Buying house with sister, help

B

Bez

Hey everyone,

I might be buying a house with my sister soon but am a bit worried about how it will work.
If my sister is living in it, am I still able to claim the deductions as you would any other IP ?

It will be a PPOR for my sister but for me its just an investment...

How do you structure something like this so that I can get all the benifits of a IP ?

Thanks..
 
Ok well there is a bit more to it, your right if it was just me and my sister I wouldnt bother..
Its actualy my sister, my parents and myself...
The house is going for $250,000 and it is going to be split $100,000, $75,000 & $75,000
My parents are going to put in $100,000 and $75k each for me and my sister..
Then when ever we sell it me and my sister split the profit...
 
Bez said:
Then when ever we sell it me and my sister split the profit...
Click to expand...

Bez, and therein lies the potential problem. Consider the following scenario/s:
1. Sister wants to sell but you think you are on the verge of the next property boom.
2. Converse - you want to sell and your sister does not
3. Your sister living in the house wants to do renovations. You see it as an IP only and cannot see her renovations adding any value but she still wants you to pay half.
4. Sister has a car accident and its her fault. The victims sue her and take half your house - you are forced to sell and because you don't get to choose the sale date have to pay Capital Gains tax
5.Sister has a car accident and ends up in a comma. Her carers need to mortgage the house to pay for urgent medical treatment.
6. Parents move out, sister's boyfriend moves in with his drug problem and damages the house. Sister follows suit. You can't get them out.

The list is almost infinite.....as Alexlee said - just don't.

Aimy
 
Bez, if your parents want to give you money, fine. Take it as a gift and buy IPs separately (or let your sister do whatever she wants with her 75k). Or borrow it from them and pay them interest. Or have your parents buy it as an IP in the name of a trust or whatever.

There are just too many potential issues with just buying together.

Is this just a matter of your parents having some money, want to help you guys out and your sister wanting a place to live where she gets guaranteed accomodation? Or your parents not really knowing how to invest so they just think 'we'll get the kids a house so they'll be set for the future' without considering, say, buying shares or something else in trust for you? From your previous posts you have an IP. Is this the case of your parents wanting your sister to take some financial responsiblity and build some assets, and hoping that by going into this together you will be a positive influence on her?
Alex
 
Last edited:
Bez said:
Hey everyone,

I might be buying a house with my sister soon but am a bit worried about how it will work.
If my sister is living in it, am I still able to claim the deductions as you would any other IP ?
Click to expand...
There would be several ways you could set something like this up,Talk to an accountant,legal person,but the only item that springs to mind is have an- EXIT-plan in place from the start with your sister, after all Property Investing is a Business ,and if you go in blind from the start thinking that everything just falls in place,it does not work that way.

If you have the right agreement in place from the start that will stand up in legal terms then this may well work for,after all if you can't trust you own blood then who can you trust..good luck willair..
IMHO..
 
Aimjoy said:
4. Sister has a car accident and its her fault. The victims sue her and take half your house -
Click to expand...

Thats what compulsory 3rd party insurance takes care of. And failing that, no solicitor is going to waste time chasing assets that are tied up in a mortgage.

Bez, I'm going to buck the trend here and say if you want to buy a house with your sister then go for it. This is becoming a very common scenario for first home buyers or those who can't afford it to get into the property market. However, you simply must must must make sure your solicitors draw up the papers so you are tenants in common so that each person's share is clearly stated to avoid discrepancies down the track. I would also suggest that you detail any future plans you each have for the property during the next say 5 years eg does you sister want to renovate, does she expect you to pay X% towards it etc etc as Aimjoy outlined. As everyone has sort of said, be careful and protect your a$$ with a legal contract that you both agree to. If there is even the smallest disagreement between you both as to what your future plans are for the property, then I don't think you should proceed.

As to having the ATO recognise your expenses as IP expenses, your sister might have to pay you rent in some way so you can claim it on tax, then you pay the whole mortgage or something. You will really need to speak to a good accountant about structuring it correctly before you proceed.
 
Like the others said.......Don't.

How is it supposed to be an IP for you? Would she pay you rent? What kind of yeild? I just don't understand what would be in it for you, other than the handout from your parents.

As the others have said, if your parents want to help you both out, that's great, but buy separate assets.
 
I would be wary about buying with family.

My brother and I were going to buy an investment property together about 4 years ago. Both of us were single and thought it would be a good idea to share the load in increasing our wealth. We didn't get around it to though.

Fast forward 18months from that date, we both had live-in partners, we both bought new PPRs in areas we would never have bought previously that were much more expensive than we would have allowed for if we had bought an IP together. He ended up having to sell his original PPR as he couldn't afford to own both. Sold in a down market for the amount he had borrowed 2 years previously.

Moral of the story is that 30years is a long time. Situations change and you, your sister or your parents may need/want the money for other ventures. If I had bought with my brother, we would have had to sell in the current market which is terrible (we would have bought in outer western sydney).
 
skater said:
How is it supposed to be an IP for you? Would she pay you rent? What kind of yeild?
Click to expand...

and if she doesn't pay rent then why should she get to stay in a house rent free while you might be having to pay your way ...

in very rare cases you can mix family and money - but 99% of the time it just doesn't work all sides seem to think the other has some sort of advantage ... causes grief and animosity (as viewed in my family, my ex's family and potentially in my current hubby's family) - so i'll go with the majority call (and be a lemming again) and say "don't do it"
 
For you to be able to claim your share as an IP and therefore claim interest payments etc, your sister would have to pay you a % of market rent. Eg, if you put in $75k of the $250k you would own 30%, so she would have to pay you 30% of market rent.

However, I'm certainly no expert so you should ask an IP savvy accountant.

Ricepud
 
Bez said:
Its actualy my sister, my parents and myself...
The house is going for $250,000 and it is going to be split $100,000, $75,000 & $75,000
My parents are going to put in $100,000 and $75k each for me and my sister..
Then when ever we sell it me and my sister split the profit...
Click to expand...

I am a bit confused as to why your sister would be paying you rent at all if she owned a quarter of the house?

Am I missing something?

Wylie
 
Thanks guys, seems like everyone is saying the same thing..

alexlee said:
Is this just a matter of your parents having some money, want to help you guys out and your sister wanting a place to live where she gets guaranteed accomodation? Or your parents not really knowing how to invest so they just think 'we'll get the kids a house so they'll be set for the future' without considering, say, buying shares or something else in trust for you? From your previous posts you have an IP. Is this the case of your parents wanting your sister to take some financial responsiblity and build some assets, and hoping that by going into this together you will be a positive influence on her?
Alex
Click to expand...

I would say this is pretty spot on Alex..

I cant help but think that I would be getting a $250,000 property for $75,000, and that sounds good to me lol
I realy dont think my sister will pay rent, she probly should but I doubt she would...

The only thing I can think of, but I dont no if this would work is -
If my parents gave me the $100,000 and I borrowed the other $150,000 and purchased the property in my name..
Then I "rent" it to my sister at the price of what ever the repayments are on a $75,000 loan..
That way I have a IP with a decent amount of equity and all the tax benifits, and my sister has a place to live..

I dont no if my sister and parents would go for that tho...
 
Unless there is a burning need, it's best not to mix money and family. I'm sure your sis could rent a house not part owned by you, and perhaps even buy an IP of her own on her own if she so desired.

Putting your sister in your IP is risky to your relationship, and it's not a smart financial move either.
 
if you're getting $50k, why don't you just buy something by yourself and rent it out to a third party? keep your sister out of it as rent on $75k won't be considered market rent by the tax office and the whole setup could get very confusing.

with $50k you should easily be able to buy a property for $250k with an 85% loan (the other 5% to initial expenses) - assuming it was then rented at market rates of around $250/wk (or better) and you are on income high enough to cover the gap, after tax deductions.

i've just seen to many family relationships get stuffed up because of "internal lending" on an uneven playing field.
 
Bez said:
I cant help but think that I would be getting a $250,000 property for $75,000, and that sounds good to me lol
Click to expand...

You're not. You're getting maybe a quarter, or a half, of a property inhabited by family who.....

Bez said:
I realy dont think my sister will pay rent, she probly should but I doubt she would...
Click to expand...

Would you let anyone stay in your IP if they weren't paying rent?

Bez said:
The only thing I can think of, but I dont no if this would work is -
If my parents gave me the $100,000 and I borrowed the other $150,000 and purchased the property in my name..
Then I "rent" it to my sister at the price of what ever the repayments are on a $75,000 loan..
That way I have a IP with a decent amount of equity and all the tax benifits, and my sister has a place to live..
Click to expand...

Probably won't pass muster with the tax office, since you're charging artificially low rent to a related person, therefore you're claiming higher losses than 'normal'.

Look, the main objective of your parents here seems to be making sure your sister has a place to live, presumably because she isn't good with money? Your parents are of course free to do what they want, but do you really want to get dragged into it?

If your parents want to buy your sister a house and not charge her rent, that's their issue. If you think that's unfair, ask your parents for half the money, invest that yourself (in your own name or name of entities controlled entirely by you), and let your sister do what she wants.

Mix family with money (especially with family who, from your posts, don't know how to manage money) and it'll bite you in the a*s.
Alex
 
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