My parents are in their 80's and have a PPR in Bray Park which they still owe money on. Some of the money owed is to my sister although she is not on the Title (personal arrangement between Dad and her). I am keen to commence my investment career however are deposit poor. I was thinking of offering to buy Mum & dad's house for below market value but sufficient to allow them to repay the sister and mortgage, hence leaving them free of debt. The balance of the market value would be paid either in a set time or to the estate on their death (of course I am a beneficiary of the estate at this time). My thoughts are that 1. They will be free of debt on their pension. 2. Saves on the legal wrangling upon their death. 3. There would be sufficient equity in the house that we could use to put towards another property. Can someone advise me if this sounds practical and what have I forgotten (apart from letting emotion into a deal)? I would be setting up a Discretionary Trust structure so if something happened to hubby and I, the property would be protected and I would want to discuss the deal openly with both siblings who have an ultimate interest in the property with Mum and Dad. Have a passion for investment but maybe a bit impatient. I am currently working with strategies from Dymphna Boholt of Knowledge Source but trying to get as much input from other sources in an effort to be better educated.
Have you considered the Centrelink issues?
There could be 2 main ones
1. Selling could mean they have more cash then the threshold allowed which may mean a reduce or no pension.
and
2. Selling undervalue or gifting money would affect them for 5 years. Centrelink would deem them to still have these funds and be earning x% pa on them and this could affect their pension too.
Other issues
– capacity – do they have enough capacity at this stage in their life to understand such a transaction? Could there be allegations of undue influence or unconscionability
– siblings – how well do you get on with them, would they have any objections
– banktupty – what if you went down? greater asset protection if you left the house as is and used it as security maybe
– family law – what if your marriage breaks down?
– disputes over the estate – what if some later disputes the estate. The transfer to yuo could be wound back in some instances.
– CGT – keeping it with the parents would mean tax free capital gains.
– land tax – same
– receiving it via the estate could be so much better, especially if they left it via a testamentary trust and you have children..
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
(This is a response to the other post you made too)
To be honest, It doesn't sound great.
Not sure if it's a slight tax (stamp duty) dodge buying below market value like that then paying it back later. Unless you pay stamp duty on the market value. If you're a first time buyer you might qualify for the stamp duty concession and first home owner grant but not sure if they still apply when buying through a trust.
If you can't afford full market value now, how do you think you could afford to pay the difference on their deaths? What if interest rates rise too? What if the value falls? You will owe 100% of the properties value!
What happens when you own it, they rent it back from you? Will you put the rent up when it's due without upsetting people? Would they be good tenants ( joking
)Is it in good condition and in a good area with strong capital growth and low vacancy rates? Is it a type of property that is in demand with both renters and buyers (easy to on-sell later)?
Are there any major plans for development in the area? Are jobs being created in the area? Is the population rising in the area?
Is it close to transport, schools, shopping center, university etc?
Are you just trying to buy it for the sake of buying a property!? Would Dymphna Boholt buy it?
Why don't you have funds for a deposit, if you're parents are in their 80's i'm guessing you've been around/working for a few years too (no offence)?
FYI I bought my first property alone and by making sacrifices because I don't earn huge amounts of money (I quit smoking, drinking and didn't holiday. sold the Audi and bought a getz etc. etc) and working my arse off for 7 days a week doing as much overtime and private work as I could until I could afford the deposit for a derelict victorian cottage. Then I worked my arse off even harder for a couple of years gutting the place and renovating it from top to bottom inside and out in my 'spare time' (it would've been easier to build a new house..). Once in I rented rooms out individually to increase my cashflow which meant I could save quickly for the second place which surprise surprise, needed no reno work doing to it! They both pay me good money every month and now i'm looking for no.3 and have the funds ready to go for that. I'm not gonna rush in because that's what I did with number one and it took a lot of work to turn it around. It was a good lesson. I want this one to pay me more than the other two put together. Each time I buy, I have to buy something better than the last.
SET YOUR OWN GOALS
If you put your mind to it you'll be able to buy your parents house but make sure you're doing it because it's an excellent financial decision for all involved and won't cause any arguments with your siblings now or when the worst happens. I suspect they could be better off downsizing if that's an option and they could clear their debts. If they have money left over they could lend you a bit. Remember it's got to be paid back though, and is no different to saving it up yourself.
DO WHATEVER IT TAKES
Either way work harder to pay off any debts, go back to school, get a part time job or work towards a payrise/promotion at work so you can earn more. Look hard at where the money you do earn goes and make some sacrifices for a few months. Buy a cheaper car that burns less fuel. Cycle to work or get the bus. Buy cheaper brands at the supermarkets for eg. Have a garage sale and sell all the stuff you haven't used for years. Put all your money in the highest paying savings account you can get and use a credit card for day to day spending but pay it off in full every month. You'll get 56 days of interest free spending and your money will stay in the high interest account for longer, paying you more interest. Each month try to spend less on the credit card than you did the month before. You'll learn to be disciplined with your money and how to budget too. You'll also make a better decision investing money you've saved/worked hard for yourself and appreciate than money that was real easy to borrow off your parents.
Get property investing books from the library to read and make notes every time you read something that is particularly useful to YOU.
In a few months you'll easily be able to get a deposit together and then search hard for a property that satisfies the goals you have for investing. When you've found one don't buy it, instead use it as a benchmark and go out and search harder for an even better one! Then negotiate hard on the price, and get as much stuff thrown into the deal as you can. Be prepared to walk away if it doesn't stack up.
Good luck, go get that cheese..!
I have the same questions: it is obvious you are not that young, but you have not saved enough money to make a deposit on your property investment. It makes me wonder if property investment is for you. I suggest to research what property investment means first, before jumping into this business.
I don't have the full picture so some of my interpretations may be incorrect.
I am going to be one of your siblings for a moment – be fortunate I aren't in real life.
If I was one of your siblings I would be interrogating this proposal with a fine tooth comb.
For example – why are you 'deposit poor?'
What is the likelihood of your fulfilling any financial commitments made under this arrangement.
And finally the biggie –
I wonder if you have looked at this situation from their perspective too. To me your post centres on your benefits and all it does is clear their debt without leaving any surplus.
Your parents have worked all of their life and got themselves a home and are now struggling as they enter the later years of their life. Your solution is to buy their property at less than market value, allowing them to clear their debts without anything left over and pay out the
face2facerentals wrote:balance of the market value would be paid either in a set time or to the estate on their death (of course I am a beneficiary of the estate at this time).What benefit do your folks get if you pay the balance remaining into the estate?
Exactly what are your parents going to live in and what are they going to live on? Are they going to remain in their home?
You also need to look at their overall budget situation to make sure they have sufficient cashflow in their pockets.
Just going through this situation with my folks at the moment and it can be a tricky situation working with alot of sensitivities. I am not sure your focus is sufficiently on their needs – while you claim to be helping them become debt free – there is a potential big upside to you.
They should be your first priority.
I have a similar question with regards to the original post and thought I'd chuck it in here instead of starting a new topic.
My question,
Assuming they owe around $170000 ( a guess), i'm also guessing that the property would be valued at around $400,000, would it be possible to purchase the property from them for around 280000, 290000. giving them enough money to pay out their loan and also make a nice profit. While also giving me equity once getting the property valued. I would then in turn rent it out to them, but at a rate that would cover IO repayments. saving them more money on what they were paying and giving them the chance to enjoy life a little more. Aswell as making it a at worst neutrally geared IP.
Obviously the figures i've stated are just a guess, but the main question would be, are there any tax/legal no-nos about buying below value and both profiting, parents debt free and extra cash, me my first IP with a fair bit of equity good to go?
Todd Giles wrote:I have a similar question with regards to the original post and thought I'd chuck it in here instead of starting a new topic.My question,
Assuming they owe around $170000 ( a guess), i'm also guessing that the property would be valued at around $400,000, would it be possible to purchase the property from them for around 280000, 290000. giving them enough money to pay out their loan and also make a nice profit. While also giving me equity once getting the property valued. I would then in turn rent it out to them, but at a rate that would cover IO repayments. saving them more money on what they were paying and giving them the chance to enjoy life a little more. Aswell as making it a at worst neutrally geared IP.
Obviously the figures i've stated are just a guess, but the main question would be, are there any tax/legal no-nos about buying below value and both profiting, parents debt free and extra cash, me my first IP with a fair bit of equity good to go?
Yes, possible. But the points listed above in my post still apply.
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
What's the matter with paying fair market value?
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