Invest & rent to Mate (2 ways)

[countryrock]

Hi,
Keen to get some advice legality, pros & cons from anyone who has done this before.

Scenario:
1) Concurrently at the same time with a mate or relative, both parties build an investment property.
2) When properties are built, have agreement to rent to each other at slightly below the market rate.
3) Move into each others property to live.
4) At tax time, each party claim depreciation on their new investment property & also get negative gearing benefits.

 

[Aaron_C]

It's fine as long as you charge market rate.

 

[DaveM]

This is hardly a new idea, and sounds good on paper. But what about

- You or your mate want to sell, do you evict your friend?
- Your mate goes bankrupt and your rental gets sold but they stay on?
- Friendship goes sour and neither of you wants to move?

Money and women seem to be the two biggest causes of friendship breakdown.

 

[boomtown]

Why bother.

Build an IP, rent it to a stranger and rent yourself from a stranger. That way you can treat it commercially and ten times more flexible.

 

[Propertunity]

This scheme typically works where your mate buys your dream home as his IP and rents it to you and you buy your mate's dream home as your IP and rent it to him.

So you both have a HUGE (read small) portfolio of 1 x property each. , along with the headaches that other posters have mentioned above.

 

[DaveM]

And another issue is that whilst its good for tax, its not really great for lifestyle. Since its not actually your house, you cant really go do an extension or pergola or landscaping or pool etc since any capital improvements wont belong to you.

Why would you lock yourself into not being able to improve and customise your home to your tastes just to pick up some tax deductions.

 

[Ace in the Hole]

Another vote against.
High risk for low reward, why take the gamble?

 

[weg]

Don't restrict yourself by only considering building.

If you must have new for depreciation consider a similar place that's a year or two old - lots of these places are selling cheaper than what you can build for new.

Also, why do you want to rent to a friend, below market at that? Why is that an advantage?

Lots of people buy an IP (or build) and rent it out, while they rent out something else they like, and which suits them, but they generally rent to a stranger who they can give the flick to when and if it stops working out.

What happens when your friend loses his job, or his new girlfriend who moves in develops a pokie problem and they have difficulty paying the rent? How far behind will you let him get with the rent?

What happens if you look after his place, yet yours develops serious wear and tear?

Do you nag him or send him official documentation to rectify breaches .

I'd simplify things by doing what others do. I'd also concentrate on a buying well.