Ohk guys
Im wanting to get into the property investing game
either with my parents as I can borrown against their properites or with one mate. Now I have several issues I need to consider.
1. If I buy with my mate is there a way we can buy 50/50 so he can never "rat" me out and some how in the future dodge me? What is the best way to formulate these property investment partnerships?
2. Since he is also 21 we will both be eligble for the first home buyer grant, how should we approach this? Can we both get it if we go halves? Or can you only use one first home buyers grant?
3. Now buying with my mum and going halves will mean I will have access to their home equity. Now is there a way she can get a loan on her exisiting properties BUT I buy the home under my name so that I get the first home buyers grant? No point in taking the loan out in my name if she has over $1 mil in collateral to her name as she will get much better rates.
4. How do I structure the purchase of the property so that it is formaly 50/50, that is we pay 50/50 rates, 50/50 everything. Can you do this?
2.
Firstly let me say that I know very little about the FHOG and don't know if any of my advice would render you ineligible. Having said that, I think that you look at the FHOG as a bonus if you can get it, but it shouldn't determine your decisions. Compared to the difference (in dollars) between a good and bad investment decision, the amount of the FHOG is trivial.
propertyboy wrote:1. If I buy with my mate is there a way we can buy 50/50 so he can never "rat" me out and some how in the future dodge me? What is the best way to formulate these property investment partnerships?You can protect your interests by buying as "tenants in common" with 50/50 ownership – where you can leave or sell your half to somebody else, as opposed to the more common "joint tenants", which most husbands and wives do, where if one dies the other one automatically owns the lot, and the amount owned by each party is unspecified. If you also need asset protection, then you could look at a unit trust arrangement. Best ask an accountant about this, as there are potentially implications with regards to negative gearing, CGT, land tax, etc.
propertyboy wrote:2. Since he is also 21 we will both be eligble for the first home buyer grant, how should we approach this? Can we both get it if we go halves? Or can you only use one first home buyers grant?Not sure. But as I said, "no big".
propertyboy wrote:3. Now buying with my mum and going halves will mean I will have access to their home equity. Now is there a way she can get a loan on her exisiting properties BUT I buy the home under my name so that I get the first home buyers grant? No point in taking the loan out in my name if she has over $1 mil in collateral to her name as she will get much better rates.Absolutely. Where the money comes from, what the security is, and what you buy with the money, are 3 separate issues. She refinances her properties, preferably allowing you to take out a loan against her property (which I think can be done). So if Mum fully owns a $400K house, for example, she allows you to borrow 80% or $320K, secured against that property. You then use that cash to buy your IP for cash. The interest on the loan is still fully deductible against your IP because it is the use of the loan funds that's relevant, not what property it's secured against.
propertyboy wrote:4. How do I structure the purchase of the property so that it is formaly 50/50, that is we pay 50/50 rates, 50/50 everything. Can you do this?As per Q1.
I could be wrong, but I was under the impression that the FHOG was a 'per transaction' thing, not a per person thing.
First Home Grant is per transaction. You will get half each. If you are both eligible. Go to State Government web site for details as is handed out by state but federal gives the money.
If you go Tenants in Common, you keep your share of the property ( can elect 50 50 ) but if you go Joint Owners you can loose your share to the other ( its like being married to him ).regards
hi propertyboy,
I think the others have answered your other questions well, but I can inform you on the FHOG (first home owners grand) as I have a copy of the forms in front of me. My girlfriend and I were in similar situation a few weeks ago before we signed on our property. In regards to the FHOG there is a few rules.
– If the property is in both of your names you are only eligible for one grant and neither will be eligible in the future for another. As long as neither of you have purchased a property before 2001 or received the grant previously.
– Now if you are thinking of a long property investing partnership it may be worth buying the property in one of your names and the second in the other persons name and therefore being able to receive two grants.Though depending on the type of arrangement it might be worth setting up a trust for tax benefits and forgo the second grant. That way you could both be a beneficiary of the trust and the property is protected by a company.
Hope that helps a little. If you have any other questions just ask.
Cheers Jarred.
thank you all very much
in regards to my mum though, if she was to take the loan out under her name on her own home, wouldnt she have to buy it in her own name if it was to be an investment home?
Or are you saying that I could buy a property in my own name, and she can apply for a loan with that house i purchase as collateral?
OK, propertyboy, there are a few different aspects here. You're almost right at the end. You can buy the property in your name, AND you can have the loan in your name, and yes, your new house would be collateral. Your Mum GUARANTEES your loan.
1) SECURITY – the asset against which the lender has security. So if you don't pay, they can sell this asset to get their money back. You're proposing that your parents' assets could be security.
2) BORROWING POWER – the ability of a person to get a loan, based on their income and assets. You suggest that your parents have better borrowing power and could perhaps get a better deal than you could.
3) USE – ie after you've used your BORROWING POWER to take out a loan against the SECURITY, you can USE those funds for different purposes. Your proposed use is for you to buy a property.
The parties involved in each of these three elements could be different people.
You don't need to borrow against your parent's assets to get the benefit of their borrowing power; you could achieve the same thing by simply borrowing in your own name against your own new property and having your parents guarantee the loan. By guaranteeing the loan – saying that they'll pay if you don't – the bank will take all their assets and income into account, as well as yours.
If, however, you need to borrow more than 80% of the value of your new property (ie you don't have a big deposit), then you could effectively borrow 100% of the value of your property by borrowing against their equity. In this case, you could do it in two ways:
Option A: Two loans
1) A mortgage of 80% of the value of your new property, taken out in your name, secured against your property, but guaranteed by your parents, plus
2) A new loan against your parents' assets, which is a refinance of their equity. Basically they take out a new mortgage against their assets, to cover 20% of the value of your new property. This mortgage would have to be in their names, I think, but I'm not positive about that. In any case, it's tax deductible to you because it's a loan for the purpose of you buying an investment property. The names/arrangements aren't as important to the ATO as the purpose. When your parents take out this new mortgage (a refinance, or equity redraw), they get given cash by the bank. You then use that cash as your deposit.
Option B: One loan
Your parents redraw cash equivalent to 100% of the purchase price of your property, you pay cash for your investment property, and you simply take on the payments for this loan. Whilst it involves one loan rather than two, the disadvantage of this method to your parents is that you've limited their ability to borrow against their equity in future. But as your property increases in value, in a few years you should be able to refinance your property in your own name and pay them out (as 80% of the increased value will be less than 100% of its present value).
Hope that helps rather than confuses!
Hi PropertyBoy,
My wife and I recently moved to Melbourne but only JUST after having our first home in Tasmania for 2 months. We had the first home owners grant for this house, and it was to be a Home, not an IP. Well, as it turned out we had to move to Melbourne and therefore leave the house behind. Here's were it gets tricky…
If we were NOT residents in the house for a minimum of 6 months within the first 12 months we would have had to pay the FHOG back (+ some extra fees). So if you are buying for investment with the idea to rent it out you may not even be able to have the FHOG as part of the equation. Obviously this may have changed (or I may be remembering it wrong). But I do know that I had to live in Melbourne for 4 months without my wife while she stayed in Tassie (and that sucked!).
Valkyrie
Valkyrie you are correct. I just purchase my 1st property 2 weeks ago so I can say the rule has not changed. You also need to stay there 6 months consecutively claiming that it is your Primary resident, so you cant move here and there on each month. It raises me a question though, do they check?
Checks have been done – usually through dept of fair trading/vcat to see if there are any rental bonds/leases on the properties. Not sure of the current situation though.
hm so if i was to get the FHOG i'd have to purchase it has a principal residence?
Meaning I cant claim as many of the expenses, but then again as i plan to keep this for a while, I will also pay no CGT
thanks for all the great replies guys I really appreciate it
In relation to what Valkryrie stated in New Zealand with the Kiwisaver and the labour government similar to the FHOG we have a deposit paid by the government for first home buyers. However this excludes property investors.
I think you should really check if FHOG is actually given to property investors first.
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