Hello All,
My parents have recently purchased a property at an auction and they have given me an option of going into the purchase of the property, at settlement, with them which means that I will be on the title as well as on the home loan.
Here is the situation:
1. My parents are planning to take out a small home loan (<25% of property costs) on the property (their PPoR). I have checked with the bank and I have enough borrowing capacity on my own to help support the loan. My parents' are planning to pay off the mortgage in 2 years' time – by selling some of their investments.
2. My husband and I have a mortgage which is approx 50% of our PPoR. My husband and I are planning on taking out a home loan for an IP this year.
So,
What are the possible legal and commercial ramifications that I need to consider if I decide to go into this venture with my parents taking into consideration my husband and my plans for the year? My parents and I have discussed that we will subdivide the plot in a few years and build 2 townhouses on the land that they have purchased. For this project, I will need to be borrowing to build the townhouses.
Is this a good idea? What else would I need to take into consideration before making my decision?
Any advice is much appreciated.
Thanks.
if you aren’t on the sales agreement already, there may be stamp duty/transfer issues.
I'd check with the solicitor handling the purchase. You can't just change/add names to a contract (especially when purchased at auction).
Oh ok… let me clarify.
They signed the contract and added the "and/or nominee" to the purchaser details so there are no problems to adding my name at settlement.
I didn't think you could do that at auction!
I always thought you had to have final names before exchange otherwise fees were applicable. As exchange is immediate at auction I didn't think you could do it.
How do you do it? You'd have to sign a new set of contracts.
Sorry I haven't answered the question.
I'm a bit confused. They are buying land with money borrowed against their PPOR? 25% of the new property? You both will have the loan for the land then you will borrow for the townhouses?
What are your parents paying off in 2 years time (the first mortgage)? Will the bank lend you money for the land AND the townhouses?Anything you have an interest in will be viewed by the bank. If you share in a loan the bank can estimate the TOTAL amount of the loan when calculating your debts. So this WILL affect your borrowing for an IP. If you buy the IP the bank may not give you a third loan for the townhouses.
Check your figures to see how much equity you have in your PPOR and how much you need to do it all.
Hi Babee & All
This needs some care,
Except for possible subdivision its probly better for you to lend to your parents under a written agreement which gives you the right to register a caveat over the property as there are some variables.
Suppose selling the investments timing doesnt fit in 2 years, or their plans change thro illness or whatever, then you are stuck ?
or the subdivision is not approved ?
however if you lend to them under the agreement then that could include involvement in the subdivision at the time it gets approved.
Either way under the agreement you can share in the equity,
Sounds like a job for a solicitor to me.Anthony @ A4Companies
Thanks Anthony. I have done this and have discussed with my lawyer. He is happy with what I have done so far. He will draft the contracts so that we have everything spelt out so that unforeseen circumstances such as the ones you have called out, will be captured adequately. We will be working through a tenants in common contract. And the bank has confirmed that this set up is fine for future borrowings. Thanks again for your advice.
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