Any and all suggestions welcome.
Long term renter over 10Y decides would like to buy property they rent from me. The property is +ve cash flow.
Value 190K approx, Equity 180K approx. Renter wants to put about 70K deposit and borrow the rest. The banks have offered renter 120-130K at 6.5% over 15Y, due to their age, full details of loan offer unknown. The question is, what should I do (1) let them arrange their own finance and receive 190K from them (2) accept 70K and do vendor finance at what interest rate and for how many years (3) let them buy a different property and I find new renters (4) how to make this a win win situation as they have been excellent long term renters and I would like to see them looked after.
Thanks C
Hi Michael, thanks for the reply.
How long have you owned the IP?
Property acquired mid 80s
What are their weekly rent payments?
Property is about 30% under the current rental market. This is a trade off that benefits both parties without going in to the full details.
Have they gone to the banks first before asking you if you’d like to sell? Perhaps they’re not aware they can buy from you as a wrap deal.
They asked me first and are also aware of the wrap situation. I haven’t wrapped any properties so far and as I’m o/seas 95% of the time and I’m still hesitant about taking that first step.
Taking the $190K sounds fine, but the capital gain may occur not when you don’t want it to.
Can you clarify if you mean capital gain on the property for tax purposes, it should be free of capital gains tax.
(2) accept 70K and do vendor finance at what interest rate and for how many years
This is my personal preference. You have the 70K for other projects and 15 years of +ve income.Still require information about what should be an appropriate interest rate to charge and over how many years.
This would be a last choice, especially if this IP was a “non-negotiable” part of your buy-hold-rent strategy, you may need to reconsider what you want from this investment.
As the property has shown capital growth since purchase, I have mainly used it as a negotiating point with the banks when purchasing IPs.
What do you want? You don’t have to say here, but this is important for a true win-win. Do you need 180K now, or 70K now, or will this affect your tax position adversely? Are you happy with +ve cash flow over the next 15 years whether it is from rental income or a wrap deal.
I want probably the same as everyone else on this forum to be financial secure in the near future. I don’t need the money now but I do want to acquire a few more IPs. As for the tax position it’s a nightmare that I haven’t been able to find a good accountant who can advise in this area. The problem being that I’m o/s 95% of the time and my situation about income is a little out of the ordinary.
Where the money comes from is not a problem for me, wrap or rental.
Thanks again for your reply and if I’ve left anything out just let me know.
C
Hi Michael, hopes this clears a few things up.
Hi. I was trying to work out why you think the property is free of capital gains. It could be for two reasons:
It is your PPOR
The property was bought for PPOR but being o/s 95% of the time, has caused some concerns about this status.
Can anyone give me a concrete definition of PPOR and how this effects people who work interstate or o/s for long periods at a time.
I say in five years because they may reach a point where they can obtain a loan, either unsecured or secured, to pay out their debt and receive the title, which they cannot do at the moment.
I think them paying it out is highly unlikelyHowever, if this property will attract no capital gain now or in the future when sold, my second option if retaining the house is to keep it as a rental, even if it means new tenants.
I’m leaning towards this situation but concerned about losing PPOR.BUT I would attempt to wrap or L/O another place to my current tenants because they’re too good to loose.
The difficulty with this idea is that I’m still unsure about wrapping and being o/s makes it a little difficult to manage the situation.
I’ve read quite a few of your posts and found your replies very informative and would like to know if you have any contacts or ideas for people like myself who spend the majority of their time o/s and have a few IP properties in regards to tax advantages. I can be contacted at [email protected]
C
Errrgghhh! A tough one. If you have been ‘renting’ the property out at about 30 percent less than market rate, because you are ‘unofficially’ the 3rd party in the house, but really you stay with your girlfriend while you are in town, you’ve been ‘getting away with’ not declaring income received from the tenants because it is your PPR and you are ‘sharing’ it.
As long as you are not maintaining a PPR elsewhere, ie all your mail goes to this address, you are enrolled to vote there etc, you should continue to ‘get away’ with it.
The problem is, now they want to buy, and they’ve done the ‘right thing’ by you, and now you want to keep on their good side too.
You can either be honest and say ‘sorry, don’t want to sell, if they move, you get tenants in, you can rent out your PPR for up to 6 years without paying capital gains when you eventually sell, and you start declaring the rent.
You can sell, be happy you got away with not declaring the income from something that wasn’t really your PPR…and you get a Capital gains free profit too, and you invest elsewhere.
I wouldn’t do wraps etc – they don’t need to borrow from you, why would they, any bank would take them on in the current climate, you’ll jusst end up pissing them off and you risk it ending in tears.
If it was me, and it was cash flow positive, I would like to hang on to it. So they move in, you’ve both had mutual benefit. So you get new tenants who you can’t do the ‘ppr’ deal with, and you have to declare the rent.
Or you do a ‘swifty’ like my dad’s wife does – you advertise in the ‘share accom’ for ‘half house to share’. You keep a room. (the smallest, or the store room, whatever suits you). YOu tell anyone who answers your ad to come and have a look. You suss them out. You say you’re out of town a lot and want someone to look after your place…if you get the right person, they are happy – they really get a ‘whole’ house for a cheaper price. You get to keep your PPR status and undeclared income.
My dad’s wife does ‘share accom’ on 4 houses – can you believe it – she is a big cheat – but, she is a rich big cheat.
She keeps a room in each one, and rents them all out, and doesn’t declare ANY income. Of course, she doesn’t get too close to anyone. None of the tenants know she has more than one house, just that she stays with her husband at the coast/in Bribane (depending on which house she is in) a lot – now I don’t think you are in her category, but hey, she gets away with it…
Just a thought.
I would like to have the guts to do this, but I don’t. Others do. It might suit you, it might not.
I can understand you wanting to keep at least ONE of your houses as your PPR.
Cheers, kooringal
quote]
Any and all suggestions welcome.Long term renter over 10Y decides would like to buy property they rent from me. The property is +ve cash flow.
Value 190K approx, Equity 180K approx. Renter wants to put about 70K deposit and borrow the rest. The banks have offered renter 120-130K at 6.5% over 15Y, due to their age, full details of loan offer unknown. The question is, what should I do (1) let them arrange their own finance and receive 190K from them (2) accept 70K and do vendor finance at what interest rate and for how many years (3) let them buy a different property and I find new renters (4) how to make this a win win situation as they have been excellent long term renters and I would like to see them looked after.
Thanks C
[/quote]Hi Kooringal, thanks for the input. The situation I have is different to the one’s in your reply. They do sound a little interesting but I would rather keep everything above board, although cutting corners is fine.
Can anyone give a definition of what constitutes a PPOR as I have been given different responses from accountants. Is it your voting address or number of nights spent there. My business keeps me o/s or interstate 95% of the time causing the ATO to query my PPOR on a few occassions. Has anyone else come up against this situation?
C
Is what that rich woman doing legal ?
is it income or shared rent ? actually it must be income as it would constitute boarding. Thus any income from it would have to be declared surely.
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