Buying into Parents new PPOR as an IP

[zargonb]

I'm new to property investment but have been gathering some knowledge to prepare for purchasing my first IP this year. I've been a lurker here for a little while and have been reading Jan's "More Wealth...." and other books.

A situation has just come up which alters my IP plans a little and I'd like to see what others think.

My 75-80 yo parents have agreed to move the 700kms to Brisbane to live near my wife and I. They will be buying into the higher priced market in Bris so we need a good plan to make this all happen (i caught the bear now I have to cook it...)

They own their PPOR, have no IPs or major investments. They live off pension, small super stream and a small term dep. They live simply but comfortably. They would get around $300k for their PPOR.

I am trying to figure out my options to help make up the difference in their brisbane purchase in manner that is tax effective etc for me and moves me down the path to having IPs (eg buy part of the new place with them and set up somehow as an IP).

My circumstances: 40yo married SINK. We have a $500k PPOR with a 190k P&I loan remaining. We use an offset and my gross income is about $130k pa

My initial idea is to have them sell and stay with us while they find a place they like. So them having 300k in the bank will probably effect their pension etc for while but living with us they'll have little expenses. For simplicity lets assume they find $400k house. The plan would be they put in the 300k and I would get an LOC on the PPOR to fund buying costs and an IO IP loan for 80k (80% LVR) and own 1/4 of it. But all this relies somehow on making it tax deductible and this is where I'm confused. They would own 80% of their PPOR but have to pay me a rent of some amount for me to claim any tax etc.

I realise we need to talk to centrelink, accountant, lawyer etc, but initially I just want to know if I'm way off base with my idea or if any other ideas are out there. I'm sure I'm not the first to encounter this situation.

PS i'm their only child so there are no complicated estate planning issues as such for them

Thanks

 

[Jake D]

Surely it would be easier to lend them 100k and collect interest.

 

[vaughan]

Get some advice from Centrelink, the decisions made here could affect their pension irreversibly. Also look to the future for when one or both need to go into aged care and find out what to do to get into a favourable position for then.

It may be possible for your parents to sell their house and not buy another PPOR without affecting their pension. They could then lend you some money at market rates, as a legitimate investment for them. You then buy an IP and rent it to your parents at market rates. Get loan docs and rental leases done, do it above board. You declare the rent as income, the loan interest and expenses become a deduction.

Run through the scenarios of your parents passing away or becoming incapacitated, you or your wife passing away, becoming incapacitated or going bankrupt, or you and your wife separating. Also work out the conditions under which the loan needs to be repaid.

New idea: it would save a HEAP of money if you bought their PPOR, made it into an IP.

 

[NewYork]

Could they sell and lend you the money, you purchase a new PPOR which meets both needs of both you and your parents over the next 10 years - so dual occupancy arrangement (assuming current PPOR does not)
Pay down your PPOR debt with their funds - provide them with free rent for life.
Equity then in the new PPOR is used to fund your IP purchases (deposits, 20%) in the future.
Pension impacts, tax impacts, interest payments (and deemed interest) etc all to be considered.
Consider outcomes in 5-10 years, your objectives and theirs and
what would happen if one of them did need to move into aged care.

 

[Terry_w]

A few options

1. They buy, you lend some money
2. You buy, they rent from you.
3. Joint purchase. TIC or JT

Each has different consequences in a number of areas so you need legal advice and advice on pensions etc.

 

[pully]

big decision for them, and I agree with the others the feasibility of the plan for all parties needs to be explored before any action.

expert advice is essential to enable them to make decisions. what do they want to do about their financial affairs? what has triggered the move, health, lifestyle?

great if this all has a happy ending but a lot needs to be considered and put into place first.
your parents living arrangements may or may not be part of your financial plans.
good luck with it all.

 

[zargonb]

Thanks everyone for the input and ideas. The family will work through the issues and I'll post back at some point on how we went forward.