I am new to the forum. Wonder if somebody could help me with information with this.
I bought a unit with my partner, fifty fifty. We wanted to refurbish it and then sell it for some profit. Now I have changed my mind and I like to keep it to rented it out for a positive cash flow. My partner is agreable and we have decided I should pay him an amount so he goes out of the mortgage and I become the sole owner.
The guidance I need is the following: how do I go about paying him the money, realising him of the mortgage so that now, for tax purposes, the cost of the unit appears with the increase extra I pay my partner.
The original purchase/morgage was, say, 170K, but after paying him out it will be 200K. What is the best way to go about the proceeding so that if I want to sell it later, capital gains are reckon from the 200K and not from the 170K originally paid?
Thank you so much for all and any help forthcoming.Cheers,
Tera[rolleyesanim]Hi Tera
I am no expert – you will be best to consult a solicitor and an accountant.
But for what they are worth, here are a few things that I have thought of.
My understanding is that you bought the unit for $170K with your partner, renovated it and it is now worth $200K.
You own 50% and will have to buy your partner’s 50%, which is now worth $100K. This purchase will attract stamp duty and conveyancing costs, but these should be minimal as you have done all the searches when you first bought. Your solicitor can draw up the appropriate contract.
If the mortgage is in joint names then you will have to go to the lender to find out their requirements – i.e., can you “take over 100% of the mortgage” or do you have to pay out the “old” mortgage and take out a completely new one? There are finance experts on this forum who will know far more about this than I do. But I suggest you talk to your lender as a first step to find out where you stand with them, and what charges (if any) will be involved. If a completely new mortgage is required, you may want to consider a different lender.
As far as capital gains go, you will add up what you have spent: to obtain your “purchase price”:
$85K half purchase price
half of stamp duty/conveyancing costs
half of renovation costs
$100K for the 50% you are purchasing
all stamp duty and associated costs
any further renovation/capital costs that you may undertake.Make sure you keep good records so that your outlays are clearly substantiated.
Your partner will be responsible for the capital gains on his 50% if there are any after allowing for costs.
As I said, consult the experts – there may be other issues that I am not aware of.
Cheers
MargI’ve bought out a partner before.
It is just like buying a new property, you will probably need a solicitor, titles have to be changed, stamp duty paid etc.
With the loan, basically a whole new applicaiton will have to be done. The lender will need to know if you can service the loan on your own, and new mortgage documents etc will have to be issued.
Terryw
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Hi marg4109, terryw,
Thank you so much for having taken the trauble to give me so much useful advise.
There are a couple of things that I don´t fully understand, perhaps is because I may have not explained the situation fully or clearly.
First, I can takeover 100% of the mortgage (loan?), there is no problem there.
On the question of capital gains: why is considered that I am paying him 50%? , actually no one of us has paid anything, only a couple of loan repayments, and I am only going to pay him in cash, half of the profits that we arrive at (in paper) of an imaginary amount we consider the unit could have been sold for after finishing with the refurbishings.
e.g., Unit bought for 170k, after refurbishings is worth 200K, but we could sell maybe for more, say, for 210K. difference= 40K, profit each= 20K
I pay 20K to him in cash, and he signs over the property, loan, back to my name.
By the way, I am going to the bank and solicitor soon about the deal, but I would really like to go prepare with some knowledge about it. thats why I really appreciate further ideas about the matter.
Thanks so much again,
Cheers,
Tera[strum]“On the question of capital gains: why is considered that I am paying him 50%? “
Hello tera
Because you are or should be. Partially in cash and partially by taking over his share of the mortguage.
“e.g., Unit bought for 170k, after refurbishings is worth 200K, but we could sell maybe for more, say, for 210K. difference= 40K, profit each= 20K
I pay 20K to him in cash, and he signs over the property, loan, back to my name. “
Actually I don’t think your calcualtion is correct. It fails to take into account his share of the deposit and any repayments he has made together with you on the mortguage (assuming PI).
Assuming you both paid half for everything i.e deposit, buying costs such as stamp duty and conveyancing costs, renovation costs and mortguage repayments the easiest way to calculate is to simply think of it as a sale to a third party.
New value of house $210,000, partners share $105,000.
Mortguage left on house is, for example $140,000, partners share $70,000.
$105,000 – $70,000 = $35,000 This is the amount you owe him in cash.
Or maybe it’s easier for you to think of it this way.
New value of house $210,000 minus $140,000 mortguage = $70,000 cash left after “sale”. Half of that ($35,000) is your partners.
Wether you have both actually made a profit or not is dependent on how much you spent on reno plus all the cost of the purchase.
Hope this helps [smiling]
ElkaHi,
In NSW you can use a simple transfer form (availabale from some stationary suppliers or stamp duties office). Both parties sign.
Get a registered valuer for the current property value. Pay the stamp duty for the value of the property share bought now.
Simple, no need for a solicitor.Depending on your understanding of all strata issues, a solicitor may still be advisible.
WTBnow
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