Buying off family and renting back to them

[Jezza13]

Hi Folks,

Long time reader, first time contributor. Just needing advice on helping out my parents living in Sydney (I live in WA) who are having problems paying their mortgage. They want me to purchase their family home below market value (approx $50-$60k) and rent it back to them at market price, mortgage repayments are more than market rents in the area. Are there going to be issues with stamp duty as it is going to be sold below market value and would I need a conveyancer/lawyer for the transaction. I am a bit hesitant to go down this path but if I don't they will most likely lose their home. Any advice will be greatly appreciated.

 

[Propertunity]

Hi Folks,Long time reader, first time contributor.

Welcome

Just needing advice on helping out my parents living in Sydney (I live in WA) who are having problems paying their mortgage.

The bigger issue is why they have gotten to this point....and if you bail them out now, will they need bailing out of something else in a few years. Of course this might be perfectly legit - stuff happens in life.

Are there going to be issues with stamp duty as it is going to be sold below market value and would I need a conveyancer/lawyer for the transaction.

Stamp duty is calculated on sale price or market value whichever is the greater. Yes, you'll need a conveyancer especially as you cannot be doing it yourself from another state.

I am a bit hesitant to go down this path but if I don't they will most likely lose their home. Any advice will be greatly appreciated.

They are losing their home anyway - to you - and you are not even inheriting it, you are buying it.
If they cannot meet their rent later on - are you going to evict them?
All sorts of problems I forsee.

 

[D.T.]

Pretend for a second it's not your parents, does the property fit your investment criteria? Can you afford it? Are you okay with it's yield and the capital growth it'll achieve?

You don't have to share, but: How much are they paying in repayments now and how much would their 'market rent' be? Knowing Sydney yields it'll obviously be less but chances are they'll still struggle. Personally I'd rather help family out in other ways.

My parents did a similar thing for mum's sister. Whilst it was close to market rent at the start, the area has gone up about $70/week since then with very little to no movement in the rent they receive. Informing family that you're reducing their lifestyle makes you look like the criminal.

 

[rugrat]

I guess the number one question is "can you financially afford to subsidise their lifestyle?"
The second question is "do you want to?"

Them loosing their home isn't really your responsibility (I think it is a bit much laying it on you like that). Having said that, I also completely understand wanting to help them out and the truth is if it were my parents and I could afford to I would.

 

[the7]

Something to cast a thought to also. Do you have siblings? how are they going to feel about the 50-60k gift you will be getting - even though you will be helping your parents out. Especially if they wouldn't have too much trouble getting market value through a conventional sale.

 

[marg4000]

Do all the figures to see if you can afford it. It is wonderful to help out family, but ony if it does not put you back financially.
Marg

 

[jrc77]

Hi Folks,
Are there going to be issues with stamp duty as it is going to be sold below market value

Stamp duty will be calculated on the value that a certified valuer decides is its market value. Valuations can vary quite dramatically as they subjective. This may be more or less than what you and your parents currently think is market value. Shopping around valuers may find one whos opinion on market value matches the amount that you and your parents wish to transfer the property for.

Regards,

Jason

 

[Jacque]

Hi Folks,

Long time reader, first time contributor. Just needing advice on helping out my parents living in Sydney (I live in WA) who are having problems paying their mortgage. They want me to purchase their family home below market value (approx $50-$60k) and rent it back to them at market price, mortgage repayments are more than market rents in the area. Are there going to be issues with stamp duty as it is going to be sold below market value and would I need a conveyancer/lawyer for the transaction. I am a bit hesitant to go down this path but if I don't they will most likely lose their home. Any advice will be greatly appreciated.

Hi Jezza

My sympathies to your parents- what a terrible situation to find themselves in. Firstly, however, I'd see if they've truly exhausted all avenues to retain the home. Banks, despite their public reputation, can be very accommodating if it means a loan recall or mortgagee sale and they may be able to make arrangements for deferred payments or other courses of action before reclaiming the home. There are also consumer credit centres that assist with this type of scenario- If their loan is less than $320,000 they may be entitled to a hardship variation under the Consumer Credit Code even if their lender doesn't want to negotiate. This could mean reductions in repayments, extending the loan term or changing all or part of the loan to a fixed rate.

Even if their lender doesn't assist, they can apply to the CTTT here in NSW, requesting an order that the lender agree to the variation they've have asked for. The Banking Ombudsman also reviews hardship decisions. Even where there is no recognised hardship other than the fact that borrowers can no longer afford to pay the mortgage, the code obliges the bank to work with them. So it's not all bad news. I'd be going down this path initially for your parents and then, if that doesn't work, exploring other options. Selling and renting to family can be fraught with problems, not only those that have been already mentioned, but the fact that it beholds you to a property that you may not have been ready to purchase yourself.

Best of luck with it all and I hope whatever happens, it works out for the best for all parties.

 

[Jezza13]

I would like to thank everyone for their thoughts and words of advice on this thread. There are certainly a lot of variables to consider and explore all options available. I did manage to suspend their mortgage for six months and referred them to a financial counsellor to assist them in getting them out of their predicament. Thanks Jacque for the info on CTTT, I will look into it and see if a loan variation (longer loan repayments/fixed interest rate etc) will ease things in the long term. It's good to see there are people with compassion out there and I value all your opinions. Much appreciated folks.

 

[MCS_80]

Great to see you're helping your parents out the best you can.

My partner and I are considering "bailing" out my parents once they retire from the work force (5-7 years away)

Here is our situation, with a twist.

When my parents retire, they will owe the bank approx $170,000 and the house they are paying off will be valued approx $450,000.

We are considering doing the following, although at the shock of many people we know.

We will buy the house for $170,000, give Mum and Dad $50,000 also and pay all stamp duty etc and have the house in our name while they live in it until they are pushing up daisies rent free.

Pros

We get a house worth $450,000 for under $200,000. Instant $200,000 equity.

The house is in pristine condition and we get a warm fuzzy feeling knowing Mum and Dad are safe and "stress free" in retirement.

Cons

Cashflow - We pay the mortgage with no rental income. An expense the banks may frown apon.

We have to face the fact we wont get full use of it until they die. (Not nice to think about, but a fact of life)

Siblings who are not in the position to do this may get "narky".


Note : This agreement is nto set in stone and has only come up in the last few months as an option. We may just end up helping them pay the mortgage and inherite the hosue when they pass on.

Cheers

Mick

 

[Jezza13]

Great to see you're helping your parents out the best you can.

My partner and I are considering "bailing" out my parents once they retire from the work force (5-7 years away)

Here is our situation, with a twist.

When my parents retire, they will owe the bank approx $170,000 and the house they are paying off will be valued approx $450,000.

We are considering doing the following, although at the shock of many people we know.

We will buy the house for $170,000, give Mum and Dad $50,000 also and pay all stamp duty etc and have the house in our name while they live in it until they are pushing up daisies rent free.

Pros

We get a house worth $450,000 for under $200,000. Instant $200,000 equity.

The house is in pristine condition and we get a warm fuzzy feeling knowing Mum and Dad are safe and "stress free" in retirement.

Cons

Cashflow - We pay the mortgage with no rental income. An expense the banks may frown apon.

We have to face the fact we wont get full use of it until they die. (Not nice to think about, but a fact of life)

Siblings who are not in the position to do this may get "narky".


Note : This agreement is nto set in stone and has only come up in the last few months as an option. We may just end up helping them pay the mortgage and inherite the hosue when they pass on.

Cheers

Mick

If it works out for both parties, why not. Good luck with helping your parents out. Cheers.

 

[Propertunity]

Siblings who are not in the position to do this may get "narky".

and probably rightly so.

One more Con: If you suffer financial failure / get sued etc......then your Mum & Dad are in a very bad situation in their retirement as their asset goes to your creditors.

 

[alexlee]

Cons

Cashflow - We pay the mortgage with no rental income. An expense the banks may frown apon.

And you can't deduct the interest as a tax expense, and your serviceability takes a hit. You also can't deduct depreciation.

We have to face the fact we wont get full use of it until they die. (Not nice to think about, but a fact of life)

That might be a long time. How much extra cash do you have to keep paying the mortgage if your parents, for example, live another 30 years? It's a long term IP with no rent and no tax deductions. What happens if one or both need to live in an assisted facility? How will that be paid for?

One alternative might be some form of reverse mortgage.

 

[Sheryn]

Hi Folks,

Long time reader, first time contributor. Just needing advice on helping out my parents living in Sydney (I live in WA) who are having problems paying their mortgage. They want me to purchase their family home below market value (approx $50-$60k) and rent it back to them at market price, mortgage repayments are more than market rents in the area. Are there going to be issues with stamp duty as it is going to be sold below market value and would I need a conveyancer/lawyer for the transaction. I am a bit hesitant to go down this path but if I don't they will most likely lose their home. Any advice will be greatly appreciated.

Jezza

Be very careful....

Our young nephew and his partner built a new house and moved out of the partners unit on the weekend the move took place the partner's parents' split and partner's mother asked to move into 2 bedroom unit which was to be rented out at $220 per week.

Partner's mother was given one week's rent free as the couple painted the unit.

Since then the couple have had trouble getting correct amount of rent from the partner's mother who works and should not have any trouble paying rent except she thinks the couple are greedy asking her to pay rent.

This is causing frustration in the young couples lives....

Family pull your emotional strings!


Another close friend's sister and her husband actually brought a house in Perth for the parents, parents lived in the house for 6 years rent free, on aged pensions and cried poor mouth for all sorts of bills eg. electricity, telephone and sister coughed up and paid those bills as well.

The parents had a lovely time,,,,with no money worries....Ohh but the conflict, arguments and monetary restrictions placed on the supporting family members has been incredible.


Good Luck
Sheryn

 

[pully]

Hi Folks,

Long time reader, first time contributor. Just needing advice on helping out my parents living in Sydney (I live in WA) who are having problems paying their mortgage. They want me to purchase their family home below market value (approx $50-$60k) and rent it back to them at market price, mortgage repayments are more than market rents in the area. Are there going to be issues with stamp duty as it is going to be sold below market value and would I need a conveyancer/lawyer for the transaction. I am a bit hesitant to go down this path but if I don't they will most likely lose their home. Any advice will be greatly appreciated.

not really enough info to address your queries, but others have given their opinions and some good thoughts to consider.

what are your parents going to do with the proceeds of the sale?

how much equity do they have?

are their other siblings?

i share the reservations others have voiced re this arrangement.

if you are looking at this property as an investment it needs to be managed professionally to protect your interests.

at the very least get some expert financial advice and if you decide to buy have it professionally managed.

that way if any issues re rental payments etc occur they can be dealt with at arms length.