Investing With Friends

Good Evening,

First off - I've been googling for property/section info and came across this forum, so I signed up to write this thread and seek advice. I hope this is the right place and I hope I'm posting in the right section! (my apologies if not...)

My story:

I live with my Wife in a 3 bedroom rental house in a suburb in the greater Wellington region. I was fortunate enough to grow up with parents who have their own rental business, and the house I am living in is owned by them.

The plan always was to buy the house off them at a figure that was profitable to their business, but easy enough for a young couple to afford (with the help of KiwiSaver). 6 years later, a holiday around the world and a Wedding paid for; needless to say we are not very close to purchasing any house (we both have KiwiSaver but mine is relatively new. I haven't been with KiwiSaver for more than 3 years).

I've enquired with banks and provided them our full financial situation to see where we stand (and what we would need to do) - unfortunately not one bank has managed to come back to me with any sort of response (good or bad).

Recently, our story has changed completely. One night after having dinner with our neighbours, we got talking about the idea of living out in a rural area. This is something that my Wife and I have always wanted to do (long term). Our neighbours are very close friends (family-like) and share the same lifestyle dreams we do. We both love animals, own animals, and love the idea of low maintenance farm animals with big sections away from the city.

After researching the cost of such sections, in an area we are keen on living in, the reality is everything looks very possible for both parties. But before venturing down a path that may not be an ideal situation, we want to get as much advice, information, and input as we can.

Questions like the following are the types of things we want to learn/get answered:

- What are your personal thoughts on investing in land/property with friends?
- Is it wise (financially and non-financially) to go into partnership with others?
- Hypothetically, all going well, if we were approved to buy a section together, what things should we be looking out for?
- Our intention is to buy a section and subdivide so we each owned half
- Should we be doing it this way? Or should we be looking at buying two separate sections side by side? (we want to continue as neighbours)
- Because of financial reasons, we would both be looking at building small/cheap houses to live in temporarily, whilst saving the money to build our dream houses on our land
- Is this wise? Or should we look at buying kit set houses that we can drop onto the property instead? Or sections with houses already on them?
- Where should we go for sound financial advice (other than Banks, who don't seem to offer any advice unless they are confident you can afford it)
- Where should we go for sound legal advice? What sort of legal advice would we need?
- Is there anything else we need to be well aware of before starting to investigate further down this path?

One other question

- Is this a ridiculous idea and should I be concentrating on buying the house I am living in for my first property? Keep in mind I eventually want to start my own rental business like my parents, and buy more properties to rent out in the future. Also note, our neighbours own their house. They are not renting. I see this is them being one step ahead and would likely be able to afford more than us at this point in time.

Basically, in a nutshell, our dream is to live in a section each next to each other, to continue as neighbours because our relationship is rock solid. We both want large sections (the sections we are looking at are about 4 hectares in total and we would subdivide into 2 hectares each). Our neighbours want pigs/goats/chickens/dogs/cats etc. We want to breed dogs and have other types of animals. We want to live in an area where all other neighbours are far away.

I'm open to any feedback, good or bad. Any constructive criticism is openly welcomed.

Thanks,
Nick

My first comment would be to check with Council in regard to their subdivision rules and expenses before you plan on such enterprise.

You also need to know if two residential buildings will be permitted on the property title. Many Councils will not allow that in rural areas.
There is no problem with borrowing from friends, which in effect is what you are planning to do. But you have to tie the agreement up so that if one or other party wants to get out, then you can do so in a pleasant enough way. That may mean that you have to get a written legal agreement that when one or other wants out, the remaining part owner buys at an agreed to price, or the whole property goes onto the market or whatever.
The huge problem is determining who is doing the most work on the property, and spending the most on the property, and coming to an agreement about pets. In my partnership, The Manager has 23 donkeys that I don't want .... and a mini horse ..... and 3 1/2 dogs ..... and 20 goats that cannot be killed ..... and 5 sheep that cannot be killed .... and guess who is doing the most work on these "wasters" (waste of time, waste of effort, waste of money) (.
And she thinks I am wasting my time telling anyone who wants suggestions about my experiences with life and farming (.

I would say don't do it but that's based on experiences within my family regarding jointly owned properly.

LR - just randomly but I think donkeys are the biggest freeloaders of all time.

I think you need clear title to your own block unless you have a plan to develop for the sole purpose of making a capital gain (after reasonable time) to get on to an individual property. In this case you need to seek advice from a lawyer and have a solid contract developed.
There's nothing like losing good friends over money fallout issues, so talk it all out first. You may not be allowed to build two dwellings on one title on a small holding.
If you are looking at a large section, make sure it can be subdivided before you purchase and that title can be given to both pieces. Here again, a lawyer will look into this for you. If you don't already have one, a lawyer well versed in real estate would be best. A lot has to do with council planning and bylaws, so, get in touch with your local council and make an appointment to speak to one of their planning officers.

Here's my 2c:

I have personally seen rock-solid long-term friendships fall apart when living next-to or close by, unexpectedly and catastrophically. So...don't count on it lasting. I'm not being negative, just practical.

Tautoko what others have said about having more than one house on a property not being allowed in many rural block areas (and definitely, commonly not allowed in the Welly region). Check carefully.
Subdivision rules vary depending on where you look - from minimum ten acres to minimum one acre. Subdivision can cost up to $10,000 for surveyors and consents, and that's without providing new/extra services to boundaries power, phone) and blocks (water, septic).

Rural blocks are often a bit of a drive from jobs & town so - you either need to work at home, pool transport, buy near transport links, or get used to lots of driving (and, managing all the costs associated with that, including having a backup vehicle available) and planning & running your necessary errands. If you need a bottle of milk it's not very cost-effective to drive 12 km to get it - so your travelling to & from will need to include picking up all the farm & household 'stuff' you may need along the way. You'll also need to carry the stuff you will need ALONG the way - your car will need space for gumboots and decent coat & hat at least if you have to open & shut gates along the way in the winter.
Ditto you will need to make sure you are able to get to doctors or hospital if you put the firewood tomahawk through your hand, the mower over your foot, or mangle yourself with runaway fencing wire. And (the final transport issue) what happens when you live on a rural road which is a favourite accident spot? You may end up being prevented from either getting home, or getting out again, if there is an accident which closes the road for hours. I talk from experience here on all counts ...

Then there is the work involved in running a small farm and looking after animals. Many's the night we have moved the last bale, stacked the last pile of battens, and crutched the last smelly sheep just after dark or IN the dark, while our suburb-dwelling mates are sitting at their dining tables or are parked up in their comfy lounge chairs. Or gone out to check animals in the pouring rain, fallen over in the mud, or ripped holes in the clothes that we were actually going to wear to work in town tomorrow...!

All that aside, *of course* it's a good idea, or none of us would do it! Life is all about challenges, otherwise it is just boring.

Remind me the next time I have to catch a grumpy sheep that's twice my size, someone, please

If you are looking in the Wellington region then I suggest you get your hands on a scrubby CHEAP small block and put a small bunkhouse or second-hand house on it, and work your way up towards actually living there. There are still some cheaper bits of land for sale if you look hard.

Geba
from up in the Porirua hills, where the wind howls, the grass straggles, and the possums and rabbits gnaw - but there are AWESOME sunsets

IMO: I think buying a larger block and subdividing it can get you more for your money. And I wouldn't say 'don't do it' as it's pretty much exactly what we have done.
BUT: you need to know a lot of detail about the costs of subdividing.
We purchased a 44Ha block with another couple (that we didn't know very well) and subdivided it into three titles - we own one each outright, and the 3rd is a 14Ha bush block that is covenanted, and the first two titles hold 50% of that one.
The first thing was to check that we agreed on certain basic things - not hunting native wildlife (which pretty much means paradise ducks), protecting the bush areas, wanting to stay long term, what we might do if one of us needed to bail.
Then we wrote up a legal agreement - which we actually ended up pretty much writing ourselves, as four people round the dinner table, as the legal people both of us were using (from the same company) turned out to not understand what we were trying to do at all and were just causing problems.
Once the legal agreement was signed, we agreed and put in an offer for the property, which was accepted (sounds easy, doesn't it!). At this stage, because we (myself and my now husband) didn't actually own anything, we had my parents as guarantors.
Then we had to go through the subdivision process.
My husband had done a lot of research on the costs. You need to look closely at the requirements of the district plan wherever you are. Usually, rural land over 2Ha can have a primary dwelling and one secondary, which has to be within a certain distance of the first. But the more important thing for us is that there are access rules from both the Council and NZTA, as our driveway opens off a state highway and we were taking the total number of potential dwellings on the driveway from 4 to 5, which took us up a category for driveway classes re. sealing, width, etc.
We helped a lot with the consent application (it is similar to my daily work) which helped keep costs down, but it is still an expensive process depending how many conditions you need to meet. We spoke with the council frequently during the process to make sure we were going to meet their requirements and had understood them correctly, and I think this helped a lot.
We used a mortgage broker, and they were really helpful in finding out what our options were during the period when all four of us owned the property, and then in extracting us from the guarantor situation and on to our own finance that enabled us to build the house.
The big costs for us subdividing were 1) widening the driveway entrance, 2) moving a power pole, 3) providing a pull in lane on the opposite side of the road so you could wait to turn without holding up 100km/hr traffic, and 4) getting power to the building site.

I think it's a good idea to live there for a while in something temporary, like a bus or caravan, as you don't really know what a piece of land is like until you have actually lived there through the seasons. We probably would have, if we hadn't had young children.

Be prepared to use your car a LOT more than you ever have done before. Consider working at home options if you can (we both do).

Check out mobile coverage and internet availability before you get too far, especially if it's important for your work that you are available.

Let me know if you have any more questions I might be able to answer for you.

ETA: we remain on good terms with our neighbours because we give each other lots of space. They are very private people, and we respect that and don't just 'visit' too often unless we've been invited. They get a bit grumpy about us not keeping the driveway area very tidy (in my defense, they own it!), and we get a bit grumpy about their bulls pushing through our shared boundary fence, but such is life.

Geba, very true about night work. My family and I were stacking hay at midnight 1999/2000. Fortunately we saw no reason to celebrate that day and time, because we know that the century changed at midnight 2000/2001 )

From a legal stand point purchasing two neighbouring or close by properties is definitely the easiest. If you decide to go in together you will definitely need a good legal agreement behind you.
The bank will also look at your proposition differently depending on your set up i.e as a group of 4 vs 2 couples buying individually in which case each others personal situation has no bearing. For a rural purchase you will need generally 25% deposit for rural bare land and at least 10% for rural with a home alreday built and that will definitely depend on what bank you approach, most at the moment do not have a lot to lend in the over 80% LVR range due to restrictions. Also be aware that banks will lend a limited amount - about 60-75% for a build that is not fixed price and often not at all on a transportable home until it is plumbed and wired.

In regard to a bank not coming back to you that is a bit slack but simply (from someone who works in a bank) you need to get your deposit together - ideally 20% of the intended purchase price, this can be from whatever source you like i.e Kiwisaver, savings, gifted funds from parents etc first, and then it is normally pretty easy to get a conditional approval. Until you have a deposit saved or sitting in KS or at least an verbal agreement to gift the bank will find it very hard to give you an answer. You also need to work out what type of property you want as the lending rules vary greatly between residential in town to residential lifestyle to bare block etc so that the banker can be fully informed and base their decision around that.

I think buying together could be really advantageous - they might be able to provided the equity/depsit you don't have seems to be the obvious one. You can't agree on of a myriad of things is the obvious downside. Living rurally is definitely not all "low maintenance" animals and fun, lots of the time its horrible hard work!

I would have a serious discussion with each other and see if the other party actually really wants to do this and then I would see if you can find a property(s) that suit.

Good luck, personally not for me

I spent some considerable time helping someone who had bought in with another couple as equal partners in a life style block.
Everything fell apart after some time and there was a legal co-ownership agreement between the two parties but it was still very difficult times, for both parties,living on the same property and in separate houses.
Having been part of that process and trying to guide both parties to an agreement, I think I would say, ensure you have your own title to your own land so that should it all fall through, you come out of it with your sanity and finances intact, and maybe even your friendship.

But if your differences are of such a nature as to not want to remain friends, surely that is a normal part of life with or without common property of whatever kind ownership? Living next to neighbours that are not friendly and are inconsiderate is surely as bad as living next to ex-friends? At least with ex-friends, they started off friendly. And if the other neighbours are not friendly at the start, you will have someone to communicate with about your neighbours problems with you. When you are buying a property, who goes around the neighbours to check which are going to be good and bad ?????

Also I meant to add - think about the size of property you are looking at, when you are investigating finance options. WE found that the size of our property was considered too big to be a true 'lifestyle block' for some banks, so kiwibank for example wouldn't finance it. We ended up with ASB because they were one of the few that would finance rural land, and also had a reasonable process around building and financing vs valuations. This is where an adviser can be so useful - they know exactly what all the different banks will and won't finance.

Never ever do business with friends and family....it gets sour extremely fast...
As tempting as it is, just turn the other cheek.

If you do decide to...get everything in writing and do not use the same lawyer please.
Dont deal directly with the banks...use a mortgage broker...its free and they have a good relationship with the banks..also they knowthe right things to say.

Buy your first home ...then use the equity to gather more properties or land...personally i stay away from bare land as no one will be paying you rent(mortgage).

Mortgage broker...if you need 1 or 2, feel free to message me..
Same goes for solid lawyer advice.

It sounds like you and your neighbour have a great relationship...if you want to keep it that way,then dont go into business with them. Its a very rare situations for friends and family to do business with eachother.