Buying IP with cash, then refinancing

[spludgey]

I have spoken to my parents and they would be able to lend me money at 7% interest to buy a house with cash and then refinance it.
Now I've got some questions:

1. Is this a good idea?
2. Will this negatively affect my serviceability?
3. Would I be able to get a reasonably discount as a cash buyer?
4. If so, how would I go about that?
5. What amount is the bank going to finance it for, the purchase price (which hopefully would be a little under market value) or market value?
6. Is there anything else I need to worry about?
7. What do I do with the title? Do I give it to the bank once I finance it?
8. Can I get pre-approval and then use that to refinance?

Sorry about all the questions, but I just want to make sure this would actually be worthwhile and I'm not wasting my time on something that's not going to work.

 

[thatbum]

Huh? What's the goal of this whole plan?

 

[wylie]

We have lent money from a family LOC to different children to allow them to buy when they couldn't not get bank finance. Once they can, they refinance and repay us.

We have to charge slightly over what we are charged (to avoid getting into fringe benefit tax territory I believe).

 

[spludgey]

Huh? What's the goal of this whole plan?

To pay less and offer a quick settlement, sorry I should have made that clear.
Might appeal to some vendors, I thought.

 

[Rolf Latham]

To pay less and offer a quick settlement, sorry I should have made that clear.
Might appeal to some vendors, I thought.

Lender cash out provisions may prove difficult.

even if going for a 2 week settlement i still encourage my clients to finance the purchase unless there is a sound reason not to

ta

rolf

 

[Terry_w]

Is this a good idea?

Good for who?
For parents - depends
For you - depends

Will this negatively affect my serviceability?

Yes

Would I be able to get a reasonably discount as a cash buyer?

probably not.

If so, how would I go about that?
Make offer to settle early
To waive cooling off period


What amount is the bank going to finance it for, the purchase price (which hopefully would be a little under market value) or market value?

Probably purchase price. Depends when and the LVR.


Is there anything else I need to worry about?

Yes. Deductibility of interest, written loan agreement, commercial loan agreement, estate planning, asset protection

Your parents should be worried about their money too and they should seek to lodge a first mortgage.

Social Security issues

What do I do with the title? Do I give it to the bank once I finance it?
Your parents should have a first mortgage


Can I get pre-approval and then use that to refinance?
??

 

[D.T.]

TerryW
Do you believe in a boogie man behind every tree?

 

[Perp]

The biggest issue - which I think is a show-stopper on its own - is that the interest when you refinance won't be deductible, as the purpose of the loan won't be to buy an IP, it'll be to repay a loan to your parents.

 

[Terry_w]

TerryW
Do you believe in a boogie man behind every tree?

Yes - but usually they don't come out. Sometimes they do.

What would happen, for instance, if the parents 'lent' the son say $500,000 and then he 'refinanced' this loan and could not claim the interest = a loss of $25,000 in potential deductions per year for 30+ years.

What if the son later went through a divorce?

etc

 

[Terry_w]

The biggest issue - which I think is a show-stopper on its own - is that the interest when you refinance won't be deductible, as the purpose of the loan won't be to buy an IP, it'll be to repay a loan to your parents.

Refinancing doesn't change the purpose. if the loan from the parents was for the purchase of an IP, and it was all set up correctly, then the interest will be deductible now and when it is refinanced.