Pacific Law – Other Peoples Money – 11th June 2025

In this Weekly Wednesday Webinar, you will learn the key legal structures and strategic considerations when using other people’s money (OPM) for real estate investing.

David Netherton from Pacific Law provides a practical overview of how to structure deals safely and effectively, covering bank finance, private lending, vendor finance, joint ventures, options, unit trusts, and syndicates. The session emphasises how to mitigate risks and navigate the complex legal environment, especially when working with investors.

Bank Money vs Private Money

The session begins by outlining the pros and cons of borrowing from banks versus using private money. Bank loans offer lower interest rates and stable terms, but their strict lending criteria often exclude creative or higher-risk deals. In contrast, private money provides more flexibility but at a higher cost, often through mezzanine funding, seed funding, or direct investor contributions. David explains that private lenders may include individuals, funds, or international organisations and often require higher interest rates and tighter security, such as second mortgages or personal guarantees.

Vendor Finance

David explains vendor finance as a powerful OPM tool, where the seller effectively lends part of the purchase price. For example, a buyer may pay $600,000 upfront on a $1 million property and finance the remaining $400,000 directly with the vendor. This structure enables buyers to acquire property with less capital but requires careful assessment of the vendor’s existing debt to ensure the transaction is viable.

A key caution is that if the vendor has a large existing mortgage, the deal may not work because the upfront payment might not cover their outstanding debt. Vendor finance also becomes complex when the buyer seeks additional bank finance, as incoming lenders may reduce their loan offer or refuse to accept a second mortgage in favour of the vendor.

When structured correctly, vendor finance can lead to highly profitable outcomes, such as securing land, developing the site, and using sale proceeds to repay the vendor’s loan. David shares real-life examples where vendor finance deals provided significant leverage and profit, especially when negotiated with cooperative vendors who understand the development process.

Joint Ventures

Joint ventures (JVs) are a common way to combine resources. David explains that a typical JV includes:

• A person with property knowledge and the ability to execute the project.
• An investor providing capital.
• A party with serviceability to access bank loans.

JVs can occur at all scales, from simple cosmetic renovations to large multi-million-dollar developments. The key to successful JVs is building relationships with trustworthy partners, conducting due diligence, and ensuring fair agreements.

David emphasises the importance of selecting JV partners who can weather both good and challenging times. A successful JV is not just about money; it’s about long-term collaboration and mutual respect.

Options

Options are highlighted as one of David’s favourite strategies, particularly in Queensland where the legal environment is favourable. An option agreement allows investors to control property without an immediate obligation to buy, enabling due diligence, development approvals, or even renovations before settlement.

Options are especially useful for assembling multiple properties into larger development sites, a strategy known as “clumping.” David shares the story of a client who secured 18 properties under option agreements and successfully sold most of them to a developer for a substantial fee – all achieved with minimal upfront cost.

However, options can be less effective in states like Victoria, where double stamp duty may apply. David encourages investors to understand state-specific laws and carefully present options to sellers and agents using plain language.

Unit Trusts

As the session progresses into more advanced structuring, David introduces unit trusts. Unit trusts are useful when multiple investors contribute varying amounts and profits are distributed in proportion to units held. They are highly flexible and can be tailored to different deal types:

• Investors may directly own the land.
• The unit trust can lend money to a development project.
• The developer may be allocated units in exchange for managing the project.

However, unit trusts can be complex. Timing, profit distribution, investor security, and tax implications must all be considered. Changing unit holders mid-project can trigger stamp duty and capital gains tax, and care must be taken to ensure the structure is commercially viable and legally compliant.

Syndicates and Managed Investment Schemes (MIS)

David closes with a discussion on syndicates and the legal risks of Managed Investment Schemes (MIS). When investors pool funds and rely on a manager to control the investment, the arrangement may trigger MIS regulations under Australian corporate law.

Complying with MIS requirements is expensive, often requiring:

• Australian Financial Services Licences (AFSL)
• Independent Responsible Entities
• Complex disclosure documents
• Extensive administration and reporting

To avoid this, most real estate syndicates aim to qualify for exemptions, such as the “20 investors or less” and “less than $2 million” rules.

David stresses the importance of seeking legal advice early to structure syndicates correctly, protect investors, and ensure regulatory compliance. He encourages potential syndicate managers to carefully assess whether their project falls within an exemption and to consider the significant costs and obligations of running a fully regulated MIS.

By the end of this session, you will understand the critical legal and structural considerations when using other people’s money to fund your property deals. David emphasises the importance of seeking professional advice, especially when forming JVs, using options, or managing investor funds.

Whether you are working on a small renovation or a large subdivision, choosing the right structure and partners is key to success.

Action Items

• Follow up with Clint Ducat from Wizdom regarding self-managed superannuation fund (SMSF) advice and how it can be integrated with legal considerations.
• Reach out to David Netherton at Pacific Law to discuss a specific project and get advice on the appropriate financing structure.