Bank of mum and dad

[Shaneelastic]

So your paying 10% p.a for a loan?

Why wouldn't your parent take out a second mortgage over the property?

I Know private lender who would of charged less, albeit with personal guarentees and a second mortgage

 

[sanj]

So your paying 10% p.a for a loan?

Why wouldn't your parent take out a second mortgage over the property?

I Know private lender who would of charged less, albeit with personal guarentees and a second mortgage

I happily pay between 9 to 10% for loans, it's a fair rate

 

[slix_88]

I charge $1100 with legal advice.

Thanks Terry. I'll have to consider it since my conveyancer also quoted me $1k for it... didn't know the scope of work would be that much for the loan arrangement.

 

[slix_88]

So your paying 10% p.a for a loan?

Why wouldn't your parent take out a second mortgage over the property?

I Know private lender who would of charged less, albeit with personal guarentees and a second mortgage

My parents have lent the money to us from the redraw on their PPOR. I'm ok with the 10% p.a. on the small sum lent to us to help cover the shortfall from the 60% LVR.

At the end of the day, the money is being kept in the family and I'd prefer than over borrowing at say 8% p.a. and paying some stranger the margin.

 

[Terry_w]

Thanks Terry. I'll have to consider it since my conveyancer also quoted me $1k for it... didn't know the scope of work would be that much for the loan arrangement.

How can a conveyancer advise or draft a loan agreement? I don't think they are legally empowered and certainly wouldn't have the knowledge or training.

 

[Bunlee]

[
At the end of the day, the money is being kept in the family and I'd prefer than over borrowing at say 8% p.a. and paying some stranger the margin.[/QUOTE]

From the ATO perspective I would imagine that the transaction was driven by private / family imperatives rather than being on a commercial and arm's length basis.

Any deduction would be limited to commercial terms I would expect

More informed opinions than mine may indicate otherwise though

regards

 

[slix_88]

From the ATO perspective I would imagine that the transaction was driven by private / family imperatives rather than being on a commercial and arm's length basis.

Any deduction would be limited to commercial terms I would expect

More informed opinions than mine may indicate otherwise though

regards

The earlier posts in this thread suggested that I would be able to borrow from parents so long as it isn't for tax avoidance purposes. Also, my 10% pa is justified and my parents will be reporting an income to the ATO in their tax filing on the margin they'll be making.

Is there an issue in doing this?

 

[slix_88]

How can a conveyancer advise or draft a loan agreement? I don't think they are legally empowered and certainly wouldn't have the knowledge or training.

Well, it's a law firm with many solicitors. I was advised that another solicitor will be on the case (the pricinipal of the firm) to draft the agreement. Also, the firm handles other matters including criminal and traffic offences, property law, family law, general litigations etc.

 

[pinkboy]

Slix_88

So Im just trying to process this out loud.

1. You purchased an untenanted 20% Comm/80% Resi property.
2. You didnt understand what structure to put it in.
3. You received advice from a RE agent regarding GST and other seemily easy, but actually complex taxation issues.
4. You purchased half share with your brother, and further implicating your family by borrowing funds from your parents at 10% interest a shortfall of funds.
5. You are now picky about who to actually get in there and will not take on anyone who wont pay the outgoings.
6. You want a legal loan agreement drawn up to protect your parents from you incase this investment fails.

What is your strategy with this property?
Where does it fit with your other investments and end goals?
What is your exit strategy if cashflow becomes a problem with this property?


pinkboy

 

[slix_88]

Slix_88

So Im just trying to process this out loud.

1. You purchased an untenanted 20% Comm/80% Resi property.
2. You didnt understand what structure to put it in.
3. You received advice from a RE agent regarding GST and other seemily easy, but actually complex taxation issues.
4. You purchased half share with your brother, and further implicating your family by borrowing funds from your parents at 10% interest a shortfall of funds.
5. You are now picky about who to actually get in there and will not take on anyone who wont pay the outgoings.
6. You want a legal loan agreement drawn up to protect your parents from you incase this investment fails.

What is your strategy with this property?
Where does it fit with your other investments and end goals?
What is your exit strategy if cashflow becomes a problem with this property?


pinkboy

Seems like you've been following me well on these forums. I've answered your points below:

1. Yes

2. This has been clarified. A bank provided me with a resi loan only @ 60% LVR. Most other banks only referred me for a commercial loan.

3. I have been advised by my solicitor, tax agent and the ATO that I could claim the full GST back in my next BAS. The GST is calculated as 10%*20% = 2%. I have just received an invoice for the sale from the vendor outlining the GST component.

4. Bought with brother 50/50. We are both also splitting the interest payable on the borrowings from our parents to make up the shortfall (bank only was able to lend 60% but that's ok since my parents were fine with lending us some of their surplus cash)

5. I wouldn't say picky... I've seen some demand come through over the last week of ownership and since the agent listed it on realcommercial. The house is best suited for somebody who would like to walk downstairs to their office. Perfectly suited for a new business starter, a company willing to board their employees there during the week, or for somebody wanting to live and work closer to the city. The lease is for a minimum of 2 years and I wouldn't like to compromise on lower rent/no outgoings payable on such a tenancy term.

6. Loan agreement isn't just to protect my parents but to also do everything by the law. Not sure where you got the idea of it being a safeguard for if the investment fails The main reason for it is for my brother and I to also declare the interest payable to my parents as an expense on the IP for tax deduction purposes (first page of this thread shows that it is doable based on the responses I received).

Strategy - It was a great opportunity. Not only do we have the flexibility of turning it into a PPOR in the future with the potential to still yield a return on the commercial unit, but the rental yield is quite high for houses in the same area (primarily driven by the commercial unit).

Other investments - My brother and I thought it would be wise to invest for the same reason given above; good yield and also doubles up as a great potential PPOR. Goal is to leverage off this property and buy another property in say 3 years?

Exit strategy for cashflow problems - my brother and I are both able to service the loan without much trouble at current interest rates with the property untenanted. We're both under 25 yo and we're expected to receive pay rises of at least 10% pa over the next few years with our chosen career paths. If interest rates go up, it would be less than commensurate to our pay rise. Better yet, we expect to further build equity when it gets leased out.

I hope that helps with your processing. Feel free to PM me if you have further questions.