's when all of a sudden your paths go in different directions.
Well, I do think though, this is kind of path one to growing a property portfolio when you start by co-owning, which is just to stick together in that group for as long as you can, buy the first one, then think, okay, we've built up some equity. Now let's buy the next one. So you just keep buying as a group.
That's probably one that a lot of people, like it's so obvious, but a lot of people would not think about.
And actually I was talking to Robert Cross, who's from Opus Mortgages, and asked him what he kind of sees on a regular basis. And he said recently he helped some people get a mortgage. Two tradie friends, they're first home buyers. They again combined their deposit to buy something. Their focus was not the opus way, the traditional opus way of buying new.
They wanted something they could renovate. So they did that.
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Chapter 5: What are the potential pitfalls of joint mortgages?
And then once they've completed that reno, they can either do the same thing again, or they can sell it and split the profits. And then each of them has a bigger deposit to go on their respective journey themselves.
Okay. So starting with the flip as a way to build some equity and then say, cool, we've done that. We've built our deposit. Time to run off in either direction. We can both start on our own. So I suppose the second path, rather than just keep on investing together, is just sell the first property, then decide, okay, hey, look, we're going to go do things separately.
But I think if you're going to do that, the exit plan really needs to be designed before you sign the first property, not after.
Or at least know what your different paths might be. What do you mean by that? So what you might do is say, okay, well, we're more than happy to keep on doing this, but in the event that we can't get the lending for the next one or a past change, who buys out who or do we sell at that stage?
Okay. Here's a really interesting example I got off one of our financial advisors, Nefi. So she was working with some investors. Mum and dad were busy. They had six children. Oh, get a TV. Just before we started recording this, we went out for brunch and it was six adults and three kids.
Two of whom were mine.
Yeah, I was like, this is manic. Can you imagine if there were six kids and one couple? Honestly, I'd run away. I'd leave. Dad went to get the milk and never came back.
But your lacto is intolerant.
Well, in this case, Dad died. You stitched me up. No, in this example, Dad actually did die. Yes, I know. It's not funny. You made me laugh, though. People will now realise what a psycho you are. So Dad's been very disciplined. He's got the family home completely mortgage-free.
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Chapter 6: How can co-owners effectively build a property portfolio together?
And because they've got so much equity, try and turn this into rental income. That's so cool. So they're targeting 250K in passive income per year over the next kind of 20 years. They want to build that up. For the family. For the whole family. And then they'll split the income coming out of this trust out to the six different children and mum while mum is still around as well.
And not ever sell those properties. It's basically like the Todd family, right? So Todd family, one of the richest families in the country. They obviously made, I think they're worth about a billion dollars now.
How do you know they made their money? I actually don't know the answer to that.
I know a few of them. They've done a lot in farming and oil and gas, my understanding is.
Mm-hmm.
Now I just need to find out what their net worth is. I reckon it's a quarter of a billion dollars. Quarter of a billion. No, 3.5 billion, according to- 3.5 billion? Yeah, 3.5 billion. Yeah, they're worth a lot of money. And my understanding is that they've kept all of the assets together. If you're a Todd family member, they pay you out your income. You get your distribution.
And they're keeping everything within the family.
And now if they do that, one thing that you do want to think about is kind of the estate planning side of things. So what happens if one of the siblings passes away? Does their six pass on to the next generation? Or what if one of the siblings or mum gets into a new relationship? You don't want her new partner to try and get their hooks on the assets that's there for the family.
You really want to make sure, because that money that's being paid out is being used for the family, like your family unit, if you get into a relationship with someone, that could really quickly become relationship property, or at least runs the risk of that, and you just don't want to get in a fight and then put everyone else's assets at risk.
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Chapter 7: What should you consider when planning an exit strategy for co-ownership?
So I need to pay him $175,000. Now, the bank might actually let me do that. It depends on the bank approving me for doing that. But if I go to the bank, get the mortgage increase from $600 to $775, but all in my name, and look, we're not going to worry about LVR because yes, I know that's over 70%, but you might go to a non-bank lender.
But just for the theory of it, if the bank gives me that money, I pay him his $175, he goes and does whatever he wants, I retain the asset.
I'll tell you another example. Recently, I saw a situation where there were parents who wanted to help their child get onto the property ladder. They were an adult child, right? And so the plan was to buy about a million dollar house in Queenstown with the kid, and they'd all be on the title together. They'd all be on the mortgage together as a family.
this as parents helping out a kid into a million dollar house in Queensland?
As an investment property, right? It wasn't a, hey, let us just buy this for you. It was, hey, look, we want to buy an investment property for our retirement. Let's bring you in too, because we want to help you get on the property ladder. Now, one thing that the parents weren't aware of is that the child then becomes jointly and severally liable for the entire million dollar mortgage, right?
So what that means is that if the kid then wants to go and buy their first home somewhere else, when they put in their application for the bank, they're going to have to say, oh yes, I'm actually responsible for this million dollar mortgage over here, which means they're going to need to have to earn a lot of income to be able to cover that million dollar mortgage on the investment property because they're going to be assessed as if they've taken that mortgage effectively out on their own.
Plus, whatever money they want to borrow for their first home. And so that was a bit of a shock for these guys.
Yeah, that can be a bit of a trap. You probably want to talk to a good mortgage broker there. I wonder whether or not you can have it so that you're on the title, but the loan's in mum and dad's name if they've got enough security.
Well, here's that really interesting part of this one, is they were thinking, well, that's okay. They're going to buy the child out or the kid out from their share at the time where they want to go off and buy this other home by themselves. But here's the catch. Mum and dad, by that time, in five, 10 years, will be 65 to 70. They can't get the loan. Here's the issue.
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