Hi Guys,
I have a bit of a predicament.
My partner and her brother own an investment property in Traralgon VIC with an EMV: $280K and they owe $145K, so there is a bit of equity in the property available built approximately 6 years ago and purchased as a house & land package. The property is currently tenanted for $300.00 and is positively geared.
The situation is this:
My partners brother is suffering financially at the moment due to being out of work for over six (6) months and not being able to manage his money properly. His wife refusing to return to full time work after having a baby is putting a stress on them financially.
OPTIONS:
1. Sell the property to there grandmother who wants to buy and move down to Traralgon from Melbourne to be closer to family for $280K and take the profits equally between my partner and him. This means taking the profit for future investment for my partner and myself and my partner knows she and her brother would get the property from the estate and it means their grandmother is closer to family.THIS MEANS: Taking capital growth of $67,500.00 each.
2. We payout my partners brother and retain the investment with the $300.00 rental and this therefore becomes a strain on us financially. Means the debt increases.
THIS MEANS: Increasing debt and negative gearing property. Is it worth it?
QUESTION: Will we be required to payout the brother the $67,500.00 or do we minus some costs etc. Can you please provide some assistance as i believe we shouldn't be required to pay all the amount as we have to get a loan to assist my partners brother as he wants to get out of the investment due to financial difficulties. Can you advise how this works?
Your advice would be great and assistance as i am looking at a few options and a bit of guidance would be great. Look forward to hearing from you all.
Kind Regards,
MERC
Hi Merc,
Have you contributed equally to the purchase and payments for the property or did one of you put in more of a deposit and/or pay more money towards the loan repayments? When my brother and I purchased an investment property together we kept meticulous records regarding who paid what as far as deposits went as well as if there was any difference in what each of us paid towards the loan. When he wanted to sell his share of the properties to buy his own home it was easy for the accountant to determine how much money I needed to pay to buy his share. i hope this makes sense.
Also is the property currently rented at market value or is there a chance of increasing the rent to help offset your costs?
Good luck
Sonya
Hi Sonya,
They have contributed equally. Do i take the profits and run as i have been told you should never sell. Six years and the growth is about $90K, They will inherit the property anyway, so we can diversify into further investments and look to use that later on. We also have to weigh up the tax benefits that help at tax time.
Should we go and see an Accountant?
Kind Regards,
MERC
That would probably be the best option to ensure that all the pros and cons can be taken into consideration.
i think capial gains will be less because they have held the property for more than one year. Also if they sell directly to their grndamother then they could avoid paying about $13,000 or more in agents fees to a real estate agent. If they choose to do this it may be worthwhile paying for an independat valuation of the property. Or alternatively get it appraised by three or four different agents and averaging the price to determine what the sale price could/should be. cheers Sonya
Try to work out more accurately what the CGT will be.
eg. The gain was $67,000 each
take about the buying and selling costs (stampduty, legals, agents fees etc)
say $10,000
= $57,000then apply the 50% discount
= $28,500This then goes on top of your partners other taxable income.
say she will pay 20% tax, that is nearly $6000 in taxSo you might get $60,000 in your pocket.
You can then use this to pay down your PPOR loan
@ 6% interest that is a further saving of $3,600 pa in non-deductible interest. This will also have a compounding effect too as you will save interest on interest.At the same time you can set up a LOC on the owner occupied home and buy another investment property and claim the interest on this portion. But you will need to pay stamp duty again on this one.
So you are selling half a property and will be paying down non-deductible debt and maybe buying another investment property.
I suggest you sit down with 2 pieces of paper and more fully work out both scenarios – buying out the other half or selling. and see which makes sense.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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