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From: Ayesha Todd


Hi all,
We are trying to sell our PPOR (very long and tiring affair, 2 buyers falling through, another where 10 weeks after exchange they still didn't have finance so we had to rescind, very messy affair) anyway we have another buyer that has requested the following, what I wish to know, is if we accept 'rent' does this turn it into a IP and therefore we have to pay CGT on the property, and two, anything we should be wary off.
The scenario - Listed price $138 500, sale price $137 000. Buyer wishes to pay us $40K now, into our hand, then pay us 70% 'rent' till settlement in November when they will pay the balance of $97K.
Now we are thinking of working out the 'rent' amount and requesting that be added onto the sale price....(12 weeks x $130 = $1560) and so they pay us in advance on the deposit or at the end on settlement avoiding the problem of receiving rent on a PPOR, though then we run into a problem of paying extra commission to the RE.
I suppose my first question is will CGT be payable if we accept 'rent', if so how will this be worked out.
Second question, anything we should watch out for, after the last settlement fiasco we don't want to fall into trouble again.
Ayesha
 
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Reply: 1
From: Michael G


Hi,

Speak with your solicitor, but if you dont like the idea of rent, have them write the contract so these as "non refundable installment payments", so if at the end they pull out you keep this money (also a heck of an incentive for them to complete the deal. And yes have these payment added to the sale price.

Or arrange that these payments are installments towards your "sale costs" ie agent fees, solicitor fees, so as to reduce your capital gains tax maybe?

This is NOT advice, but "play" around with the numbers, that is work out what money is involved (all the fees etc) and see who can pay what and when.

Your accountant maybe able to advise a strategy to reduce your tax by having other parties pay for costs, then your solicitor can draft up the contract to suit.

Again speak with your advisors on this one :)

Michael G
 
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Reply: 1.1
From: Dale Gatherum-Goss


Hi

No, you should not pay CGT at all as there is a specific section of he tax act that allows you to have 2 PPOR for a 6 month period during just such an overlap.

Tax will not be a problem to you.

Good luck

Dale
 
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Reply: 1.1.1
From: Michael G


Dale,

Could this ruling be used by ambitious renovators to reno two places at a time.

I must admit the timing and execution of such an idea must be great, but its a thought.

Michael G
 
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Reply: 2
From: Kristine .


Hi, Ayesha

At the risk of sounding alarmist, you would be passing control of the property over just to be done with the situation. Don't be a distressed vendor!!

Have a cup of tea and a quiet think.

Firstly, why can't the purchaser settle in the usual way? Have they got their finance approved, are they selling another property etc Knowing more details of their circumstances will help you determine risk. Any why are they trying to buy at a lower price then put all sorts of conditions in the contract which favour them?

Secondly, you've already experienced one rescission, exercise caution before leaping into the unknown with this one.

If this property is sold on a 'Terms Contract', you are protected under the law with regard to purchaser default, your legal right to certain or all monies paid under the contract, and also with the charging of interest on the outstanding principal.

Whether 'rent' on the property or 'rent' on the money, this will be classed as income and added to your income for the year for tax purposes. Either way, if you don't have an ABN get one (each), or else your tenant/purchaser will have to withold tax on the payments.

If you rent the property through the agent, then yes they can charge you a commission. If you rent the principal, no commission is payable.

I'm not up with NSW legislation regarding terms contracts, but the legislation will be available on line, although no doubt you have engaged a solicitor / conveyancer who has been down this track before.

Ayesha, a genuine purchaser with capacity to buy could turn up tomorrow. If you take the property off the market now mainly because you're feeling fed up, tired and disillusioned, you may be doing yourself out of a better deal. Only you can decide which way to go, but if you do decide to accept this offer, my humble opinion is do it under a terms contract, with interest either payable or capitalised, and with a definite settlement date. Once they're in the house, it may be very difficult to evict them in the event of default, and while it may be spirited fun to front up at 6am with the sheriff and locksmith, let me say in all sincerity, 'don't go there'!!!

Make an apointment with your solicitor, and give yourself at least 24 hours to make a decision.

Good luck

Kristine
 
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Reply: 2.1
From: Ayesha Todd


Thanks Kristine, thanks for your comments. We are waiting to here more of what the buyer wants to offer and the terms of the purchase, and will not accept anything if it doesn't suit....if it doesn't suit we will be taking it off the market with the RE and look at wrapping it. We believe that the buyer has the $40K now and is retiring in November and going to pay the balance with his pay out, avoiding getting a bank loan. I suppose in a way we are motivated sellers because at the moment it is sitting empty (we had to move out before settlement and didn't find out till 2 days before settlement that there were delays)not earning us a cent but costing us $180 a week in rates, insurance and mortgage costs. Though we aren't going to jump at a silly offer just to off load the place.
Again thanks for your comments and I will take them on board.
Ayesha
 
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Reply: 2.1.1
From: See Change


Ayesha

At the risk of turning this into a Caveat Emptor ..

Where is you property ? What would the market rent be ? Do you have a www link to it ?

see change

it's better to be guided by your dreams than your fears
 
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