Hi All,
Long time lurker, first time poster so be gentle! Very very new to PI also and still have A LOT to learn.
I am 23yrs old and my partner and I have decided this is the year to get into property investment. I still live at home with my parents, as does my partner with hers in an attempt to get some serious saving happening. We have been saving for the past year or so and have about 25k saved so far.. we are both on quite OK salaries for our age so a loan of an average sum shouldnt be hard to get.
An issue has recently appeared with my parents where they need to sell the house they are currently paying off and due to their financial situation – they will need to rent for probably the rest of their lives.
Although this is a negitive thing, I thought this may be a good opportunity to buy a property locally and have them as tennants. This is ideal as my father is a licensed brickie and also an all round handyman (doing most of the renovations in our current house) so buying a house and doing work on it may be a cheap option.
I guess in saying that, I my question is:
Being almost totally oblivious to the pitfalls of the above situation and idea that has come to mind, where can I get some professional advice on how to approach this situation?
My initial thought is:
1. Look for a place that needs some work done to it
2. Buy the place (with my partner) and rent it to my parents while I also still live there (most likley at less than the loan repayments so does this make the property negitley geared?)
3. Do the house up to increase the value – at the same time my parents are paying off 1/2 the weekly repayments (as rent) on the house while myself and my partner cover the other 1/2.
4. When I move out in 2 or 3 years time, use the equity in the house to purchase a house to live in with my partnerI havent totally thought this through and I’m sure there are plenty of holes in my theory, but this situation has been thrown at me and I am not sure what to do so your advice is appreaciated.
Replies or private messages appreciated!
Thanks!
Hi Shiny,
welcome to the forum. Hopefully we can help you.
Generally you seem to have the right approach to things.
To answer your questions:
1. When you look for a place, you can probably select houses that other ‘reno’ people would shy away from because of the cost. I am especially thinking places with salt damp. Your father being a brickie could do it slowly over several years.
2.The place would not necessarily negatively geared. You would really purchase two properties. One IP that your parents rent, and one PPoR that you + partner live in. That they happen to be under one roof and not separate dwellings does not really matter.
3. The danger with doing up houses that you live in is overcapitelisation. One tends to improve the house more for ones own comfort than for the hip pocket.
4. This could be the danger time. When you buy another PPoR, you suddently have to cover 1.5 mortgages. Also the market is not moving that fast, so you would probably mainly get the capital gain due to the renovations.One last thought: Regularly talk between the four of you about the living arangement. Living with partner and parents/in-laws can often lead to a lot of friction, especially should you get children. By talking about it a lot of problems can be averted in the early stages.
It would also be good if you could look for a house that has two distinct areas so that everybody (every couple) can easily have his/her own private space.
NO – in my opinion. Relatives and friends are a bad idea when mixed with investment and/or finance. This sounds like a really good way to completely ruin the relationship with your parents down the track. If you need to sell the house, and/or can’t buy another place and you get stuck there, oh dear. A married couple need their space. They will probably pay ok, but what if they don’t? They are having financial troubles already? As a married couple money hassles can be the biggest cause of divorce, and having family involved can make it worse. Also you can’t claim negative gearing if you live in the property? Be very careful about the setup if you do go ahead, and get proper financial advice from an accountant before you start. If you are feeling sorry for your parents, how are you going to increase the rent on them?
Oh no, I just sit here shaking my head on this plan, I am sorry, but it is very dangerous. Good luck with your final decision.
kjs
I’m with “kjs” on this one with a definate NO!! Money and friends/relatives just don’t mix.
This also turns the tables upside down on your relationship with your parents. They have always been the one’s to nuture and take care of you, and now they will have to answer to you each week and pay up rent $$$. You don’t need a crystal ball to see it will end in disaster, particularily if you later throw in a couple of kids.
Please don’t take this the wrong way as I think your heart is in the right place and its a very kind gesture.
Also to get past the tax office you’ll need to show that the rent is at arms length and market value. If your Dad does work to improve the place, then you get the benefit of the increased equity, but he’s done all the hard work, which could cause friction later.
I’d probably suggest sitting down with your folks and having a long chat and seeing what they also think about things, go through both your finances/Pension benefits etc. and see what other option come up. Not an easy one but I do wish you well.
AmandaBS
http://www.propertydivas.com.au
FREE online Property Resources“It is better to be inconspicuously wealthy, than to be ostentatiously poor…”
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