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From: Mike .


Sell & Stay concept
From: Jacques
Date: 12 Jan 2001
Time: 14:15:26

Browsing through investment books I came across one entitled "Sell and Stay" by Kevin Shiels. It goes into the details of how retired people put their house on the market, and lease it back. For the investor, it means paying 30% of the price upfront, and 70% interest free when the vendor dies or moves elsewhere. The vendor gets the right to stay in the home for life, or until they choose to move.

There is no rent to collect, but then no interest to pay (apart on the 30% down payment, I guess). No maintenance (well, that is if the elderly vendor will take care of his or her home, which they might do if they are living in it), no vacancy problem, and supposedly, the tenant would be problem-free.

Has anyone had any experience with this concept? Any thoughts, opinions, advice, comments?

Cheers Jacques
 
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GB

Reply: 1
From: Mike .


Re: Sell & Stay concept
From: GB
Date: 12 Jan 2001
Time: 15:28:15

It was being done in Sydney a few years ago - I do not know if it still goes on.

There was a particular company doing it, but I cannot recall any details.

Back issues of the SMH would contain the details.
 
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The Wife

Reply: 1.1
From: Mike .


Re: Sell & Stay concept
From: The Wife
Date: 12 Jan 2001
Time: 14:35:38

I havent any experience with this concept, but I have heard it is very common in Europe, maybe check out some foreign sites?
 
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Phil M

Reply: 1.1.1
From: Mike .


Re: Sell & Stay concept
From: Phil M.
Date: 13 Jan 2001
Time: 17:47:35

My first post to this excellent forum, hopefully I'll be soon able to say I've purchased my first IP.

As an aside to the Sell and Stay concept being common in Europe, in 1965 an elderly lady in France called Jeanne Calment had an arrangement with a lawyer named Andre-Francois Raffray.

The deal was he paid her $500 a month and in return got her apartment when she died.

She was then 90 and he was 47. Raffray assumed he'd only have to pay up for a few years and then he'd collect the property cheaply.

In 1995 Raffray died aged 77. Jeanne was 120 and still going strong! Apparently the $180,000 Raffray paid to her over thirty years was more than double the value of the property when he died.

So the moral of the story is, if you're going to invest in a scheme like this, make sure you'll still be around to collect!
 
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Jacques

Reply: 1.1.1.1
From: Mike .


Re: Sell & Stay concept
From: Jacques
Date: 14 Jan 2001
Time: 10:41:08

From what I understand, the sell and stay concept is or was put into practice by a company called Selstay in NSW. The operation was or is not similar to Jeanne Calment's case. Here, 30% is paid upfront, but no rent is paid, and no interest paid. So the investor saves on interest, but does not collect rent, yet owns the property, giving the vendor a lease for life (or until the vendor shifts). The investor can sell the property, but the contract is then subject to the same lease for life arrangement. So I guess if the investor kicked the bucket before the vendor, the investor's estate would get the property.

My gut feeling still tells me there is something good about this, but I am trying to find out the risks and the negatives.

Cheers Jacques
 
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Phil M

Reply: 1.1.1.1.1
From: Mike .


Re: Sell & Stay concept
From: Phil M.
Date: 14 Jan 2001
Time: 15:40:49

I agree, it's not quite the same thing. But I thought it was a pretty funny story all the same, if only tangentially related.

The only problem I can see with an arrangement like this is that there is no prospect of the property ever becoming cash-flow positive while the lease is in place (no rent to collect), you're really relying on capital growth.

I guess the big benefit is you only have to cough up 30% of the price now to control the asset, which may make it easier to get financing (seeing as according to the old hands in this forum banks can be reluctant to take rental income into account when working out if you can afford it). But I would think the lender would want assurance that you could afford to finance the remainder if the lease should suddenly end.

Perhaps it could be a good move on an expensive property in an upmarket area where yields are low anyway but capital growth is strong, and/or you're on the top marginal rate.

eg On a $500,000 property (upmarket for Adelaide, where I live), you borrow 30% of the value ($150,000), fix the interest for the long term at around 8%, and pay $12,000 a year in interest. You get a tax refund of ~$5,500 (top rate), so it's really costing you ~$6,500 a year to control a property worth $0.5m, which could be worth $1m in 7-10 years. Hmm, sounds interesting, but I still think +ve gearing is the way to go.

Cheers, Phil M.
 
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Sim

Reply: 1.1.1.1.1.1
From: Mike .


Re: Sell & Stay concept
From: Sim'
Date: 15 Jan 2001
Time: 08:22:02

Problem here is that you can only claim the interest on the loan as a deduction if you have income generated from the property.

Back to the drawing board ;-)

Sim'
 
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Phil M

Reply: 1.1.1.1.1.1.1
From: Mike .


Re: Sell & Stay concept
From: Phil M.
Date: 15 Jan 2001
Time: 16:13:58

Aha! Excellent point.

I wonder what the ATO would think of the tenants paying a nominal rent of $10 a week. Then you could say it's income producing.

Well like I said I think cashflow +ve is the way to go anyway...

Phil M.
 
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Sim

Reply: 1.1.1.1.1.1.1.1
From: Mike .


Re: Sell & Stay concept
From: Sim'
Date: 16 Jan 2001
Time: 08:47:59

You need to be charging 'market' rates. The ATO try to stop people letting out a room/flat/house to family at discounted rates so that they can claim a huge tax deduction.

If you are charging less than 'market' rates then you must proportionally discount the deductions you make.

Bummer :(

Anyway... keep thinking those +ve gearing thoughts ;-)

Sim'
 
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