Buying Commercial Property with friends

MoTown

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Hi,
A couple of my friends and I are exploring the idea of forming a syndicate to purchase a commercial property in the Dublin area.
Each person already has residential investment properties (single apartments) but this would be our first large scale transaction. We are looking at properties in the range of €1,000,000.

How would we need to structure the syndicate to approach a bank?
How much capital would we need to contribute?
Will banks deal with us on the basis of the property's rent roll or our current income?
 
Hi,
A couple of my friends and I are exploring the idea of forming a syndicate to purchase a commercial property in the Dublin area.
Each person already has residential investment properties (single apartments) but this would be our first large scale transaction. We are looking at properties in the range of €1,000,000.

How would we need to structure the syndicate to approach a bank?

Possible as a partnership, this would have tax advantages, it would allow a clear setting out of the rules of the partnership, it would mean that each partner is liable for the whole debt.

You would need to tease this out very fully.

Have you thought about VAT, would the letting be subject to VAT, a complicated question, but when the bank asks you need to have a clear answer.

How much capital would we need to contribute?

30% or €300,000 for a purchase of a million.

Will banks deal with us on the basis of the property's rent roll or our current income?

Not unless you successfully persuade them that they should.

Have you previous experience in the area. One or two residential properties won't count for a lot.

Have you a tenant in place or lined up.

What type of tenant could you reasonably expect to attract to the property. If you have a high likelihood of getting a large multinational as a tenant that's one thing, if your prospective tenant is more likely to be a small one man band business that is a very different thing.

On a more speculative note. Opportunities such as this are difficult to get off the ground at present, if it was easy everybody would be at it. Indeed there were times in the past when nearly everybody was, but the problem then was that the prices were too high, today the prices are good, but it is not easy to get a deal done.

I tried something similar early last year, I hoped to get a deal going for in the region of €1m but in the end had to settle for something much smaller.
 
Hi Motown

You are all fairly wealthy, so you do not need to enter into a syndicate to borrow property. You can buy more property on your own.

Buying with others causes huge problems. Just read some of the other threads on askaboutmoney.

One partner's personal circumstances change - loss of income, marital break-up and that partner can't afford their repayments.

Personal circumstances change and it no longer suits one person to have a highly leveraged investment property, so they want to sell it.

The partners' different tax positions could lead them to want different strategies e.g. you might have CGT losses forward and so not have a CGT exposure while another partner might not want to sell it as it will trigger an exposure for them.

A problem with the property arises e.g. a non-paying tenant, and you argue over how to deal with it.

The property market falls and it turns out that one of the partners is not as wealthy as you all thought and you become personally liable for their share of this mortgage.

This horror story should put an end to any such plans:
Danske Bank appoint receiver on performing mortgage
 
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