All Topics / Help Needed! / Deposit amounts?
[suave3]Hello to all forum readers
My husband and myself are looking at a L/O with my Daughter as Landlord. (due to us being newly discharged Bankruptcies, and needing to prove out credit rating, also daughter being able to help us to gain a new start). We will lease from her for 2yrs, then endeavour to cash her out, so she can carry on with her PIing. The property we are looking at is on the SW coast of WA and is valued at $245K. My daughter is paying off (P&I) a block at Exmouth (direct beach frontaage), and currently has approx $80K equity. I have a few questions that I’m hoping some of you “experienced ones” might be able to help me out with.
A) What rate of deposit would be better to place against L/O prop? (given that may daughter would like to use some of her equity for more PI’s)
b) Would it be more appropriate if she paid IO on her Exmouth block due to Non deductable tax. Her and her partner are on very high tax brackets, as she is a NorthWest worker.
C) Can anyone point me in the direction of info on Trusts?
Thanks for any ideas,
WendyBW Butcher
I would advise you to get your daughter to seek her own advice instead of you asking and advising her. Regarding the deposit, give her as much as you can. It is your daughter! Why restrict her future investing by giving her a minimal deposit?
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdWhew Robert!!! You are really full on with comments/advice! We are not trying to milk our daughter, believe it or not she is VERY dear to us! We are merely trying to work out a way where we can help each other out, it is called a win-win situation, as we will make excellent tennants for her. Also, as my daughter is not very real estate savvy, I am trying to gently guide her into becoming investment literate through this site and others etc. And YES, she WILL arrange her own Advisory Agent, and probably will become more efficient at finding the Right one through sites such as “propertyinvesting” etc.
So, please Robert, no slapping of the hands, It is not why I appealed to this site.
WendyBW Butcher
I am not “slapping” anything. I just say it how I see it. My advice is sound and in HER best interest.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdWhen you cash her out, will that be at market prices or purchase price?
Byronent
Adelaide SAOriginally posted by wendyb:[suave3]My husband and myself are looking at a L/O with my Daughter as Landlord. (due to us being newly discharged Bankruptcies, and needing to prove out credit rating, also daughter being able to help us to gain a new start). We will lease from her for 2yrs, then endeavour to cash her out, so she can carry on with her PIing. The property we are looking at is on the SW coast of WA and is valued at $245K. My daughter is paying off (P&I) a block at Exmouth (direct beach frontaage), and currently has approx $80K equity. I have a few questions that I’m hoping some of you “experienced ones” might be able to help me out with.
Have you discussed the possibility of borrowing money from a low doc/no doc (?) with a reputable broker. I am not sure if you would qualify but……no harm in asking.
A) What rate of deposit would be better to place against L/O prop? (given that may daughter would like to use some of her equity for more PI’s)
This is a ‘how long is a piece of string questions’ as the correct answer will depend upon what else is happening in your daughters life and their subsequent plans.
b) Would it be more appropriate if she paid IO on her Exmouth block due to Non deductable tax. Her and her partner are on very high tax brackets, as she is a NorthWest worker.The issue of high salary earner has little relevance under these circumstances Wendy. Costs of a block of land are not deductible as it is not an income earner unless there are plans afoot to build an investment property on the block and within a short timeframe after purchase.
As such your daughter and hubby would be better paying the principle down as quickly as possible. Recommend an offset and/or redraw account so that the other money can be ued for deposits on other investments.
C) Can anyone point me in the direction of info on Trusts?Recommend you look at http://www.gatherumgoss.com and find a link to Dale’s online shop. He has two books that are invaluable investment tools. At $99/each or $169/both they are not cheap but good quality information abounds.
Derek
[email protected]Property Investment Support Available. Ongoing and never stopping.
Hi Wendy
a) If you were doing things between strangers, the ‘normal’ deposit for lease options is around 2% of the value of the property.
b) Depends on how much money she can spare. Even if it is non deductible, it may still be better paying IO and putting all extra money into a 100% offset account.
If she is going to lease option a proeprty to your, she would probably be making money, ie it would be positively geared under standard lease options. This would mean she would be required to pay extra tax. Having a trust may help a lot with reducing this.
Infact, you may be able to structure this purchase using a trust, where she could resign a trustee and you take over in a few years when you are ready. This may be possible without causing CGT and stamp duty to be triggered. I suggest you get a good lawyer, and get him/her to talk to Brett Davies lawyers in WA.
check out http://www.taxlawyer.com.au/Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Byronent, In answer to your question, our purchase price will be at market value, with the date of 2 years in view. This will be drawn up by a Solicitor, and will be handled through them. We will be looking at paying extra per week in order to build up a fair deposit by the end of the 2 years. We’ll all, also get advice on how to go about this for my daughters best welfare and how best she can go around this for possible Tax benefits.
Derek….Hi And thanks for your interest. There’s certainly no harm in asking Re; Lo Doc/NoDoc loans, though wer’e a bit concerned about extra high interest here. I believe we need the 2 years to prove our credit rating, and even then I think this will not be an easy road. But, by my daughter helping us here (And wer’e helping her, too), with care, due dilligence and doing things in a businesslike manner (thru Solicitors etc), then I know the outcome can be a win-win for us both.
In regard as to what purpose the housing will be used for on this block is still somewhat in the air. All development and building is proving to be extremely costly…ie everything has to be Cyclone proof, and even a medium size shed will cost around the $40K mark! And they did not go into this with enough info in regard to these problems, but for buy and hold, this will be a good investment, as Exmouth is a unique area and as such will be a long term investment for these guys.Terry – Thanks so much for your wise suggestions -this is exactly the info I was looking for.
An offset a/c would really suit my daughter at this stage, as they have both been paying every available dollar into this block, but they are now unsure as to what they will be doing with it, and would like to start investing elsewhere. They already have quite an extensive share portfolio, and now would like to turn to R/E investment (even tho the time is not really right for this), although over here in the West, I believe there are still quite a lot of good growth prospects around.
Also intend to follow up with your suggestions in regard to setting up a trust, and am currently studying web-sites and will endeavour to purchase Dale Gatherum-Goss’s “Trust Magic”. My husband is a Building Surveyor/Inspector and we are going into Building Inspections so are also looking at opening a Trust for that small business as well, so are quite interested in finding out as much info about them as possible. Although I realize for this side of it we’ll definitely need a good Solicitor, so thanks for that reference.
Cheers WendyW Butcher
Wendy,
All this stuff is going to cost a small fortune to set up. I thought you were purchasing the home to live in.
Using the offset account may be a bigger benefit than you realise. Your daughter can have it attached to the loan and you can make all your payments straight into it. Your daughter can then pay the minimum interest only payment to the loan through the direct debit but the extra funds will reduce her liability. It will also reduce her deductibility of course but the funds will be working very well for her if she does not need more deductions and it will be available as a deposit if and when it is needed.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdHow can you predict a price in two years?
This is really in your favour not your daughters in my opinion
Byronent
Adelaide SAI didn’t want to comment on that either but I thought the idea behind a lease option was that an option was attached to a lease. An option is the ability to buy (but not the obligation) something at a set price at some point in the future. I have never seen an option with an undetermined price but I guess anything can be written into a contract if both parties agree.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdByronent & Robert,
Hi, This will be an option/lease, and will include a pre-determined strike price. This will have to be worked out between the parties, and the solicitor. I am not sure yet how we will arrive at the strike price, as this will probably be determined by the area and dwelling that we end up with, and will be based on growth factors, just as it would be carried out with anyone doing an L/O. This will be a situation that we will make sure that my daughter will receive TRUE CG’s value(Pre-determined strike price), and when we cash her out, this will be respected & accepted, whether shse’s our daughter or not. It will be a legal drawn up contractual document!Perhaps someone might have some ideas from their experiences with L/O’s in regard to Strike Price equations. I would be very interested in hearing their side of it….whichever that may be.
WendybW Butcher
A simple solution would be current market price plus expected growth for the period until the exercise date plus an extra margin for error.
If the exercise date passes and you have not exercised the option, everything is negotiated again and you lose your option fee.
Robert Bou-Hamdan
Mortgage Adviser
http://www.mortgagepackaging.com.auFREE Finance-Related Newsletter – Click Here
Comments made are of a general nature and should not be construed as individual advice.
© 2004 Mortgage Packaging Pty LtdAn option doesn’t have to have a fixed strike price. You could have, for example:
a) market price, determined by 3 independent valuers, including one from an ANZ panel valuer, less 10%.
b) market price, determined by 3 independent valuers, including one from an ANZ panel valuer, less 40% of all rent paid during the term.
c) a fixed price (eg. 20% above current value) less 40% of all rent paid during the lease.etc.
There are many possibiliets.
And even if this costs you a few thousand to set up, if you can avoid CGT and stamp duty, then this could save ten times that.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
Click below to email meTerryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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