How will this work - shared ownership

[sk71]

Hi

I am new to this forum but have (like most) been lurking for a while. I find this forum really interesting even though most of it goes over my head!!

One of my family members wants to buy an investment property and I want to by a PPOR. I cannot really afford anything decent on my own and we have talked about buying a place together - most likely 50-50 with me living in it. My family member has a property worth around $550,000 with $280,000 still owing. I have nothing but can scrape together around $25,000. I currently live at home. We would be looking at a property around $350,000.

Here is where I get stuck. I know we are both responsible for 50% of the mortgage but obviously they are buying it as an investment and if I was not the tenant would expect the rent to cover a large portion of the mortgage so how do we work this out between us, without me paying as much as I would if I borrowed the whole amount myself? I just cannot get my head around it.

Any insight most welcome!! Thanks SK

 

[wylie]

You could buy half and half and rent it out, and then you rent somewhere completely unrelated. That way it stays as an investment for you and doesn't complicate things. But it gets difficult when you want to borrow again as you will be assessed as having the whole debt yourself. Same with your relative.

It could turn nasty very quickly with such different goals. You want somewhere to live, and your relative wants an investment.

Our son (with no deposit due to paying off a car loan very quickly - hence no "provable" savings ability) borrowed $292K to buy a unit for $292K. We guaranteed one-fifth of his loan to save him paying LMI and he got $7K FHOG plus saved himself $8K in transfer duty being a first home buyer. He is on a salary of only $38K but the bank took into account the fact a lease was in place (ended three weeks after settlement), which got him over the line.

I wonder what you earn? You could very well buy something yourself, and have a friend in to share expenses (going rate is about $150 per week per room).

You would need a good broker. Don't go to the bank's direct.

Just my thoughts.

 

[mimimao]

My2cents...don't live in it i.e. buy the house together as an investment for both of you, rent it out to maximize rental return, and you rent somewhere else - cheaper, smaller.
It's much clearer this way. Also it then won't affect your PPOR CGT concession in the future.

 

[mimimao]

oops I'm 4 minutes too slow...hahaha

 

[Propertunity]

Go down to your local newsagent and get a copy of July's API Magazine. Julia Hartman has an article in there that describes the tax consequences of doing exactly what you are proposing and cites some recent ID's from the ATO. This may help with your decision too.

 

[Ed Barton]

Hi

I am new to this forum but have (like most) been lurking for a while. I find this forum really interesting even though most of it goes over my head!!

One of my family members wants to buy an investment property and I want to by a PPOR. I cannot really afford anything decent on my own and we have talked about buying a place together - most likely 50-50 with me living in it. My family member has a property worth around $550,000 with $280,000 still owing. I have nothing but can scrape together around $25,000. I currently live at home. We would be looking at a property around $350,000.

Here is where I get stuck. I know we are both responsible for 50% of the mortgage but obviously they are buying it as an investment and if I was not the tenant would expect the rent to cover a large portion of the mortgage so how do we work this out between us, without me paying as much as I would if I borrowed the whole amount myself? I just cannot get my head around it.

Any insight most welcome!! Thanks SK

too messy. settle for something less than decent by yourself.

 

[sk71]

Thanks everyone - the more I think about it the messier it seems!!!

On my own I could only afford a 2 bedroom flat (which doesen't bother me too much) but if for the same price on 50% ownership I could get a house then I would want to consider it. I cannot afford a house on my own not with other plans in my life.

I earn about $50,000 net (really need to get a new job - being in the 'caring' profession doesn't pay well!!) and currently live at home. I am saving and my mother is willing to give me an early inheritance. I COULD stay here but we are kind of irritating each other now and I am not a spring chicken either!

Might be one of those ideas that seem great in theory but .........

ps wylie was your son's an IP or PPOR??

 

[wylie]

Our son is living in the unit. The bank, however, took into account the rent, which helped him over the line. They didn't ask him if he planned on moving in when the lease finished.

 

[sk71]

Thanks Wylie. I certainly have some thinking to do.

 

[Meisterin]

I actually bought a property with my brother and he has bought me out recently. I requested that he buy me out, if he could, and after considering for a while he accepted and we are both happy. He has total ownership of the property and now I have a lump sum to buy my very OWN property.

However, had he not bought me out, I would have accepted the consequences and lived on.

When I had about $25K I was on $50K income, like you. I desperately wanted to buy something but could only get $200- $240K loan. The properties that I wanted were in the $400-600K range. If I combined incomes with my brother, we could buy something larger, and perhaps higher capital gains down the road.

Regardless of whether I bought my own property around $220-250K or with my brother at $500K, I knew I would feel unsafe and insecure knowing that I had total outgoings of about $1600-1700 (interest of $1200 a month, council, water and strata rates) whilst my total net earnings were only $3000 per month. In order for me to feel safe, I felt much safer borrowing 160K. So with my brother borrowing $240K(he was earning over 100K at that time) we went in 4:6. I knew even if this investment went sour, my lifestyle would not be affected, and I could move on.

To claim the FHOG I lived there for 9 months. We agreed that I would pay him 60% of the market value of rent and I paid him for 9 months. I rented one room out as a "boarder" and covered 60% of the rent that I owed to my brother. In total I was paying about interest of $900, $800 rent, $300 on incidentals like council, water and strata per month.

In your case, I know people say never mix family and money, but if you can talk things out with you relative and know what his or her financial situation and what his or her financial disposition may be in the next 5-10 years, it may not be that bad and you could both gain. But it is a complex situation that could turn messy.

 

[Marty McDonald]

Our son is living in the unit. The bank, however, took into account the rent, which helped him over the line. They didn't ask him if he planned on moving in when the lease finished.

Hey Wylie,

That doesn't sound right mate. Was the fhog processed by the bank and made avaialable at settlement? If so they could not have taken rent into account as could only be processsed as an owner occ loan.

We have all explored this path before!!

Perhaps the bank unofficially turned a blind eye because of your relationship??who knows..anyway just an observation.

 

[wylie]

Hey Wylie,

That doesn't sound right mate. Was the fhog processed by the bank and made avaialable at settlement? If so they could not have taken rent into account as could only be processsed as an owner occ loan.

We have all explored this path before!!

Perhaps the bank unofficially turned a blind eye because of your relationship??who knows..anyway just an observation.

Our mortgage broker suggested we NOT have the bank process the FHOG, for this very reason. It was processed separately and he had to wait several weeks for his money.

I believe that if someone in the bank noticed that our son was buying it as his PPOR, they would not know that he would not let the tenants run into a periodic lease. Perhaps that is why they took the rent into consideration, even though the lease was finishing after three weeks.

If our son had let the tenants stay on, he would have run foul of the OSR and if he didn't move in within twelve months he would also have run foul of the FHOG, but the bank wouldn't become involved in either of those areas.

So, they apparently took it on face value. He was buying as a PPOR, but with sitting tenants on a lease, they took the rent into consideration.

It also probably helped that with us guaranteeing one fifth of his loan, they saw what our financial position is, and would know that their "downside" is covered.

 

[sk71]

Thanks Hiflo - that answers a lot of questions about how to cover the rent part of things so that is remains an investment for my family member. Very helpful - where do you live now though?? I was hoping to live in it for around 5 years.


Thanks so much for being so helpful it really does help clarify things for me.

 

[Meisterin]

Hi SK71

I moved out of the apartment because it was a tad too expensive for me. I am currently living at my parents' property which has been on the market for two years. I'm covering all the expenses(strata alone is about $12K) which is about $16K a year. I will be living here until it sells. My parents are happy for me to live here because they don't want to lose the Small Business Concession which is equivalent to almost $500K and I am covering the expenses.

Hopefully in 2013 I can buy a $300-$350K property outright.