Buying a house with family

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From: Littlemaze :p


I have a dilemma and hope you gurus can provide a spark of genius so I can make a decision and finally get some sleep at night!!

I want to buy a $170,000 house with my 2 siblings as tenants in common with all having an equal share. I am exploring ways to structure the loan. The options I have thought of are:

1. Take out a joint mortgage between the 3 of us. However, I believe the banks will hold each person liable for the entire loan amount (joint and separately liable) and only recognise 1/3 of the rent for servicability.

2. Brother and sister use their equity in their PPOR and I revalue all of my portfolio to release the required equity. If I use my own equity for the new house it will lock my equity up. I won't be able to leverage off the new house in the future as my brother and sister want to keep the new house unencumbered.

3. My sister and brother use their own equity from their PPOR and I take out a 1/3 mortgage the new house (I may have to convince my brother and sister to let me do this). I'm not sure if any bank will do this as how does the bank get clear title to the house as security?

My preferred outcome is to mortgage the new house but limit my mortgage exposure to only one third and protect my brother and sister's share in the property if it all went to mud.

Thanks in advance.

Littlemaze
 
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Reply: 1
From: Mark Laszczuk


Littlemaze.
Contact Rolf Latham: rlatham@asapfinancial.com.au
He'll be able to answer all your queries regarding mortgages and banks rules on borrowing.

Mark
'no hat, some cattle'
 
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Reply: 1.1
From: Simon and Julie M


Littlemaze
I know for certain that you will sleep well at night if you make decisions that you all feel comfortable with.
Weigh up the finance deals and go with the one all family members feel good about.
My humble opinion only.
Kind regards
Simon
 
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Reply: 1.1.1
From: Anony Mouse


Hi Littlemaze,
There can be problems with a tenant in common situation as opposed to to the more usual husband/wife joint tenant situation.
To start with you have estate planning problems as each TIC can have a separate will, which could cause problems down the track.
Next you have deduction for expenses and depreciation. Each will receive 1/3, which means that, if say one is a home duties person, those deductions might be wasted or at least under performing.
Some better options might be a company structure or a unit trust fund.
Having a talk with a good lawyer could save you grief later on.

"A government that robs Peter to pay Paul can always count on the support of Paul."
Of course, Paul's support is obvious, but it is equally obvious that to rob from Peter to pay Paul will make Peter
very, very angry.
My question is this: "How can you run a good government with a sore Peter?"
 
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Additional thought

Reply: 2
From: Littlemaze :p


I was talking with a friend on the weekend and came up with another scenario -

My brother and sister draw down their equity and pass the $ to me as a loan. The house is purchased in my name only and my brother and sister put a caveat on the title. A separate legal agreement is draw up stating that I will pay my brother and sister 1/3 of the rent collected. I mortgage the new house for my share.

My question is (Dale where are you???!!!)
How will the ATO treat the 2 loans from my brother and sister? Is this taxable income in my hands? Also, can I treat the rent I pay to my brother and sister as an expense?

Thanks in advance.
 
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Additional thought

Reply: 2.1
From: The Wife


Maizie,

I know this is not what you want to hear, but family and money dont mix :eek:(

Anybody have any positive thoughts on this?
 
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RE: Additional thought

Reply: 2.1.1
From: Duncan M


>I know this is not what you want to hear, but family and money dont mix :eek:(
>Anybody have any positive thoughts on this?

I'm positive you're right.

Duncan.
 
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RE: Additional thought

Reply: 2.2
From: Duncan M


The rent paid to your brother and sisters should be structured as Interest
Payments on the Loans they gave you, which would make it a deductible
expense.

The loans are not taxable income in your hands, no loan is taxable income,
be it from your Sister or a Major Bank.

Duncan - Non Accountant.
 
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RE: Additional thought

Reply: 2.2.1
From: Duncan M


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> The loans are not taxable income in your hands, no loan is taxable income

Actually some loans can be taxed as income in hindsight, specifically Loans
that the ATO deem are so generous they really must be income, especially
loans to Directors of a company where there's never any real intention for
the loan to be repaid.

Duncan - Non Accountant.

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<TITLE>RE: Additional thought</TITLE>



> The loans are not taxable income in your hands, =no loan is taxable income


Actually some loans can be taxed as income in =hindsight, specifically Loans that the ATO deem are so generous they =really must be income, especially loans to Directors of a company where =there's never any real intention for the loan to be repaid.

Duncan - Non Accountant.




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RE: Additional thought

Reply: 2.2.1.1
From: Paul Zagoridis


1/3 split like is a major pain unless your family is exceptional.

If your siblings are doing it as a favour to you, then have them lend you the money as a second and third mortgage. But it makes no sense that they want the new house unencumbered. If a debt will be required it should be against the investment, not against their PPOR.

Secondly consider using a trust to structure this investment. Make sure your financier is happy with the structure. Strangely I find discretionary or family trusts are more acceptable to banks than unit trusts at the moment (but a unit trust may suite you better).

The trustee takes out the loan as trustee for the trust. You and your siblings can guarantee the loan. It makes the application a bit more complicated so talk to your broker.

Again I can't see any reason for the debt NOT to be secured by the investment.

HOpe this helps, let me know if you want anything clarified or expanded.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
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Sim

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RE: Additional thought

Reply: 2.2.1.1.1
From: Sim' Hampel


On 3/11/02 1:13:00 PM, Paul Zagoridis wrote:
>You and your siblings can
>guarantee the loan.

Of course, all three of you would most likely be jointly and severally liable for the debt, so if one of you skips the country, the others must maintain payments or risk losing the lot.

Another question to ask yourself is, even if you do trust your siblings to the ends of the earth, do you trust their spouses/partners (including the ones they don't yet have !) ? Problems are more likely to come from without than within your family.

 
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Additional thought

Reply: 2.3
From: Dale Gatherum-Goss



>
>My question is (Dale where are
>you???!!!)
>How will the ATO treat the 2
>loans from my brother and
>sister? Is this taxable
>income in my hands? Also, can
>I treat the rent I pay to my
>brother and sister as an
>expense?
>
>Thanks in advance.

Hi!

I'm here. As Duncan said, loans are not taxable income to you - although I would always like to see documentation that confirms they are loans.

Otherwise, I like this idea much better as it is less complicated than other suggestions.

On a separate issue, I agree with the others as money and family is a dangerous cocktail.

Dale
 
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Additional thought

Reply: 2.3.1
From: .watto .


I positively agree with TW and Dunc, especially in business and IP's are a business...


Cheers
Watto
 
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Additional thought

Reply: 2.3.1.1
From: Mark Laszczuk


Here's one that goes against the tide. My brother and I set up a business (no longer there, though) and it went rather smoothly. Why? We communicated. It was that easy. When any issues came up, we talked about them and got them resolved. Having said all that, I must say that in most circumstances, I agree that family and money/business don't mix. However, my brother and I are extremely close, we trust each other with our lives, are very open and we have the kind of relationship where we are more friends than siblings. So I guess we're pretty lucky. Oh, by the way, we're working on another business now. Hope it is more successful than the previous one!

Mark
'no hat, some cattle'

Some additional stuff after the fact: In the first business, we put in a combined total of $3200, hardly anything to stress about. Ended up getting about $600 back in the end, with the possibility of maybe a bit more (if only we can sell those damn t-shirts! Anyone got kids that skateboard? Email me for details.) The new one, looking at a pretty small initial outlay also. Also, borrowed $700 from mum while still in business. She asked for it back, knowing we could barely afford it at the time... Oh well, some people are more comfortable with lending money that others I suppose. Taught me a good lesson though: never ask family (my family, that is) for loans.
 
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Additional thought

Reply: 2.3.1.1.1
From: Paul Zagoridis


I would and have gone into business with my sister if she asked.

Having said that one of the most stressful things about going broke in 1992 was the financial impact on my sister and her husband.

When business goes well all is fine, when it goes bad it can make for tense Christmas lunches.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
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How come my family isn't super wealthy?

Reply: 2.3.1.2
From: Michele B


OK then re the above, can someone please explain to me how it is that so many Asian and southern European families in particular manage to combine business and family so successfully, both in their home countries and here?

Are cultural imperatives to honour verbal agreements so much stronger? Are the social repercussions of failing to honour such an agreement too awful to consider? Or is it just a matter of being business-like and getting it in writing?

And what about the many wealthy Anglo Saxon/Celtic families here whose vast business and property interests are the result of shrewd investment within and as a group?

I'm just wondering why we forumites dislike mixing family with business so much? The pattern seems to be a tendency to go it alone, amass substantial assets as early as possible to enjoy in our later years and maybe, just maybe, leave enough behind to kickstart the next generation. We don't really work as a pack to leverage our efforts or think in dynastic terms.

Maybe it's just a question of knowledge. Maybe the successors to the wealthy family's fortune are properly schooled, so its financial success becomes exponential.

(BTW I lent money to a family member and I lost it)

michele
 
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How come my family isn't super wealthy?

Reply: 2.3.1.2.1
From: Paul Zagoridis


I'm in the final stages of re-establishing a business relationship with my father. He has employed or been in business with all four of his siblings over the years.

As for Southern Europeans being in biz together. The theory is that a family member wont steal from you. Not always the case -- but again makes for tense Christmas lunches should someone cross the line.

Some families have a culture to be in business together. If you grew up with it, you'd know it. Written agreements were very rare when I was growing up.

I suspect hugely successful family businesses are as rare as non-family businesses. The 5% survival statistics still apply.

The forum tends to attract solo-preneurs. If we were adequately supported by our extended family, most wouldn't have time or need for the forum.

Business success comes to those who overcome the go-it-alone urge through the use of partners or a supportive team.

I admit to a over-zealous dynastic imperative.

Paul Zag
Dreamspinner
The Oz Film Biz site is archived at...
http://wealthesteem.dyndns.org/
 
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Sim

Administrator
How come my family isn't super wealthy?

Reply: 2.3.1.2.1.1
From: Sim' Hampel


Is this like "Zen and the Art of Dynastic Entrepreneurship" now ?

 
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How come my family isn't super wealthy?

Reply: 2.3.1.2.1.1.1
From: The Wife


wooooo...subject close to my heart, whilst I say that family and money dont mix, its because of my own bad experiences, however, I reckon I can do it better and I see the value in my woggy family cultures even if it went skew wiff in my generation, our trusts are set up to absorb my childrens income when it should start, they work for the family trust, the family trust shall support them.
 
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How come my family isn't super wealthy

Reply: 2.3.1.2.1.1.1.1
From: Matthew Campbell


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So, that's how you spell "skew wiff"!

This is actually a very interesting topic for me. I'm from an Australian =family although my father is now married to a Lebanese woman. My mother =remarried an Australian and I am married to a Peruvian. I've spent alot =of time within different cultures mostly being Indian and Thai.

I was working FOR my father when I was 17 and left home, I continued =working FOR my father for a few years afterwards. Something that seems =common among Australian families with anglosaxon heritage is

1) That most feel a burden to their parents once they hit above 18 and =are reminded of it occasionally.
2) Once you are out on your own, basically all support stops unless your =desperate and come begging.
3) Or you have to pay rent while your at home... without any =encouragement for purchasing property

Notice I said work FOR my father. It seems that again, the asian and =southern europeans STRONGLY encourage their children to either

1) Go to University
2) INVOLVE them in their business
3) or at least purchase a house (or few) at a very early age WHILST =encouraging them to live at home.

Obviously, these generalisations are just that and there are exceptions =in any case, also the fact that things change within the socio-economic =mindset of each family.

Anyhow, I'm not super wealthy... haven't even reached the wealthy part =(financially) yet but Dad and I have now reached a similar mindset (I =got him into Kiyosaki) and he is continuing to develop his 3rd business =from a different angle to his prior businesses. Yes, I am off doing my =own thing and so are my siblings.

Regards

Matthew




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So, that's how you spell "skew =wiff"!

This is actually a very interesting =topic for me.
I'm from an Australian family although my father is now married to a =Lebanese
woman. My mother remarried an Australian and I am married to a Peruvian. =I've
spent alot of time within different cultures mostly being Indian and
Thai.

I was working FOR my father when I was =17 and left
home, I continued working FOR my father for a few years afterwards. =Something
that seems common among Australian families with anglosaxon heritage is


1) That most feel a burden to their =parents once
they hit above 18 and arereminded of it =occasionally.
2) Once you are out on your own, =basically all
support stops unless your desperate and come begging.
3) Or you have to pay rent while your =at home...
without any encouragement for purchasing property

Notice I said work FOR my father. It =seems that
again, the asian and southern europeans STRONGLY encourage their =children to
either

1) Go to University
2) INVOLVE them in their =business
3) or at least purchase a house (or =few) at a very
early age WHILST encouraging them to live at home.

Obviously, these generalisations are =just that and
there are exceptions in any case, also the fact that things change =within the
socio-economic mindset ofeach family.

Anyhow, I'm not super wealthy... =haven't even
reached the wealthy part (financially) yet but Dad and I have now =reached a
similar mindset (I got him into Kiyosaki) and he is continuing to =develop his
3rd business from a different angle to his prior businesses. Yes, I am =off doing
my own thing and so are my siblings.

Regards

Matthew




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