Advice for my parents

Hi all,

My parents have come to me for advice as they fancy my knowledge over some of their friends and brokers they've talked to. But I hate giving them advice because
1) They have different goals and views on risk than me
2) When stuff goes wrong, they're likely to tell me off - even if it were to be mother nature's doing or something. :rolleyes:

I advised them on their current setup about 5 years ago but now they're having trouble repaying it as rates have increased and mum is getting less work and dad is getting less overtime. He's a longtime public servant but mum just does casual stuff. Spending most of their emergency LOC i set up for them hasn't helped either.

Some pretty rough numbers look like this - (estimated values could be off)

1) PPOR in Perth 550k - PI loan with Bankwest of 115K owing, they have some redraw avail too, unsure how much.
2) LOC with Bankwest of about 100k - I think it's mostly drawn (deposit for Adelaide IP and cars :eek:)
3) IP in Adelaide bought for I think 227K worth about 350K with 180k IO loan, again with Bankwest. The 5 year IO period on it runs out later this year. It rents for 230/w.

They did have a broker come around but the ()#$* advised them to put all 3 accounts on 1 giant PI loan, increasing their monthly obligation by $350 a month considering their main concern is lack of affordability. I'd really prefer to get them onto the interstate broker I use (from this forum) - but they're sit down for a cuppa and chat type people.

Their main goal, as far as I know, is to survive long enough for the Adelaide IP to be worth enough to sell and pay out all loans. This will enable them their dream of travelling around Australia for a couple of years.

With this in mind, I'm probably going to suggest they keep the loans mostly as is, but alk to BankWest about renewing the IO period on the IP and converting the PPOR to IO to help cashflow. I'm unsure of their policy on either of these 2 events.

Looking for any and all kinds of ideas to be thrown into the ring.
 
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The Adelaide IP looks like it's probably due for a serious rent adjustment. $230 p/w is way too low. That should help a bit. Selling this property now would leave them owing only $45k. So that is always an option and should put them debt free in 3 -5 years with the $100k LOC still available. How they fund the trip is another story.
 
Yes try and help them hold both properties until they retire, interest only on all is better than getting them additional line of credit to help with repayments as they don't have discipline to use it probably.

Ideally they sell IP year after retiring so capital gains tax greatly reduced.
 
@Andrew - yes I agree. However mum's sister is the tenant :rolleyes: It also wouldn't put their PPOR down to 45k once selling costs / CGT is taken into account. It would fix up their monthly outgoings, though.

@Bigtone - thats where I was hoping a broker would chip in with information on Bankwest policies on 2 things. 1) Will they let them swap the PPOR to interest only or try to tell them it's for IP's only until they call through to the right person, and 2) The refreshing of the IO period that's about to expire on the IP; will they need financials or is it just a form/request?
 
With this in mind, I'm probably going to suggest they keep the loans mostly as is, but alk to BankWest about renewing the IO period on the IP and converting the PPOR to IO to help cashflow. I'm unsure of their policy on either of these 2 events.

Hi,

Please check this info..

I think BankWest will allow I/O for up to 10 years, also you might be able to convert the P/I loan to I/O but have your/their broker confirm this for you.

Kind Regards,
 
" LOC with Bankwest of about 100k - I think it's mostly drawn (deposit for Adelaide IP and cars )"

Sounds like an accounting nightmare - how on earth are they keeping track of what part of the interest is deductible??
Marg
 
@Andrew - yes I agree. However mum's sister is the tenant :rolleyes: It also wouldn't put their PPOR down to 45k once selling costs / CGT is taken into account. It would fix up their monthly outgoings, though.

I see this as a huge problem. Not only are your parents funding mum's sister's lifestyle, when/if they want to sell the place, I believe they will limit the CG received from this property.

If they could slowly move the rent upwards on this home, it would improve their situation, but having a relative in residence adds a huge layer of complication. Perhaps a suggestion that the relative pay a % lower than market would give them a win/win. They benefit by being generous to the relative, and still being able to make rent increases, the relative benefits by getting reduced rent.
 
Why not sell the Adelaide property for a huge windfall gain, and as you are selling it, subject the purchaser to an already signed up 5 year Lease at the same very low rental rate with low - say CPI fixed increases.

I'm sure there will be plenty of gullible investors just itching to take it off your parent's hands. Advertise it for 400K, that'll give the Buyer a 3% gross return, more than they usually expect. Spruik it like they do as a fantastic negative gearing project for a keen investor with the potential for massive capital gain upside in the future.

Solves both your parent's problem and your aunties accomodation needs for the next 5 years.

Too easy.
 
@Andrew - yes I agree. However mum's sister is the tenant :rolleyes: It also wouldn't put their PPOR down to 45k once selling costs / CGT is taken into account. It would fix up their monthly outgoings, though.

You are correct regarding the selling costs a CGT. At some point your parents will need to take charge of thier own investment path. If they want to lose money by undercharging rent by approx $100 per week then that's thier choice. You put them on the right path, but they need to walk the walk rather than admiring the view.
 
When I have found finances tight with rental properties it has (on two occasions now) simply been a case of increasing the rent on properties to market rent.

Got this advice from a guy who lives near me who is very experienced with managing rental property. He looked at my spreadsheet. Looked at interest rates being paid and that I was already interest only. Then he said "simple...these 2 are under market rent...put the rents up to market rent".

I'd get three different quotes from real estate agents as to market rent. Then increase the rent to the average of the 3 quotes.
 
...and kick poor ol' Aunt Fanny out on the street with nowhere to go ??

You don't necessarily have to kick her out. You could just let her know that you are now too busy/sick/old/anything really to deal with the day to day running of the property and you are going to give it over to an agent to manage. Then let her know that since you won't be managing it anymore, you also won't have control of the rent, but you are sure they will treat her with respect as a long term tenant.

Then sit back and DON'T back down as your new agent puts up the rent every six months to bring it up to market rent. :cool::D
 
Sounds better than my folks situation. There son (my brother) who is 40 has been living rent free in their ip for the past 15 years. He got married a year ago and has a 5 month old baby. I said to mum "dont you think its time he started to pay his own way now that he is married and has a child" Mum said she would start charging rent.

hmmm i wonder if that happened. I doubt it! Dont think so actually. I'm too scared to bring the topic up again.

Sory to hijack thread.

:(

:mad:
 
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