Property business

steve1980

£35k - £50k per property I hope.

paddyrg

xopalx wrote: »

We will all be contributing an equal amount. (yet to be decided but maybe between 35k-50k)
It will also be made clear that this will be a long term business, were our money will be tied for for about 5-10 year....
Working with friends is the option chosen as we have known each other for over 15 years and know we can work well with each other.
We are all after the same goal.
Just need to get everything on paper and then form a company.

Well, if you are determined to go ahead (and I still think you're underestimating how divisive this can be if anyone needs access to cash quickly - eg they have a baby, move city, all sorts of reasons) then absolutely absolutely absolutely discuss all the cases things could go not as planned (if someone wants out early, can the others buy him out? Will they have the cash to do so? What if you make a loss? What min. spec of building will you have? What if the house devalues through subsidence? What insurances will you take? Will a part of the company liabilities be to provide life insurance for you all in case one dies and the estate needs liquidating? What if 2 people want a property and 2 don't? What if one of you is half-hearted right now and just going along for the ride because he doesn't want to let mates down? Have those difficult conversations VERY SERIOUSLY upfront, then visit a lawyer and go through the legalities and spend some real money getting the agreements drawn up watertight.

Bad things DO happen, and WILL.

I would consider a ltd company where you each buy so many shares apiece then appoint one of you to manage the company (with a fee so it is fair that they do the work), and clauses regarding sale of shares in the M&A (eg not more than 10% of anyone's initial holding may be offered for sale in any year, and then it must be initially offered to the other shareholders at share face value before anyone externally, shares must be held for a minimum of 5 years). That way, the best anyone could do by cashing in early would be in year 6, to no profit, just 10% of their initial investment back. And maybe dividends become payable after year 10 only.

But I still urge you to reconsider, friendships change, people grow apart, girlfriends become wives become families and demand new kitchens at home. Wives become ex-es and take half of the assets of the marriage, there are all kinds of reasons why a 2-way partnership is hard to manage, 3-way really hard, and 4-way is terrifying.

Lovelyjoolz

paddyrg wrote: »

there are all kinds of reasons why a 2-way partnership is hard to manage, 3-way really hard, and 4-way is terrifying.

Sorry , but I totally disagree. There's no reason why this Ltd couldn't work, and work well, as long as each party treats it like a business and approaches it professionally. My company of 4 directors is living proof of that.

However, if all you have between you is 50k, there is no real point in setting up a Ltd just yet. A BTL mortgage is going to require at least 25% deposit, so if potential purchases in your area are more than 200k, you've fallen at the first hurdle. And if you do find a property for 200k, there's no real point setting up a Ltd for just one property.

Even if your local property market allows you to purchase two 100k properties, I still wouldn't bother with the Ltd just yet. Why lumber yourself with having to produce company accounts, setting up as employers and doing payroll returns? Because two properties are not going to turn you a profit.

Buy the properties as Joint investors or an LLP. Have a legal agreement drawn up between you stating who owns what and how much, just in case anything goes wrong, and don't worry about a Ltd until you have 5 or 6 properties that are turning enough of a profit for it to be worthwhile.