Buying share of father in laws property

[Meisterin]

You can give your father in law a life interest in the property. This means that at the event of his death the property becomes yours.

To do this, you have to have the property valued by a licenced valuer, and a good solicitor will able to do the transaction for you.

It's not a common form of transferring rights in the property, but you can buy it "cheaply" because you deduct the "life interest" portion from the market value.

However, I do not know how the centrelink will treat "life interest" for his pension purposes.

 

[Terryw]

Good thinking, hiflo

Life interests are also capital gains tax events, its all complex too - granting and ending are tax events.

But being his main residence it could be exempt for the Dad though. Centrelink also have info on life interests on their website.

 

[thegoat]

You can give your father in law a life interest in the property. This means that at the event of his death the property becomes yours.

To do this, you have to have the property valued by a licenced valuer, and a good solicitor will able to do the transaction for you.

It's not a common form of transferring rights in the property, but you can buy it "cheaply" because you deduct the "life interest" portion from the market value.

However, I do not know how the centrelink will treat "life interest" for his pension purposes.

HI Hiflow, thanks for the reply.

Just so I understand this properly....

• So we buy the property from him, but the property stays in his name?
• On his death, the property becomes ours through his will?
• Does the licensed valuer work out the "life interest" portion? If not, how do we know what that portion is?
• So basically we deduct the life interest portion from the market value and that's what we pay?

 

[Terryw]

No,

You would buy the property now and transfer it to your name. You then grant dad the life tenancy until he dies or gives it up. At death the property is already yours and generally doesn't form part of his will or estate.

basically you are just giving him the right to live there until death.

 

[Meisterin]

Just add another note.

After you transfer the life interest to your dad, he has exclusive possession of the property and he gets all the rights and responsibilities attached with normal ownership. So during his life you have nothing to worry about.

So the scenario will look like:

1. Buy the unit for 250K (plus stamp duty) from your in-laws either in your name or in both names.

2. Then give the life interest to your father in law at 70K(plus stamp duty). Hopefully the valuer will value it around 70K.

If the above scenario holds true then you will need 180K + stamp duty + legals.

But before you do this, also take advice about capital gains tax.

 

[Terryw]

Actually, I think the bank may have an issue with the issuing of a life tenancy. The bank will have a mortgage over the property and conditions of the mortgage will probably include provisions preventing you to give a life interest without their permission as this will effect the value of their security.

Imagine if you did then and then didn't pay. They would have to take possession of a property with a life tenant in place. The bank would probably have priority, but kicking out an elderly tenant would be bad publicity.

 

[thegoat]

Hi guys,

Sorry to keep this thread going, have another option I'd like to get some advice on.

FIL is willing to sell us house at $180000 which will be enough to pay out his existing mortgage and also pay out his wife. He would be able to pay us $125 a week in rent, possibly up to $150 a week. Based on a simple rental yield calculation using $125 a week, this comes out to 3.6%. If rent is $150, this comes out to 4.3%. We wouldn't have to pay a 'property manager', only other outgoings would be body corporate fees of around $600 and rates of around $700.

I've looked on investsmart.com.au at rental yields for his suburb and they're coming out at 2.8% for units.

Is 3.6% a 'good' rental yield?

Any advice is appreciated!

 

[Terryw]

It all depends on the capital growth - which you can only estimate.