Hi Everyone,
I first read Steve's books about 2 years ago, and have ever since been looking forward to start investing. Unfortunately at the end of last year my wife's mother passed away and has left her property to her two daughters. At this stage I am really unsure as to what the house might sell for because it is in a really bad state, but in a relatively nice area, it's in an older part of Bundaberg where there are mostly 3×1 Brick and weatherboard single story houses. We had originally thought that the property would sell, and that the two sisters would split the money, and we would look at investing this money elsewhere. However, I am currently going through Steve's Property Apprenticeship and have looked through the sections pertaining to renovating to rent or sell and think it might possibly be a candidate for renovate to rent. Before I spend the time analyzing this and doing my due diligence there are some financial and accounting type questions I would like to know:
1. How will we go getting finance. lets just say the house is worth $200k. Seeing the house is going to end up in both sisters name will the bank view half the house as my wifes so that we can get a $100k loan with a estimated value of $200k i.e. an LMI of 50% and mean that we don't have to put any money down?
2. will this be different if we are looking to create a trust to buy the house with?
3. What will be the situation with stamp duty on both 1 and 2 above?
4. What will be the situation with capital gains tax on both 1 and 2 above? do we pay at all? do we pay it on the full amount (200k)?
It's a very complex situation for a first time investment, but we have been doing our research for a long time. Aside from these questions, I will also be doing all the normal due diligence stuff. These factors above though will help me decide whether we would attempt this or take the proceeds of the sale and look to re-invest closer to home (we live in Perth.
I am sure there are many other questions that will put up if I decide to go down this road. But for the moment, this is what I can think of,
Cheers,
Firstly, you should seek some legal advice as it may be possible to set up a trust now and other benefits possible. You need tax advice as well perhaps.
You may also want to buy out the other sister. Land tax advice also.
1. Bank will lend to the legal owners – if 2 names then both on the loan. Once probate has gone through and the estate administered you or you wife and her sister will own the house. This could be used as security and a LOC set up for example.
2. Yes. You need legal advice on stamp duty, tax, asset protection, land tax etc. However once in the trust the same general principals apply. Trustee can borrow money using the trust as security – within the bounds of their powers under the trust.
3. complex. seek legal advice. Possibly none, possibly full market value
4. Transfer to a trust would generally be a CGT event. There may be ways to do it to avoid CGT depending on a few things. Event though it may be a CGT there may be nil CGT payable depending on the circumstances etc.
You will need to spend money on advice to save thousands in wasted taxes.
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
Thanks very much Terry,
Would these be questions for a Lawyer, Accountant of both?
The intent would be to buy out my wife's sister. So in regards to point 1, we would be borrowing the full value of the house (approx) whilst using my wife's share which is half of the house's value as security.
Would it be possible then to set up a legal document where we pay my wife sister a fixed amount (approx half of the house value) to forfeit her share in the estate, which then makes the house transfer an "inheritance" rather than a "purchase".
Cheers,
Solicitor – legal questions.
If you would be buying out the sister you would be using the house as security. Also consider deductibiliy of interest questions.
Depending on the terms of the will the sister may renounce her interest possibly. Possibly other ways too!
If not it would be a sale from the sister to your wife and normal stamp duty etc would apply probably.
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
Hi Terry,
Sorry for all of the questions, but what do you mean by
Terryw wrote:Solicitor – legal questions.If you would be buying out the sister you would be using the house as security. Also consider deductibiliy of interest questions.
And
Terryw wrote:Solicitor – legal questions.Depending on the terms of the will the sister may renounce her interest possibly. Possibly other ways too!
Hopefully this will be the end of all the questions. I really appreciate your help,
Cheers,
You want to make sure whatever you do you set it up so that the interest on any loans is deductible. If you don't take care you may not be able to claim the interest.
Other possible ways will depend on the circumstances. Family provision claim and a settlement for example.
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
Okay, Thanks again for you help on this Terry
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