910 apartment buying red flag, when is a side hustle viable, selling my unit to developers + more

Today on the show, we are talking a little bit about viability of side hustles.

It's a bit of a property themed episode though, because we've got some questions about

joint ventures and also selling your house to a developer.

I'm with John Pigeon today and John is from the, this is property podcast.

John, at what point Sam asks, would you say a side hustle has viability, $1,000 a week,

a certain number of sales, et cetera, et cetera, what are things to measure?

So what are you telling Sam about their side hustle?

Well, first of all, it takes a bit of courage, doesn't it, to get a side hustle up and running?

And I think a lot of us want to sort of dip our toes in the water without going full

noise, let's run a business and quit our day job.

I think I would look at it and say it's maybe got three levels.

There's a level that says, I'm earning enough money to run, to cover the running costs

of the business right now, depending on the top business that is, as to how much that

is.

So yeah, maybe a certain number of sales, but it's got to cover the cost of doing things.

Then you might get to that stage where it starts to give you some sort of income, as

you know, over and above the running costs of the business, again, putting a number on

that is hard.

It's very personal, but just going and targeting a figure there.

And then the third one is really, well, hang on a minute, this has got real legs.

I'm going to quit my day job and then, and this is actually what I do for a living.

So that's the sky's the limit.

Would be my thoughts on those, about how I'd approach it, but what are you reckon?

Yeah, I think number one, when you are asking questions like this in our Facebook group

or you're asking other people, you just can't pin it to a number because it's relative

to your situation.

By all means, I think if you basically said it all, and I'll just encourage Sam about

the viability, at what point would you say the side hustle has viability?

What are you talking in terms of viability?

Are you saying for me to keep doing this or for me to stop doing this and transition

and do it full time as my job?

And that just comes back to, well, if you're doing $1,000 a week, is that in top line

sales?

And if that's the case, gosh, take some expenses off there.

It's probably not viable.

For most people, unless you live on a farm in the hills, you've got no rent and you only

need $500 a week to live on.

But that's all good, but it's not if it's a seasonal thing and you sell $1,000 a week

with Christmas trinkets in December.

So I think I would just encourage Sam to step back, run the numbers to really see how

much it costs or more so how much you need to sell each week and just work backwards.

And I would start working backwards by if you have an income, I'll make a number of $80,000

at the moment in your own life.

Well, let's try and have the target of taking $80,000 a year.

Let's have that as the baseline.

Then let's add some of the costs.

So maybe we're projecting in this business, you know, if we needed, we don't know what

the business is, but assume it's 150 grand that we need to turn over to cover costs divided

by 52, that's just under 3 grand, 2800 a week.

But I think there is an important thing to note.

You mentioned it in your third thing, does this thing have legs?

So it might not right now because you don't have the time to put into it.

No, and that's one question I was going to ask you is how much is it passion and interest

versus I want to make as much money as I can?

Because a lot of these side hustles are passion driven, aren't they?

I've got an interest in it, whilst others are really focused on, okay, I've seen a real

opportunity here to make as much money as I can out of this.

Well, I think the making as much money as I can out of it isn't a good metric either.

No.

Because there's a lot of people that make good money and hate their job.

Yeah.

Another of, well, if it's something I want to do, do I like doing it?

So at the moment, my podcast was a hobby when I was in financial advice.

Yeah.

It was my outlet, playing around with the tech and all that.

Then I'm like, oh, I'm making a little bit of money from this.

I'm going to now, for me, it was viable because I saw the signs of life.

But the jump between your current thing and some viability that you may see or some

signs of life, that jump there is basically the risk leap.

Yeah.

And there's no really good outcomes in this life unless you don't take some type of risk.

Well, you don't want to look back on it with regret and so I should have pursued that.

No.

But then when I quit the advice business, I went full-time into the podcast, it started

really doing better because I had the time.

And unfortunately, I didn't have a hobby anymore.

It was my full-time thing.

Yeah, I had a choice.

Yeah, we're recording on a Monday right now over the weekend, I was in here both days.

I probably spent four hours in this room playing around with cameras and microphones

and lights because that's a little bit of a hobby for me.

And I just, I still like that tech side of it.

So I don't know.

I think Sam just really worked backwards and understand that you will have to take a risk

and that's pressing go at some point.

And we don't want to do that right away.

We do want to see some trends and signs of life.

If you're selling Christmas trinkets or whatever and it's seasonal, maybe not viable.

But we don't also know what the viability means in this little bit.

Good luck, Sam.

Good luck, Sam.

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Until then, my name is Glenn James and you are listening to Money, Money, Money with John

Pigeon.

Before we get into it, this show is general advice only and I've got a license to provide

that advice.

Full details can be found in the show notes.

I'm a former financial advisor.

Now I do the Money, Money, Money podcast.

If you're a regular here, we call it M3 and we do a podcast called Retire Ride.

I've got a book.

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There's a link in the show notes if you want to turn up your investing to 11 or if you're

just getting started.

Let's get into it.

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Okay, you can't.

This is an interesting question or comment or discussion topic.

Give some save some spend some sound simple.

So that's kind of my mantra in my life.

I like to give some money, save some money or invest or invest and spend some money in

that order.

But when you actually try to live it out intentionally rather than an afterthought, especially with

mortgages, costs of living pressures, etc., particularly in cities like Sydney, the give

some part raises questions that I'd be keen to hear others thoughts on.

So you can just search the Facebook group for this.

Do you think about giving as a percentage of income savings or something else to what

feels sustainable for you over the long term?

So when you are, I don't know, in your job as kind of like the property coach dude, you

would obviously have some broader chats around spending and saving and budgets and whatnot.

What are you seeing out there from people, are they givers, are they not?

How do you think you'd pluck this chicken?

Yeah.

So I think the first part of it is you've got to get your own situation sorted first, right?

Now whether that's giving to others, giving to kids, giving to whoever, it's very hard

to do that if you haven't got your ducks in the row.

So that's the first part of it and I'm sure Kent has, but knowing that the cost of living

is going up, the ability to save is becoming harder and harder.

So I think there's never one version of this, but we've got to be comfortable in our

own situation as to what we can give, right?

Now whether it's $1, $10 or $100 or a million, it's the ability to think that we're helping

someone else and not just looking after our own situation.

So I think there's never one template for this and never, I don't think a percentage

that says you must give this away.

I think it's just relative to your situation, your time in life, is it just you, is it you

and your partner, is it you with three kids, is it you with a dog like it's just, it's

got to work for you and you've got to be comfortable and content with that because

with otherwise we're just sitting there comparing to someone else that situations totally

irrelevant to us.

It reminds me of actually in the quick start guy to an investing book, we talk about, you

know, setting your frameworks and foundations and whatnot.

It reminds me of when someone rocks up and listens to this podcast for the first time and

they want to sort their money out, it's actually really hard for them to read something that

says, you should invest 20% of your own inks and then do everything else.

Yeah.

I mean, that's cute because I've got my life going on and all that.

It's easier for your, I think Max, you've been talking about, you know, becoming a man

and getting a car and a job and all that stuff.

It's easier for someone coming online for the very first time with a real budget to actually

building that habit and the behavior to say, from day one, when I get paid, I'm saving

or investing 20% so I think we just need to chill out when people say, oh, you must give

X amount or you must, this gives some save some spend some, that's just what I do.

Now I didn't, I'm not prescriptive with the amount.

So if, you know, especially with mortgages, cost of leaking pressures, et cetera, particularly

in Sydney, I mean, if you power bills over due, but you're giving $200 away a month to

the, you know, John Pigeon Wildlife Foundation, I mean, what a scam, but all credit card debt

now.

Yeah, like I think it has to be in your, just got to do things in the right order.

And if now he's not the time to give financially, it's more of this intent posture for life.

Don't be a taker, be a giver.

Yeah.

Now that could be giving blood.

It could be cooking meals for a, you know, a new mum or someone who's just had surgery

or Glenn James in Newcastle, any of those examples, I mean, it comes in all shapes and

sizes.

Yeah.

So I think I like how they've actually thought about this because there is this thought

of like, yeah, I would like to be a giver.

And different times can change and you might, if you've got $1,000 of bonus or $1,000

on a scratchy or something like that, well, you might say, well, any money that I get

that comes in my door as a win for, that wasn't expected.

We like to give 10% of that or 20% or, um, I, I just really want, you know, I just think

it's all about balance in life because if you're doing one of these things out of balance,

it's not a good outcome.

Now, so if you're giving all your money away, you're neglecting your own house and

your power bill and maybe what your kids need.

If you're saving all your money or investing, well, you might not be enjoying the now or

living in the now, you might be so focused on future you and screw willing money away.

There's no joy there.

But if you're spending all your money, well, you need to look after your future and also

don't be so selfish and indulgent, maybe you can help someone else.

Yeah.

Balance.

I thought it's a really good discussion point to talk about.

Reluctant to ask this question, but do you see a percentage there for giving like do

you say 5% 10% like because I contradict what I've, what we've been spoken about.

But if someone like Kent sing there, is there actually a guide we'd say, well, 5% is good,

10% is even better like 20% is a norm like it's, yeah, well, I don't know.

I think, you know, the Lord only asked for 10.

So you know, that could be a good guide in someone's life, because I feel 10s are good.

And you've got to realize most giving in Australia is tax deductible as well.

Yes.

So maybe you could pitch it as a as a tend to start with, but I just think if the heart

is there based on your situation, I don't think it's really that crazy to try and strive

to a, I don't know, like you've heard about this effective altruism movement, where have

you heard of that?

No.

So Peter Singer was involved in it, Sam Harris and all that and it was basically like,

I'm going to get, I want to give to effective charities only.

So Peter Singer's booked the life you can save and don't at me, everyone, but his whole

thing was like, it cost $5,000, this is an example, similar to what he said, to train

one guide dog to help one person who is short of sight and all that.

However, that $5,000 through the Fred Hollows Foundation could maybe stop 100 people going

blind to start with.

Yeah.

I mean, he's a philosopher and all this stuff, but I just think it's in as long as your

intentional and the giving's effective, I've got the view, I don't give to people

wearing high v stuff outside the chemist or Newcastle or any of that stuff because I

don't think that's effective because it's just my vibe, but I, you know, I said to one,

I was leaving the chemist at Newcastle that day and there was two people there.

My first comment is when I was walking in the chemist, they tried to go me and I don't

bother them.

I'm poor.

I've got no money.

On the way out, can we have a chat, I said, I don't want to be rude, but I'm not sure

I like this charity needing two people paid to stand here to ask for money, like, I don't

know.

And I think a lot of people think, well, where is this money?

Where does it end up?

Yeah.

Like in a lot of cases.

So.

But just have some guiding principles, can't, and maybe it is like, yeah, it'd be sweet

one day as a household if we got out giving to 5%, or 10% doesn't have to be today, doesn't

even have to be prescriptive, just build it into your budget.

So thank you so much for that.

Can't.

Okay, this one is really up your alley, Johnson, magical people selling to developers.

Does anyone got experience with selling to developers?

We have a unit in Sydney and have been approached by developers who want to buy our block plus

surrounding properties.

It must be an older like maybe a little six unit or something like that.

They want us to enter into an option to buy within three years offer.

So we need to decide, we'd be happy to sell anytime within the next three years, which

is a hard one.

What else should we think about?

I'd love to hear of anyone going through this now and how it's turned out for them.

John, before I get you to give your thoughts, I might just explain loosely for those

to understand about these types of options.

Yeah.

So basically the magical P pod, they've got a property and we'll call it worth $1 million.

They write, and the developers would draw this up effectively, but they write an options

contract to the developer that says over the next, so that's one, two, three years.

Over the next three years, this contract says that the developer can, has the option to

buy your block over the next three years.

Yeah.

At, it's worth $1 million now.

We know that if they purchased it, build apartments, that whole thing could be worth, we'll

just call it 10 mil, right?

We've got the option over the next three years to buy your block, not for the $1 million,

they usually do a bit of juice in it for $1.7 million, for example.

So basically what happens is if you enter into that, and sometimes they'll pay a premium

on the option as well, so they could be, I don't know, $100,000 a year that comes in

while the options in play, and this is the street smart guide to explaining how this

stuff works.

So if you're a property lawyer, don't add me just yet.

So generally what happens is once that options contract is entered into, the developer has

that option, they go and do all the work to submit to council to get a DA approved on this

block.

So they'll do surveying, they'll do plans, all that stuff, because if they can get the

DA approved for that block, that block is instantly worth more than the one now, more

than the $1.7 that they'll give to the property holder.

And basically the reason why they do three years is because it could take three years for

the developer to spend $1 or $200 or $300 grand in with councils to get all the DA sorted.

So then what happens in the perfect world, the developer comes in and has got the DA,

so they can turn this little unit into a high rise thing.

The developer goes, sweet, we've got the option now to buy this, now that we can build

on it.

And if they couldn't get the DA up, the developer has just foregone the costs of the DA and

all the planning stuff and potentially the premium that they've charged along the way.

So then if they do get it, they go, yep, we'll call in the option to buy this property,

give you the $1.7.

Now the reason that it's the $1.7 is because it's an amount that is higher than you could

get for it just selling to the over market and without you going to get the DA and all

that.

So the person who, the magical people, they could effectively go and do all these DA work

themselves or on behalf of the body corporate or whatever that is and do it all their work,

but they're carrying all the risk.

So if it doesn't get across the line, they might have wasted three to 500 grand on plans

and planning and all that.

So in a perfect world, this is not, it's not an out of the ordinary approach is what

I wanted to say.

And that's how real property people, John, make money.

Yeah.

Well, it's not property people like you who buy and hold and carry all the risk and flip

and all that.

You're right.

The option on it.

That's how you make the money.

Yeah.

There's some, it's risk reward and in this situation, this person's got one unit and

there's surrounding properties, there's sounds as though there's a unit block complex.

They want the option to purchase all of them plus the surrounding properties to do one

big massive development that's going to, as you said, make a lot more profit than if

it was just one unit.

So yeah, we've done a lot of knocking on doors over the journey to try and buy blocks that

we think are appealing.

And I think if I'm in this position for magical people, cool name, isn't it?

We've got to be saying, if this didn't come along, what are we doing with this unit?

Are we holding it 10 years anyway or were we going to sell it in the next couple of years

anyway?

Otherwise, okay, if that's the case, then we entertain that.

But yeah, it's all in the developer's control because they can say, they can turn around

in 12 months time and say, no, we don't want to buy it anymore.

But in most cases, when you admit to something like this, you can't sell it 20 on

else.

And that's what I was going to say.

They could turn around in 12 months and they've got a hard no.

They've still got a covenant over the property.

That's right.

Unless you, and I'll speak to a bit, you know, you need to get your own property lawyer

in to represent you on this, unless they kind of call the option and make it go away.

Yeah.

So it can be really attractive, but you've just got to understand the pros and cons before

signing.

And alloy is a non-negotiable on that one, but knowing what your strategy is for that

particular property.

But I think what else should we think about?

I mean, it actually could, I'm not, so I've been involved in the options contract world

with property and made money and done all that, right?

In an ecosystem, you do need the developers.

I mean, don't get me started about unscrupulous ones that are idiots and do annoying dumb stuff.

But it's a good part because you need someone that's going to take the risk to knock that

down and build the 20 story building.

So I do get it.

And I had, I've had personal experience and made money through this type of stuff before.

I'm just saying, what else should we think about?

Number one, like could this be a way that maybe you could, because effectively if they call

the option, you will be selling it for more than what you could sell it for in normal market

times.

Because otherwise you wouldn't go into the options contract.

So what you, when you go to a property lawyer, it's a developer, there's plenty of meat,

whatever they propose, it's going to be more because they're going to want to steal it.

You can negotiate it.

So it could be yet we want, I'm signing, we want $200,000, I'm just making crap up off

the bat as the, because the counter side of it, and I don't think it would be there, is

if in three years time, the option gets called and the market had moved.

So we're now selling it to the developers for the 1.7, where we could have sold it in

the free market for 2.3.

Now it's very unlikely, but that is a downside risk.

Yeah.

And a lot can happen in three years too, in terms of growth.

But the first thing you would look at is, well, can I do this myself?

Right.

Have I got the team of people, can I recruit the team of people to potentially do what

this developer knocking on my doors wanting to do themselves?

So that's the other part of it too, understanding people's risk profile around any of this.

It might be just a, okay, yeah, look, they've offered me five and a gram more than what

I could get for it today.

So I'm happy with that.

I'll commit to it.

So you probably just need to make sure that, and you could do some numbers assuming growth

over the next three years could be X amount.

Yeah.

And a good property lawyer acting for you, that's all I would say, and this gets someone

who's just acting for you, because the developer will have the lawyers that do right the options

contract that you effectively issue, you just don't want to get caught out.

And if you, if it's something where you're living in, doesn't that say whether it's an investment

or not, but if you're living in it, obviously you've got an L, go and find somewhere else

to live.

When you're getting your money and, and is this, this holding pattern that you've sort

of in no man's land for a little bit.

So yeah, it's a commitment.

And I think the whole thing is there would be covenants.

So if you did want to sell it within the three years, the developer has the first option

to buy it or yes, you can sell it to another party knowing that there's an option in tow.

And these are all the details that you just need to cross off, but yeah, not opposed to

it. And it could be a way to actually get some money out of your property and not taking

any risk.

And the only, well, the only risk you're taking is you're probably there for three years.

And the market may be more than what you sell it for in three years, but you just want

to make sure.

Let's, let's hypothetically say I'm just going to make some numbers up.

There's, there's eight units in this complex, and there's, let's say the developer wants

a property either side.

Yes.

So there's maybe ten entities.

Yes.

You don't want to be the first person to sign this agreement.

You want to be the tenth.

So are you saying maybe, so when you said eight units, are you talking on, so let, just

so we're very clear, there's three blocks, two Smith Street, four Smith Street and six

Smith Street.

Yes.

So you're saying two Smith Street has a freehold house.

Yes.

Six Smith Street.

Same.

Four Smith Street, which you're in, and I will draw it for YouTube, just so people can.

So if this is Smith Street, I should have done this to start with, two Smith, four Smith,

six Smith, there's a freehold property either side.

And on four Smith Street, there's the unit complex.

And these person maybe owns one of those units.

And then they might, so there's going to be, you're going to have to engage the strata

of the body corporate to act on behalf of the strata plan here.

But you're saying don't be the first lot to go into it, or we, we say, well, we need

a lawyer to collectively represent all three.

And then, I don't know, like, you agree on a price together, but yeah, traditionally

what happens in these cases is, well, there's, there's the eight different entities in

this example, there's six of them that the developers got a concrete agreement with.

And there's two remaining.

Yeah.

But I think that wouldn't be the case because it, it would have to be the strata plan

agreeing.

Yes.

Well, that's, that's where it comes down to having really three entities.

Yeah.

So if they did have a say to say, well, hang on a minute, I'm just holding off to see

how all this plays out.

Yeah.

Well, but that's the thing.

If, if it is what we've kind of drawn here as the example, if the purple, whatever it

was, magical people, if they're just an owner in one of these units, it actually doesn't

matter.

They need to just get quite informed and be informed to vote on a yes or no to strata

committee and engage the committee to engage lawyers on behalf of the committee.

Yeah.

I'll imagine.

You just don't sell your soul too early is my, no, and that's what I said, like any first

offers that they make and they could actually be a lawyer that represents all three.

Yeah.

Like, the strata committee goes and talks to either side and go, hey, let's do this as

a block.

Yeah.

Excuse the pun that they're blocks, but let's do it as an actual block.

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This is another juicy one.

I put an Instagram reel up on this the other day.

I'm looking to buy my first home in Sydney, one bedroom apartment and I went to an inspection

of a property that I liked and I spoke to another owner of a unit in the block.

She gave me a lot of insights into the building which checked out but then noted that the

building would be going under some renovations soon as it was an old 60s building.

Thinking the thinking new flooring, stairwell stuff, etc.

She said that while the plans had not been finalized yet, the strata committee were looking

at taking out a strata loan for the cost of spite there being nearly 400K in the capital

works fund.

That's so odd.

She could not estimate how much it would be as no plans of yet but I noted as a single

income owner, she was not too worried.

I downloaded the strata port and got my conveyance to have a look through and there is no red flags

no mention of the plans.

Numbing this information though, is it a huge red flag?

Would you still consider this property?

Any advice or insight?

Welcome.

Far out.

What are you saying to that one?

Well, this person is only really spoken to the one owner, right?

Yes.

So, we need to get more facts from the strata committee around what's happening there.

It's unusual.

Well, not unusual but if they've got 400 in their sinking fund and they're wanting to loan

money for renovations, it's going to be a lot more than 400 grand.

Yeah.

So, they don't want to run the world dry, which tells me that it's something substantial

that's happening in there.

So, it is a red flag to me because you're like, okay, it's a 60s building.

We all age.

That's fine but is there something underpinning that's actually going to cost a truckload of

money here to be able to get done and am I going to buy this unit and potentially be

getting into my, dipping into my pocket straight away?

I think it's really important as a headline thing to say, if you're a first home buyer

looking at apartments because we talked about this all last year, my friend Ainsley trying

to buy her apartment.

I think we looked at three or four different documents and the amount, like number one,

there's apartments everywhere.

Number two, the amount that have actually got crap financials or need work, I just think

as a first home buyer, there's plenty of apartments, move on, yeah.

But I will say just some points that I was going to make, the whole thing comes down

to like the number of units in the strata plan, right, is there four or 400, okay?

Because the loan aside, so capital works and getting a loan for the capital works as

opposed to raising a special levy, that's all part of strata living and it could mean

depending on the type of work, it could mean that, yeah, based on each unit, there's only

a special levy once off or ongoing of $10,000 a year for two years or something like that.

Relative to the unit allotment, so in strata, if there was ten units within the body

corporate, different sizes, they'll have a percentage base allotment and that's what

they have to pay based on.

So yeah, sure, there could be, like number one, I'm moving on, but there could be a world

that you live in where if you go and buy a building and there is documented capital works

in tow with a documented special levy coming and it's $10,000 once off, well, you'd

negotiate that into the purchase price potentially and on the provisor that everything else was

good and those meet in the singing fund, but the red flags, I think, are potentially,

that's some big works and do you want to be living in a place for a year with construction?

Yeah.

That's number one.

So on the, there's nothing in the AGM minutes.

So the person that they spoke to, maybe a committee member might not be and often the

committee might have had a meeting two months ago and I know this being part of different

strata things.

Yeah.

I know the properties I own, I'm the chair of the committee, like kill me.

I've got an email the other day from the New South Wales strata registry, oh, the AGM

hasn't happened for a year and I'm like, what the hell's going on, like the admin, when

you pay the admin company to do it, you'll have the meeting and then because they're busy,

you don't see the minutes for three months and like there's a bit of just admin time.

So the committee could have met for this meeting, engaged one person to get, quote,

organized.

The minutes haven't been made and uploaded to the other members or on the portal or whatever.

And they could also just be in investigation stages and it might not happen because look,

so well, the first thing is going to the agent saying, hey, why is the vendor selling?

What's the reason for selling?

And of course, they won't always say, oh, because this capital works to you.

But it's, it's, it's in most situations like this, the individual owners need to come

up with their own funds, not the whole strata take on a loan as such.

So that's the other thing that would need to be clear on there.

But it might be just Mrs. Mangles saying gossiping about what's potentially that was my

third point.

Most of you supposed to could have no freaking idea of what's actually going on.

They may have heard that, oh, yeah, they're doing this.

I'm not too worried.

They said it.

They just get like, it could just be all he say, yeah.

And I think my overarching comments would be it's your first property.

There's plenty of apartments move on.

Well, yeah, there's probably plenty of one bedroom apartments floating around and even

though supplies low, it's, yeah, I think there are other, other fish and a sea.

If you line it up against other options at similar price, what are you getting?

But I'm not opposed to buying into it.

So all other things being equal.

If they find a one bedroom apartment in a building, the strata funds healthy, sweet,

there is capital works levy in tow.

I think my biggest thing was until it's documented and baked in that's gospel, don't entertain

it.

If it's baked in that we've got to repaint the north side of the building.

It's in plans.

There will be a special levy of $5,000 a unit.

That's happening.

I'm not opposed to that because that's just part of life.

It's just knowing and making sure that you're aware.

I'm opposed if there's no money in the capital works fund.

There's a reason.

Most of the building is investors only and the property owners haven't put any money into

it because they don't care.

Yeah, I'd like to know how many is in the complex.

So yeah, knowing this is a huge red flag, I think based on what we know, probably walk,

but would you consider this property not this one?

Anyway, I'd be doing some research to say what else is out there in comparison, internal

square size, how many in the complex location and workout your per square meter rate that

you're paying for something like this.

Then you might find that hang on, I can buy one up the road that hasn't got these perceived

issues.

But that's like, that's wild that the cap, like there's 400K of capital works, all right.

Now we, one of the properties that I've got, we've just done a 10 year capital work,

you get the surveyor out and they go, yeah, in 10 years time, we're going to need to

paint it at 60 grand or whatever that is, inflated to CPI and all that stuff.

And 400 grand meat and they're talking about a loan.

Now this is where the hearsay comes in.

Is it a loan to cover the shortfall of 53 grand because the nature of the capital works

means that they literally need some big deposits, like the committee can't cash flow these

three levies.

So that's where the nuances will, no one actually knows what the friggin' hell's going

on.

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All right, John, this is right up your alley, this one, Brandon.

Get a focus, a Brandon.

I've heard John touch on JV, joint venture structures for acquiring investment properties

before on the podcast.

I'm not sure if they've done an episode on this.

If they have, please link it and I'll give it a listen.

Have you done episodes on JV?

Yeah, on the properties, yeah.

So my question is around a JV, would the preset up, and would the preset up phase B, IE,

what alignments to square away with other parties, goals, timeframes, legal parts to protect

both sides, buyouts, etc.

And then also the practical parts, how does one go about drawing equity out to purchase

further properties or even a PPOR?

In the very early stages of discussing this option, the other party would want to, if

able, look at using equity in the next three or five years, three being ideal.

But obviously, no one has a crystal-fold, blah, blah, blah, blah, many thanks, keen to

hear.

So maybe this could be just in finishing a, what are the 101's for a JV?

And secondly, we might get you enraged to answer this question over half hour, because

the finance is going to, because you'd effectively have two separate mortgages in the one security,

so yeah.

Yeah, yeah.

So trying to get it in some sort of order here, you're right, Brandon, like goals, timeframes,

legal, that all is extremely important.

You need to be well aligned there with what your own individual goals are within the JV,

but also your timeframes for the JV, because some JVs are development.

Let's get in, get out within two or three years.

Others are long-term hold, because I haven't got enough of a deposit to do it my own,

or the servicing isn't suffice to buy what we want.

So that, the first part of it, why do we want to go into a JV?

And then having those goals and timeframes aligned with legal involved to make sure the

contract drawn up or the agreement is, I suppose, tight, but also, in a grants to know that

there's touch points along the way every 12 months, we check in and say, right, we're

still aligned, and what are our options if we're not aligned.

And there's usually one or two or three options there to get out, one buys the other out,

we both sell, et cetera, et cetera.

The concern for me, and this is three years, my mate, or whoever it is, needs to get their

equity out.

So three years comes along, we get a valuation done, and there's no equity.

Now what?

Yeah, does all my go, all right, I'm out with sell on the bastard?

Yeah.

And we've got to be happy with that.

I think that's the worst case scenario.

So they're the conversations that you have before you go buy or find this property.

The interesting thing about the finance is, and the structure is extremely important.

So having a good lawyer in there, but also having a great mortgage broker that's looking

across the right lenders for this type of situation, because Glen and I are going into

a JV together, we both put in 100k each.

I believe we did that in the end after all these years.

I didn't even have an agreement, anyway, I'm doing everything that you should be doing

that.

I know.

But it was good.

It took a while.

It took a while.

Probably after the fact to be honest, but any guys don't do all we did.

But we still did it.

I want to be very clear, there is a buy, sell, equit, unit holder agreement for the unit

trust.

And we've all signed it.

Yeah, and we all know what the exit strategies are if there is one for any of them.

So yeah, that's key.

I'm being a bit naughty.

A bit naughty.

Yeah.

So we've got a reputation, John.

The mortgage.

The mortgage bag.

But why the brokers are important here is there are some lenders that will say, if you

and I are in a JV together, and let's say we're a 50% owners, which we normally would

be, the broker or sorry, the lenders will assess you as having 100% of the debt and 50%

of the value.

Now what does that do to your service in going forward?

What's the term for that joint and severably liable or something like that?

Something like that.

But that is a massive issue because when your JV partner wants to go and get equity out

and they feel that they're with the wrong lender, there needs to be a refi.

The valves come in low, they're backed into a corner, right?

You want a lender that's going to appreciate that Glen owns 50% of the property and has

only 50% of the debt, so it doesn't affect to essentially double his servicing or lack

thereof.

So here, financial structure is a really big one brand and so make sure you've got a sophisticated

mortgage broker that does JVs and not JVs in husband and wife.

Yeah, I think the mechanics of this stuff is actually really easy, right?

And just for completeness, joint and several liability is a legal principle where multiple

parties are collectively, jointly and individually, severally responsible for the entire amount

of the debt.

So yeah, sure, we went 50, 50 and I lent and borrowed 500 grand of the million.

I am still liable for the million for the million.

So what you're saying there is that I might be governed with my servicing on the whole

million.

So I'm joined and severally liable where are the some lenders that won't take the whole

million.

They'll take it.

Okay, so that's going to be so key, isn't it, for strategy, yes, but I would have a

not turning you off this at all, Brennan, but sort of, it's like, well, if your friend

wants equity out in three years, what are you assessing that on and how is that going

to happen?

What sort of growth do you need in this and what's the, I'd be just doing a whole heap

of new due diligence, which I'm sure you are, around the location, the historical growth,

what's happening, future wise in terms of development and vacancies and a whole range of

things.

I will say as well, the mechanics and all that, that's really easy and takes care of itself.

It really does.

It's the human relationship factor that absolutely just needs to be managed and alignment must

be there.

I'm not doing something on the basis of old mate, putting his life on needing the equity

in three to five years.

I don't know if you know this.

One of the properties that we have together, if there's a couple of unit holders, there's

actually a relationship separation happening with one of the unit holders.

Right.

Now, it's not John, but I've talked to one of them and it's just like, all right, is this

about to be everyone else's problem there?

Yeah.

I mean, but two years ago, whatever, and we started, it was all good, but now it's like crap.

Yeah.

We all going to have to cough up money to buy someone out or there's unknowns and there's

unknowns in our own life, let alone someone else's.

Yeah.

So, when Brandon talks about drawing equity out, so simply, equity can be drawn out as

long as the server sings there, and that's why that structure is important.

But understanding, are we putting in cash deposits or are we putting in equity deposits?

Because that's the other part of it.

If we're loaning at 105% using our own equity to get into this deal, then we've got to

come from a long way back in order to be able to get equity back out to avoid alumni.

So that's, it's really important to spreadsheet that out and just know what your target is

in order to get equity out in three years and is that possible?

In finishing, I'm just drawing here for those who are watching.

If the property was worth a million and it was 50, 50, joint tenants, so each share gets

carved off to whatever's state in the event of death and literally tenancy of 50, 50.

If one party had 500K that they put in and purchased their half, the other party only

had 100K and they borrowed the 400K, that makes sense, so they're responsible for those

repayments.

They've got to make sure that their lender isn't saying, well, no, there's no other

debt.

But that wasn't my point.

What you're saying with the right structure, old mate on this side who owns his 500K outright,

old mate here has 500K of equity.

Do we live in a world where old mate could get a 200K loan secured against his portion

to invest elsewhere?

Is that what we're saying?

No, we're looking at the whole, then you can't get equity out.

So we're living in a world where that property is owned by, again, Glen and John.

Glen wants to get equity out.

No, I guess I'm saying can I secure because the part that I put in, there was 500K of cash

that I put in.

You've got a mortgage, all that.

We own 50-50.

I want to go and buy some equities, gear up into 200K of shares with a loan and I want

to secure that loan against my half because if I own the whole thing, that would be possible.

But are you saying because it's split, you can't?

No, you can pull equity out, but it adds to the total loan against the value of the

property.

So if that happened, you over here who put a 100K in and have a 400K mortgage, next year

when you go get a mortgage, the lender at the time could say, well, John, no, no, we

need to assess you not just on the 400, but the 200, the Glenny boy, it's already taken

out.

Correct.

So yeah, it's all things, everything's possible, you've got to make sure the ducks are lined

up.

And just know the person that you're going into a JV with, you've got clear expectations

and you're on the same page and you have regular check-ins.

Well, then, thank you so much for listening today.

It's been great to have you.

Thank you for your patience.

Well, we, I don't know, try and do the best show that we can for the people out there

and we really appreciate it.

If you are watching this on YouTube, I know a lot of you don't subscribe.

That's fine.

Don't subscribe.

What about just giving us a like?

Give us a little thumbs up.

And just trying to grow the YouTube channel and putting a lot of effort into this, it's

a different audience than the listeners and I'll always, always be aware that there are

audio-only listeners.

But yeah, just thank you so much for all your support, everyone.

And yeah, we'll leave it there, John Pigeon from This Is Property.

Thanks so much for today, bye.

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