Buying part share of parents property

[woodridge]

Hi

My parent has a property valued 650 with a loan of 400 with suncorp. Parent has suggested i buy a 70% share but at a discount ie i get a loan for 300k (155 equity) and therefore parent maintains loan of 100 (equity 95). This will be more manageable for them.

I have capacity to get a loan of this size so no questions around that.

What im wondering,
Is this a feasible situation? Would a bank allow this, me becoming a tenant in common and part paying out parents loan? Do i have to stump up a cash deposit or could the bank look at the equity id gain -if the latter would this mean a bigger loan eg 300k plus 20% 'deposit'?

Would the bank do any financial checks on my parent in this situation?

Thanks for any thoughts.

 

[thatbum]

What's the goal with this plan?

 

[D.T.]

What are you / they trying to achieve?

 

[woodridge]

We have a few cash positive places. We are now able to put excess cash flow into something which is cash netural but has strong potential for renovation or development (it is a subdividable property). As a equity growth strategy.

This property is also water front and i could not afford it on the open market!

As my parent would otherwise sell to open market it seems a good time for me to buy it rather than a similar place at market value. Especially as the equity will be gifted.

So anyway how would a bank see this?

Thanks

 

[woodridge]

The end goal is to fully buy out the loan but in the meantime parent will cover 30% of any costs that the rent does not cover (rent will cover interest fully but not other fees).

Thankyou

 

[thatbum]

It sounds like a pretty clunky way to achieve what you want. Why don't you just buy the whole property below market rate if that's what you want to do?

 

[woodridge]

Because i dont know if i can get a 400k loan at the moment and my parent will pay their portion of any costs above what the rent covers.

If i were to buy the whole place ie the 400k loan how would the deposit work? Can i provide no deposit because theres 250k equity or still have to provide?

Thanks

 

[Terry_w]

You haven't thought this through properly.

What would otherwise be CGT and land tax free would now be subject to both. Your parent's future pension could be effected.
Asset protection with parents may be higher than with you.
You would be unable to inherit via a testamentary trust - the share you buy that is.
Stamp duty
conveyancing fees
joint and several liability
affect on your future loan serviceability
etc

 

[woodridge]

Hi Terry this is an IP thus already subject to cgt and land tax.
This sale at loan price would not result in any surplus cash to parent and therefore not affect pension or so centrelink advised.

I have cash for stamp duty and conveyancing if required and our serviceability for future loans would not be negatively affected according to mortgage broker as rent covers loan and we have decent cash flow from other IPs.

 

[Terry_w]

Hi Terry this is an IP thus already subject to cgt and land tax.
This sale at loan price would not result in any surplus cash to parent and therefore not affect pension or so centrelink advised.

I have cash for stamp duty and conveyancing if required and our serviceability for future loans would not be negatively affected according to mortgage broker as rent covers loan and we have decent cash flow from other IPs.

In that case it would crystalise CGT for your parents on their disposal.

Why not just leave it in their names, help them out if needed, and then you can inherit it eventually - directly of via a testamentary trust with big tax advantages and asset protection advantages No stamp duty or CGT at that stage.

I am not sure I would agree with Centrelink unless that property hadn't grow in value.

 

[woodridge]

My parent is nearing retirement so its sell to open market or sell to me, and within 2 years. Its not a property that will be held onto. Therefore theres no long term plans for handing it down via any means.

I will speak to the broker about the deposit questions and centrelink again about effect on pension. Thankyou all and goodnight

 

[Terry_w]

You wouldn't need a deposit if buying undermarket value. But any transfer should generally be at market value for tax and asset protection reasons. You would therefore need a deposit - but your parents may be able to assist you by lending it to you or gifting it to you.

Seek legal advice before doing any of this.

centrelink has an assets and an income test. They would be decreasing their asset base but would be receiving income from the CG. If they are giving away money or undermarket value transfer then they will be still assessed as having this money for 5 years and deemed to be earning a return from it.

Seek legal advice on this too.