Investors pooling their cash - cutting out the banks

[bovis]

Hi,
By all accounts its difficult to get buy to let mortgage approval these days from the banks. At the same time, there seems to be some fairly attractive property deals on offer. For example, allsops are auctioning a house in rathmines (subdivided into 7 units) for what seems to me a fairly reasonable reserve price.

What's peoples view on forming a property syndicate of investors who each have enough cash on hand to buy without any bank involvement?

I guess there are loads of risks and also its probably hard to find people with cash deposits. But surely 3 to 4 like minded investors could form a workable syndicate given the right property, mindset and upfront agreement.

Anyone have any experience of such?
Bovis

 

[theTinker]

Ive spent the night looking into investing in property over the next couple of years etc, Ill wait of course until the market bottoms out or it may have(not speculating on prices!).
As the prices of property was so enormous a couple years back, and landlords are still often making enough to cover thier interest and payments, or close enough. The recessionary downturn of prices has certainly made this even far more feasible.
Over the next couple of days I shall try and put a chart together(if i cant find one) of price of property falls verus rental incomes.
From experience of my friends and family who have invested, It seems rents are still quite high comparing to the drop in the investment required to obtain a property. You'd probably get 6-7 houses for the price of 3-4 a few years ago. I might start a new thread on this.

As for pooling the money, my brother and his friend have dont this. Although they did have to go to the bank aswell. however its worked out well so far. It always handy to have another hard working person to help you, and since there money is on the line, they'd be equally incentivised to do it.
I guess it comes down to picking the right people. I could only suggest you'd be better knowing them before the deal happens. Theres too many ways to get screwed, but if a person is in a position to pool money and buy property while prices are low(they may always remain that way or not), then its a great idea. Rents are still very profitable, especially in comparison to the investment required(during the boom).

 

[Macstuff]

I am not for or against the idea. - whether or not it works depends on the circumstances of each investor.

You'd need to choose who you are going to do this very carefully. Evidently you would need to trust your property partners but you'd also need to make sure that each of you can well afford it.

If it helps, I can share my experience of this with you. I was going to buy a property in 2001 with two friends but in the end I didn't and in hindsight I am very glad that I made that decision.

After coming up with the plan and budget we began to look around and in the end I called it off, before buying anything, for a few reasons....
1) I was the only one truely interested in it. The others liked the idea but were always "too busy" to do the viewings, meet with the banks etc. That was a bad start and got me thinking about whether it would work.
2) I was the only one with DIY skills, so would have ended up doing the repairs etc.
3) We were all at different stages in life (this is perhaps the biggest and most relevant reason for you) and over the last few years we have done very different things, but have remained firm friends. With hindsight I can now see that these changed circumstances would have caused problems i we'd had a property together.
This is a summary of what's happened for each of us over the last few years; one of the potential investors has taken a huge pay cut to work in an area that really interests him - so he would have needed to cash in his investment.
The other has got married and now needs to get money together to buy a family home and start a family - meaning that she too would have asked to sell over the last few years.
I've bought other properties on my own and while they are doing okay I have been affected by the lack of bank credit and may have ended up needing to cash in my share, if I'd bought into this.
What I'm saying is that if we had gone ahead differing social and financial circumstances would have led to a squabble over how and when we would dispose of the property.

I know you are probably imagining a situation where this would be a "cold" investment, but in reality peoples circumstances change all the time and thats when problems will occur. So think carefully.

 

[south_dub]

I think it makes a lot of sense for investors to pool resources. Banks are closing ranks and I think everyone knows that mortgages are hard to come by.

I would also suggest a somewhat related possibility: if you already own an investment property but are finding things tough then you can sell a share in your investment property.

How would this work? An example:

Say you own an investment property that is currently valued at 150K. You bought the investment property for 220K during the boom and the amount outstanding on the mortgage is 200K. What you could is sell a share in the investment property, at a discount, to another like minded investor. For example you could sell 50% of the property to 1 or more investors for a total consideration of 65K - a discount on the true current value. You receive the cash injection of 65K and the future maintainance costs are split 50/50 as would the rental income on the property. The discount is there to entice investors on board - you get a sizeable cash injection and the investor gets a good deal.

Here's a guy doing exactly that on an investment property in Dublin:

[broken link removed]

I am surprised more people are not doing this, it seems to make sense to me. Obviously you would have to meet up with the person and draw up contracts but it could work out well for everyone involved.

Interestingly using ShareSpark you can place a wanted ad for other like minded property investors looking to enter a shared ownership arrangement.

Disclaimer: I know the guy who runs the site, I have not sold a share in a property but have used the site to swap a bike.

 

[Bronte]

But surely 3 to 4 like minded investors could form a workable syndicate given the right property, mindset and upfront agreement.

No experience other than life experiences and it would be rare indeed for this to work. Macstuff has done an excellent summary of some of the pitfalls.