Advice Please - structure for buying property with sibling

[MelbGal]

I need some advice on how best to structure an investment with a sibling.

I purchased an investment property with a sibling 50/50. We contributed the same deposit amount, all income and expenses are shared and decisions are made together.

We have 2 equal loans secured against the property of which I pay off one account and my sibling pays off the other. Unfortunately, because we secured against the property the bank wanted both names on both loans as we are jointly and severally liable.

We have owned the property for a couple years now with no issues, however I am wondering if there is a better structure that we should consider as we expand our portfolio.

Thanks

 

[Terry_w]

I need some advice on how best to structure an investment with a sibling.

I purchased an investment property with a sibling 50/50. We contributed the same deposit amount, all income and expenses are shared and decisions are made together.

We have 2 equal loans secured against the property of which I pay off one account and my sibling pays off the other. Unfortunately, because we secured against the property the bank wanted both names on both loans as we are jointly and severally liable.

We have owned the property for a couple years now with no issues, however I am wondering if there is a better structure that we should consider as we expand our portfolio.

Thanks

Is it held Tenants in Common?

A better way may be a unit trust. If one wants to buy out the other it would be easier and cheaper to transfer the units of the trust.

But it will depend on the situation.

 

[Peter_Tersteeg]

The CBA has their 'property share' policy. It allows two people to get a loan over only their share of the property. You have to provide a cross-guarantee for security purposes, but it's only a security guarantee, not an, "I'll pay if my sibling defaults," guarantee. This effectively means you're only legally responsible for your half of the property (although you could both loose the lot if your sibling does default).

The benefit of this is it theoretically improves your serviceability in this situation. It's a similar structure to what you've currently got, but you're not technically liable for the other persons loan.

No doubt the CBA will recognize their own policy, but the jury is still out as to how other lenders will treat it (which is what really matters). It's also not exactly cheap overall, as the CBA enjoys two sets of fees and they price on the individual loan amounts, not the full combined loan (although no doubt they'll negotiate on this under the right circumstances).

Also there are lenders that will recognize that the you're entitled to the full rental income if they're assuming you're responsible for the entire debt.

For future property, it is simpler if you invest separately, but generally your resources will go further if you work together. For some families, purchasing through trust structures also works well.

 

[MelbGal]

Is it held Tenants in Common?

A better way may be a unit trust. If one wants to buy out the other it would be easier and cheaper to transfer the units of the trust.

But it will depend on the situation.

Hi Terry, yes it is held as Tenants in Common.

I thought that the trust word might come up. It is an area I am not familiar with. Is there a threshold when this would be a viable option?

 

[Terry_w]

Hi Terry, yes it is held as Tenants in Common.

I thought that the trust word might come up. It is an area I am not familiar with. Is there a threshold when this would be a viable option?

Not really as it all depends. If the property could become a main resdence then you may not want to use a trust. However if not then it would be worth considerinng with 2 parties are involved.

 

[Paul@PFI]

In Victoria a unit trust CAN be used as a PPOR and the property would be exempt for some or all of the land tax of a beneficiary. There is no CGT exemption however. If there were two unitholders one could access a 50% exemption. This would be no different to a property outside a trust.

One of the benefits of a unit trust is that the unitholders can be changed without triggering a change of legal owner. For example lets say in 3 years your sibling wants to buy you out. You can redeem your units etc and then they own 100%. No stamp duty. Also they get the PPOR exemption for land tax.

Benefits of a UT can include:
- refinancing later- You can create a tax deduction to repay non-deductible debt
- SMSF involvement as a unitholder is some instances
- Add unitholders
- Redeuce unitholders
- Change ALL unitholders (effective sale of property) - Duty ?
- Changing % ownership....ie a strategy to shift ownership over time without duty
- Related and unrelated parties since there is a FIXED right to income and capital
- A discretionary trust can own the units in the trust rather than an individual (asset protection / tax strategies ?)