Hi
Not sure where to put this.
Does anyone know the basic answer to this ?
We are building a duplex, with each unit currently worth $450,000.
My parents own their house, currently worth $400,000.They’d like to buy one of our units, but they want to be able to sell their house and have around $100,000 left over.
This would mean selling a unit to them under $300,000.
Which would be a loss to us of $100,000.If my parents and my husband and I were to structure the ownership of one of the units to ‘tenants in common’ – with a 75% – 25% split (my parents, 75% and us 25%)…
could this possibly work ??????????
If they sold their house for $400,000, and bought one of our units for $300,000 – but we retained a 25% interest in it … is there some downside to this that I’m not seeing ???
We could keep the 25% equity in the unit, and pay off most of our mortgage with the $300,000 that my parents would put in.
My husband and I agree that we would never sell the 25% share.
My parents reaaaaally want to move from where they are to the coast (where we are)- but it’s way too expensive to get anything decent.
I’d like to check this out here, before I get their hopes up
Inna,
If you can trust each other why not just put your parents side 100% in their name. As your parents are living there they can exempt their side of the property from CGT which can help all of you. If it was 75:25 only 75% their property would be exempt from CGT, could be sad if they needed to sell and move into a Retirement home the tax man would be taking part of the inflation increase in the value and they may not have enough to buy into the retirment home.
Julia
Julia
Thanks for that, but I’m not quite understanding.
The duplex is two units, both torrens title.
We will be living in one of the units.
If we put 100 % in my parents name – my husband and I miss out on the extra equity.
We want to do more developments and need every bit of equity that we can get. My parents understand that.If my parents bought a house worth $300,00 somewhere else (where they can afford, but don’t want to live.) then they would be in the same boat if they wanted to sell and move into a retirement home ??
Hi,
Yes you can proceed with Tennants in Common but as a broker I don’t know any lender who would accept 25% of one duplex as security towards any other investing, and because it doesn’t appear that you’ll be receiving any income benefits from it in the form of rent, your serviceability for other loans is not improved either.
I really believe this is a question for an accountant because Julia makes some good points re CGT plus you may have claimed GST input credits which you may need to pay back if you have an ongoing stake in the residence etc.
Good luck!
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Mel
[email protected]Inna,
I will leave the equity arguement to Melanie. I just want you to consider if you are going to tie up $150,000 in an investment that has no income return you should at least endeavour to exempt the capital growth from tax if there is enough trust there.
Julia
May be it’s an idea just to sit down with the four of you, or other family memebers as well, and do a lot of brainstorming. There must be other ways too to make it a win/win.
E.G. they just rent it off you (and place half or more of their capital into an IP or other investment)
Or somehow rent the units out to each other, so you both can deduct the interest of the loan (I believe this is a legal thing to do). May be with you paying them less rent than they are paying you because they didn’t pay market value, plus perhaps them paying all rates.
I’m sure there are many ways, and better ways than I just thought of (they might be useless I am just giving rough examples) just check with the experts (accountant, solicitor) before you go ahead with any plan so that numbers add up and everything is legal.
considerations:
capital gains tax, as Julia pointed out (and she should know)
consider parents agescenario: say you didnt sell but rented out to parents, say parents sold thier place. they could afford rent (depends on if they are on pension). You get rental income, but have to service loans. You get tax benefits. Parents get a place to live, closer. Parents get money to live on.
scenario 2: parents dont sell but rent out their place themselves. Parentlive in and pay you rent.
scenario 3: parents sell, buy your place, can they get extra for the shortfall? I know they want more money to live on but….they want closer and there are costs
I would consider parents age, if they have a will that would cover such things….would you benefit down the track? could this be something you consider?
you are looking at the short term, maybe there are some long term prospects.
so much to consider, ages, equity, loans, living expenses, pensioner status, CGT…
Pensioners cant have too much in the bank, you dont mention any of this, so I assume they are not in the aged category for benefits.
Elves
Thanks everyone
Lots of things to think about there.
Elves – thanks for the ‘renting’ thoughts.
Some really creative ideas there !!
I’ve already checked the renting option out with centrelink though, and then after that – on this board – and it seemed that it would affect their pension. (they are on a full old age pension.)So they can’t have any IP at all – and they are too old to have the worry – they are simply not up to it.
There is definitely trust there between my parents, us and my sisters – but my husband and I are not too interested in the inheritance part of it.
We’d rather they actually spent all their money having a good time while they are here, and leave us nothing but happy memories
We do want to continue developing, and if we didn’t sell to my parents, but sold to someone else – we ‘d have all the equity we need to keep going.
Melanie – that’s a good point about Lenders not accepting the 25% as equity.
We didn’t think of that. I am going to check with our lender today and see what he says.Of course, we would definitely see an accountant/solicitor before prceeding with anything.
We just don’t tend to find them very creative, and find that boards such as this can often give some great feedback.Thanks again
Inna
If your parents plan to stay in the place until either they shift to a self care/nursing home facility, or until they leave this earth – why not set up a family trust, and use it to buy the property? This way, your folks can still live in it, you can control it and use the equity for further borrowing, and there’s no worry about the ‘succession planning’ as it’s all taken care of in the trust.
This is definitely the way I would look at doing things.
Cheers
Mel
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