My parents have a property which is worth about 480-520K, If I was to purchase and turn this property into a IP in the future is there any Tax laws or issues I would need to consider?
Example if they sold me the property through private sale for 400-450K?
Hello undercover
Yes, this is a straight forward transaction. You can pay whatever is agreed between the parties, but you must render unto Caesar the things which are Caesar’s and pay Stamp Duty and other Government fees on the Estimated Market Value of the property.
From a lender’s point of view this is an Advantageous or Favourable purchase.
Of the lenders which will lend on such a deal, you will generally be restricted to their usual lending criteria and not more than the Consideration (Purchase Price) plus ‘reasonable costs’.
‘Reasonable Costs’ means you would usually be able to borrow to about 105% of the Consideration.
In Victoria, you will
not need a S.32 for such a transaction, not even a Contract of Sale, just the proposed Registered Proprietor Transfer of Land showing the Consideration
So if the property is worth, say, $500,000 and you have a Real Estate Agent’s letter estimating the market value at $500,000 then you will be required to pay Stamp Duty on $500,000.
(The lender will value the property in the usual way but the State Revenue Office requires an Estate Agent's letter of estimated market value, not a Valuer's valuation.)
A loan scenario could look like this:
Consideration of the Property $400,000
Plus Stamp Duty on $500,000 = $21,970
(Victorian Non-First Home Buyer’s Rate)
Land Transfer Registration on $500,000 = $1,346
Registration of Mortgage = $95
Conveyancing Fees inc Search Fees = $750
Adjustment of Rates eg = $750
Lender’s Establishment Fees (inc docs, val, settlement) = $750
Lender’s Mortgage Insurance on $425,661 = 85%LVR = (approx) $4,600
Funds to Complete: $430,261
Loan to Consideration $400,000
Plus Capitalisation LMI $4,600
Plus Reasonable Costs $25,661
Maximum Loan to 105% Consideration $$425,000
Your Contribution $5,061
Note: Some lenders will lend to their usual maximum LVR of the Market Value of the Property but there will be restrictions (depending on lending policy) of when you may access equity, eg some have a ‘no access to equity’ restriction of six months, but others apply twelve months from date of settlement.
In all other regards, the loan can be any of the usual products including Professional packages.
EDIT:
Sorry, didn't read that the balance of your Parent's liability is about $350,000
Here is the scenario for paying out the balance of their loan (rounded to $360,000 to allow for discharge fees and charges)
Consideration of the Property $360,000
Plus Stamp Duty on $500,000 = $21,970
(Victorian Non-First Home Buyer’s Rate)
Land Transfer Registration on $500,000 = $1,346
Registration of Mortgage = $95
Conveyancing Fees inc Search Fees = $750
Adjustment of Rates eg = $750
Lender’s Establishment Fees (inc docs, val, settlement) = $750
Lender’s Mortgage Insurance on $385,661 = 77%LVR = (approx) No LMI
Funds to Complete: $385,661
Loan to Consideration $360,000
Plus Capitalisation LMI $N/A
Plus Reasonable Costs $25,661
Maximum Loan to 105% Consideration $425,000
Loan Required $385,661
Your Contribution $Nil
Hope this helps
Kristine