How to access mum's equity if she cant technically service the debt?

M

Mamaof3

Hoping someone has a solution for this challenge!

My mum has approx. $500K in equity sitting in her house (she owns it outright). She would like to help us out and let us access this equity to further our business but the challenge we have is the house is obviously in her name and she being on a pension could no way technically service a debt of $500K.

Is there a simple way for us to access this equity? Can we be gaurantors or something?

Any suggestions would be much appreciated!!!
 
Reverse Mortgage for her maybe an option.

All depends on exactly how much equity you need to get your hands on?
 
I would definately work out how much you need ... the whole lot would be pretty damn risky for your mum ... plus the servicability problem ... if your business stuffs up, she looses her house ... that's a pretty big ask ...

But if you only need $50K or $100K of it, she might be able to service that on a pension? .. or like previous poster said, reverse mortgage ...
 
If only after a small amount (ie. low LVR), couldn't she get it on a straight asset lend (ie. no doc)?

As for servicing, surely that would be your job!!!

Then there is the question as to whether you really want a business that has to succeed otherwise your elderly mums house is on the line........ Not exactly a smart thing to do.....
 
If she has $500k of equity, let's just say that's around $400k of accessible equity (@ 80% LVR).

Servicing is no problem when you've got $400k sitting in the bank.

Being conservative, she could use just $200k to help you out, and have $200k left to service the $400k loan.

At 10% interest only, this would be enough to cover at least 5 years of payments (probably much longer, because you wouldn't actually draw down the entire $400k at once, so your interest costs would be lower than that), after which time you'd hope that either her house went up in value for refinancing, or that your business went really well with the capital injection.

Not fool-proof, but one way to look at it.
 
70 % LVR no doc with equity release may be an option, BUT youd have to do some hard talking with the broker to let it happen............its the sort of deal many of us wont take on unless there are clear benefits to the equity holder

ta
rolf
 
I go along with the consensus that says that you should only tap a small amount and that, of course, you must meet all outgoings.

So could your business sign a lease on the garage as storage? Must be enough to allow servicing but not too much to affect her pension. Just an angle to consider. :)
 
Please, save your own money to start your own business.

A business venture is risky enough.
Doing it with borrowed money increases the risk.
Doing it with someone elses borrowed money adds another dimmension to the risk upon risk and IMHO it shows a lack of personal integrity
Doing all this with your pensioner mothers only asset is simply unethical.
 
Last edited:
Yes I agree with twitch, save your own money and borrow some on top of that in your own name with you carrying all the risk.
Leave your mother's only asset out of the equation, the risk is to great
pieman
 
i am starting to agree that it is a big ask to ask mum to give up a house she worked hard for....maybe only ask for $100K rather than half a million! Might give her a better nights sleep!

We're getting close to maxing out on our serviceability and having achieved our 2008 goals by the 25th January, we don't think we can sit around and not do anything for the rest of the year which is why we looked at mum's equity to allow us to do a couple more developments.

Those were some great options suggested which sounds like it is something thats possible. Kristine, that was fantastic info re mum being a limited gaurantee, thanks heaps for that and i will definitely look into the idea suggested by ianinvestor and Rolf. Thanks guys!
 
caution needed

i would strongly suggest caution as well on a different front, but from a centrelink veiwpoint, need to look at gifting rules and or the deeming rules even if it done as a legitimate loan she deemed to be earning x rate on the money. Ensure you discuss with Centrelinks Financial Information Services Officer (FISO) Just another thing to consider
cheers
 
kimanand said:
i am starting to agree that it is a big ask to ask mum to give up a house she worked hard for....maybe only ask for $100K rather than half a million! Might give her a better nights sleep!

We're getting close to maxing out on our serviceability and having achieved our 2008 goals by the 25th January, we don't think we can sit around and not do anything for the rest of the year which is why we looked at mum's equity to allow us to do a couple more developments.
Click to expand...

If it doesn't work out, your mother can LOSE her house. We're entering a weird phase of the market when a lot of unusual things are happening, especially on the loan front. Is this really the time to ramp up developments? Maybe sitting around and not doing anything isn't such a bad idea.
Alex
 
kimanand said:
i am starting to agree that it is a big ask to ask mum to give up a house she worked hard for....maybe only ask for $100K rather than half a million! Might give her a better nights sleep!

We're getting close to maxing out on our serviceability and having achieved our 2008 goals by the 25th January, we don't think we can sit around and not do anything for the rest of the year which is why we looked at mum's equity to allow us to do a couple more developments.

Those were some great options suggested which sounds like it is something thats possible. Kristine, that was fantastic info re mum being a limited gaurantee, thanks heaps for that and i will definitely look into the idea suggested by ianinvestor and Rolf. Thanks guys!
Click to expand...

hello,

amazing, surely the base you have achieved on the 25th Jan would suffice to soldier on

thankyou
myla
 
Twitch said:
Please, save your own money to start your own business.

A business venture is risky enough.
Doing it with borrowed money increases the risk.
Doing it with someone elses borrowed money adds another dimmension to the risk upon risk and IMHO it shows a lack of personal integrity
Doing all this with your pensioner mothers only asset is simply unethical.
Click to expand...

I second that. It is a bad idea and you need to take responsibility for your own affairs.
 
"Are you serious? You should have left your mother's teat a lifetime ago.

Stand up and be a man!"

I second that thought....maybe stand up and be an adult (woman or man) would be more appropriate.

What are your mum's 2008 goals?


Ajax
 
Many people with best intentions have blown their parent's house or nest egg.

You aren't the one one who will suffer horribly if things go wrong.

Make your own way in the world!
 
hi
I will give my .002 to the question.
now if you went looking for a comm
and its price was 2mil
it had a 5 x 5 lease and a 5% annual increase
a lender will use the 500k equity plus the comm equity
and do a full loan on the property
now if that comm had a 9% return and was in a cbd of perth, bris, syd, or melb
then I would wait for the 5 years.
the income in the first year is 190k and by the time it got to the 5th year
that income will be 245k
now allowing that rates have not moved
the 245k income will cover a 2.6mil property and if you then revalue at the 5th year the bank will take off that lein on the other property
( for security if need be you can bring in a high income earner as a backup security measure but I don't see you would need it).
so wheres the risk
if the tennant moves out
you have in the lease with a break fee for breaking the lease built in
and you have upfront deposits of this break fee in the form of a bank quarantee.
and at the worse case senario is
that the bank sells the comm and then any losses if any
you are up for as your mum has a second mortgage behind the major on the property
so you are up for the loan.
now this is not that difficult to do and you need to do alot of home work on it but very doable.
now the second part of the question is with regards to using this tap for a business and this one is a bit more difficult
and you need to look at a few stats.
and these are from memory so they may have changed.
95% of all new start up business fail in the first 12 months
2% of the 5 left fail in the next 12 months
and then 1% drop off the purch in the next 12 months.
so there is not a great batting average.
reasons
1. gst
2.workers comp
3.cash flow
looking at 1 to 10 these 3 are the biggest killers
4.debt and not being able to cover it
5.theft within the company
6.bad business choice
7.competion and this is one of the lowest killers.
8. business setup as special purpose vehicles(I Set these up) and have a particular life span and is setup not to live longer the 5 years
so having regard to the above would I use this tap to fund a new business.
no
not unless that business was attached to another business that I already own and has been trading and running for a very long time.
would I set up the business using the spare cash flow from the 2 mil comm
maybe depending on the business.
this is not any form advice and no one should use it as such
 
I remember years ago I had a mom sign her house over to her kids and the kid turned out to have bipolar.
He then got a broker in canberra to do the loc and put the entire lot into comsec and blew it.
Mom came into my office in tears and asked why we were taking her house - our advice was 'we werent' it got knocked back and he went to another lender.

So my basic opinion is for say a SMALL amount and helping first home buyers etc then its a family equity loan.

For developments - you only need what... 15-20-30% and you can finance the rest

But the initial proposal isnt my cup of tea.... from the sounds of it you're not putting anything into the deal yourself and willing to risk everyone else first.

Is mom a partner in the deal?
 
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