borrowing from family equity



From: Dwayne Attrill

we are thinking of buying our first investment property using the equity our mother has in her property to borrow the
money . Has anyone got any advice on this ?
We thought that our mother could take out the loan and then a few months later transfer the house and loan over to us .
We need to know for example weather or not
stamp duty will have to be paid when she
transfers over the house to us.
Regards ,
Dwayne & susan
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Reply: 1
From: Rolf Latham


Easiest way is for mum to take out her own loan of 20 % + costs and "give" that to you.

You then get your own 80 % loan and sort out the other bits later.

This provides a limited guarantee and avoids any duty or transfer hassles later on.


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Reply: 1.1
From: Mark Laszczuk

Which leaves the question: Do you really want to be doing that to your mum? It's good to see that you're keen to start investing, but maybe you should save the deposit yourselves, rather than take the easy way. Has two advantages: there's no risk of a family fallout if something goes wrong, and you learn the wonderful benefits of saving your money and putting it into investments which will eventually make you wealthy, rather than spending it on useless junk. I (and many on this forum) know that sacrificing can be really difficult sometimes, but I'll tell ya, there's no feeling like walking into the bank and making a deposit into your savings account knowing that one day all your hard work is going to make you financially free. Just something to think about.

'no hat, some cattle'
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Reply: 1.1.1
From: Geoff Whitfield


Quite a fair comment.

Dwayne and Susan- do you have a credit history? Have you had a credit card and paid it off religiously? That can help when applying for a loan.

Could you get a cash loan from your mother- and draw up a contract to pay her back within 6 months?

Could you start small? I have a colleague who is excited by property, but without much cash or equity- he has 2 units ion Queanbeyan, just near Canberra, $40,000 each and cashflow positive, which he's improved his equity with some reno. Capital prospects small- but he's establishing a record.

A record can be very important. 10 years ago, at age 38, I applied for my first home loan in Australia for a cheap home unit. I was refused. I had to buy land and wait for two years.

Be patient. You'll get there.
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From: Ian Redman

Hi Guys,

In regards to the replies you have made to the questions asked.

I think that maybe Dwayne and Susan have been saving like mad, assessed their options, and given their current positions, believed that this would be the best way that they could get help.

I think that it is great that people express their own opinions, and rightly so!!, but maybe we need to answer the questions asked!!. We do not always know the person who writes the question, and we do not know their own situation and circumstances.

I hope that I have not offended anybody with this reply, but I feel that maybe sometimes we offer our own opinions instead of answering the questions. Unfortunately I am a novice when it comes to buying IP's, and cannot offer any advise.

I do know Dwayne and Susan personally and I did recommend they post their question on this site. Could I ask that somebody please reply to the questions.

Thanks again and sorry if anybody is offended by this post.

Ian Redman
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From: Sim' Hampel

Ian, while I agree with your sentiment, there is something that I have observed in that quite often people do not actually ask the right questions.

Answering a question without any context is dangerous, as the answer is quite often "it depends". Indeed, the answer the the question, while technically correct, may actually have some serious ramifications which are not mentioned while focusing solely on the question that was asked.

Some examples:

Question: "Can I claim the interest on my PPOR as a tax deduction ?"

Technical answer (the kind I used to give !): "definately not - the ATO says so"

Better answer (the kind I think someone like Dale may give): "it depends on how you structure it, in the right circumstances, it may be possible... let's talk in more detail about it"

- - -

Question: "can I borrow against the equity in my parent's house to purchase an IP ?"

Technical answer: "yes, it is technically possible"

Better answer: "yes, there are a number of ways to do it, but you really need to be aware of the ramifications of doing so... [go on to talk about cross collateralisation and the risks to your parents in this scenario, and then explain about equity loans and LOCs and other possibilities]"

See what I mean ?

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From: Dwayne Attrill

Hi ,
Thanks for the replies re our questions on
borrowing from family equity .
However, we are still not sure of what we
will do to secure our first IP.
We really want to get into the market soon .
Reason : prices are going up quickly in the
area we want to buy and we need to apply for
a loan soon - prior to being on parental leave when we assume it will be harder to
get a loan . We know we will be able to
service the loan as it will be positively
geared. For these reasons we feel we should not wait the 12 months or so it would take us
to save the deposit 20%.
So, back to our original question - does
anyone know if there is stamp duty to be paid if a family member transfers over the
property and are their significant fees to
transfer the loan to us ? Has anyone had
personal experience with this ?
Dwayne & Susan
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From: Geoff Whitfield

Dwayne and Susan,

Sorry, I'm not the ideal person here. There's lots of people with more experience. Just some amateur thoughts.

If you are to use your Mum's equity, make damn sure you can pay it back, no matter what.

I think she could be a guarantor, using her equity, for your loan. That would make her liable for the whole loan amount if you got into trouble.

Or maybe she could take a Line of Credit loan against her equity- just to take out cash which could be used for your deposit.

My comment about a credit history still stands (as do my other comments)- even if you get your loan with help from family, a credit history is really important, and will continue to be.

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From: Paul Zagoridis

Hi Dwayne

To answer your original question, in NSW there is no discount for family transfers.

Follow Rolf's comment and get Mum to gift or lend you the 20%, assuming you can qualify for a 80% loan.

If it will be your property then it should go in you name (or an entity that benefits you).

A family trust is worth looking at (check the archives for discussions).

Paul Zag
The Oz Film Biz site is archived at...
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