Hi there
Very new to this site and I have never bought an investment property before. I have a few queries that maybe someone could help me with.
My mothers plan. …….Sell her house. My mother has recently become widowed and after consulting a number of financial planers she has decided to sell her house worth $330k(which she owns outright). Invest the proceeds in a managed fund with the view of creating a healthy nest-egg in 8 years time for her retirement at age 65.
My plan……..buy my mothers house……I'm currently assessing the viability of buying a rental property, I have a good amount of equity in my property (200k) and by buying my mums house I will have a guaranteed tenant that will look after the property lovingly, I will be getting a healthy discount on the price, the property is in a good location and most importantly i will be helping mum stay in her home.
I'm hoping to find the most tax effective method of doing this. I currently earn approx 80k p/a and pay payg tax of approx 22k with no other investments or income.
cheers
Here's my advice – go and see another financial planner. One preferably who isn't on a huge commission from the $330k investment into managed funds.
Can your mother not afford the costs associated with owning the house? You have said she owns it outright, so there are no mortgage payments. So she is going from paying rates and taxes (say $1500 – $2000 a year) to paying rent of, say, $250 p.w. ($13,000 p.y.)
Sure, the income from the managed fund investment should be able to recoup the difference, but what about expected capital gains in the property? Then there is the concern that the managed funds are a more risky investment than a home that is fully paid off. What happens if the value of the funds under management goes backwards? Did the Financial Planner advise her of the risks associated with this strategy? Or was he blinded by the dollar signs.
If this was my mum, there is no way I would be encouraging her to do this.
If it was my mum I wouldn't want her to do this either. Just look at what is going on with the global markets right now. It would be bad enough if that was your grocery money getting slaughtered… another thing altogether if you'd disposed of your house to buy into such a predicament, and then couldn't afford your rent money either.
Something to look into is a reverse mortgage. I do not know anyone that has such a mortgage, but it is worth a look.
Where is your mother planning to live if she sells the house? Rented accommodation? Or buy something smaller? More importantly, WHERE is your mother's house?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Further to my previous post, perhaps we can all suggest our best ideas for your mother's scenario if we understand the need.
Why is she thinking about selling the house? Is she worried that without doing so, she won't be able to afford bills and groceries? (in other words, in her retiremetn, will she have another income stream such as a bit of superannuation?) Or does she does want to free up a bit of cash for a few pricey holidays? Or …. ?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Maybe it might be an option for your mum to take out a loan against the equity of a small portion of her home – enough to build a granny flat in her backyard? She could live in the granny flat and could rent the main residence out, and use the rental return as income.
This site gives a bit of an idea of the price of putting a small residence in the backyard (assuming the backyard is big enough, and assuming council grants permission to do so) : http://www.backyardcabins.com.au/prices.html (note that things like bathroom and kitchen fitouts, lighting etc is EXTRA)
I would think that if she loaned $100k against her house to do this, then the rental return on main residence would see this loan paid off within 8 years.
This is just one idea, and you ought to seek your own advice from a professional who does not have a vested interest in whichever path you choose.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Here is another granny flat company http://www.bondhomes.net.au/brochure
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thanks guys,
I have managed to talk some sense into my mum (and myself). Turns out she has compiled quite a bit of personal debt, credit cards etc amounting to 30k that she wants to pay out as its causing her many sleepless nights.. After some further investigation I found that at her age she can access a small amount of her super (10% pa) so I have set up a little payment scheme for her to reduce this debt, including cancelling all of her credit cards, drawing 5% p/a off her super until these debts are payed. This way she can hang on to her family home and maybe in the future, as a retirement plan, even look at an investment property using her equity.
However, it's back to the drawing board for me. I'm now officially in the market looking for an investment property, preferably in the Bathurst area of NSW.
ps….a lesson to many, life insurance would have saved my mother a lot of heartache had my father had such a policy.
Great result – smart man
Thankyou heaps for checking back in to let us know how you got on with this one. It is a worrying issue. We were worried for you guys.What's the go with the backyard on your mum's property? Any feasibility of building a small dwelling on it do you think?
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
That's great news. All the best to yourself and your mum.
Huge backyard, double-block. Next door neighbour has done just that, a 20squares brick house infact.. I would imagine that local council would have to approve any application on my mothers behalf as they have done for the neighbour. You may have given me another idea.
cheers
You would definitely require permission from council, yes. The beauty here is that your mum already owns the land. All that would need to be paid for is the dwelling.
You could ask to build a dwelling there, and then put perhaps a granny flat in as suggested in my previous posts. Or you could build an entire house, or a freestanding unit. Even the mainstream builders are offering that these days. Refer here for examples: http://www.metricon.com.au/victoria/multi-dwelling-developments/default.aspx
The prices as at a couple of days ago, to give you an idea, were;
"Bentleigh" design : $154,300.00
"Kew" design : $169,300.00You'd need to check if this included GST, but it gives you an idea. You could probably DIY build cheaper, but still have to pay an architect or someone to draw up plans.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
ps you could also subdivide into two blocks of land, either before or after construction. So you could effectively sell the backyard, either with or without a dwelling on it. speak to council about this also if it interests you.
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
Thankyou heaps for checking back in to let us know how you got on with this one. It is a worrying issue. We were worried for you guys.
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