Operation Get Mum to Brisbane

[Dean1337]

Hi guys,

I've been lurking for a bit trying to learn as much as real estate investing for some time now. However, I would like to ask you guys for some advice.

My mum lives in Kempsey NSW and wishes to move to Brisbane so that she can be near my Sister and help my sister look after her kids. In addition she would like to ensure that she leaves the four of us with a reasonable inheritance. She owns her home outright and sees that has our inheritance. It is worth about $250K. However, she doesn't have much in terms of savings for her retirement and is she is low income earner not far from retirement. This makes it impossible for her to sell her place Kempsey and buy in Brisbane. She is not willing to rent in Brisbane unless it is place we rent to her. She will not live in unit, villa or town house so it must be a house and it must be nearby my sister's place. In addition, her mum (my grandmother) requires her assistance so mum can not move to Brisbane immediately. So it could be some years before she can do this.

We just recently came up with plan that will allow her to move to Brisbane in a house and still give us the inheritance she wants and quite possibly more. Here it is:

1. We establish a family trust to which she is the Benefactor and we are Benefacories.

2. Mum transfers the ownership of the property to the trust. Then pays the trust rent equal to what she pays to maintain the property now.

3. The trust then establishes a line of credit with a Bank A which would be approximately 80% of 250k = 200k. This equity is then used to provide a deposit in purchasing a property in Brisbane for $400k. Therefore $80k is drawn from the line of credit and a new loan with Bank B of $320k is established. This is to avoid cross collateralisation.

4. We rent out the property in Brisbane and use the rent to help make repayments. The shortfall would then be drawn from the line of credit. We draw from the line of credit because two of my sisters are still starting out in life and would have difficultly in making repayments. At some point we will stop drawing from the line of credit and make our own repayments. This would be when my younger two sisters are more established in life.

5. In about 5-10 years (when mum is ready to move to Brisbane) we end the lease agreement in Brisbane and mum moves in. She pays the trust rent to the same value as she was in Kempsey. The house in Kempsey is either then sold to lower debt or rented depending on the current market conditions.

With the above scheme, we estimated that we would all be ahead by about $200k more than we would have been if Mum held onto the property in Kempsey. This was calculated with fairly conservative figures too (i.e. 8% interest and 5% growth and no growth in rent).

Since we do not have a lot of experience with family trusts and investing in general we think the above will work but are concerned with details that we are unaware of. Primarily, I think establishing the loans with the banks will be our biggest hurdle.

My question is, can anyone see any major flaws, things we should consider or difficulties we might run into? Does anyone have any idea that might simplify the above or improve it? Any advice or help here would be greatly appreciated.

I'm sorry if this message come across as long winded and if you need to know more details please ask away.

Many, many, many, many thanks in advanced.
Dean

 

[Aaron_C]

Sounds OK in theory but the question (from a finance point of view) is who will guarantee the loan for the family trust? You? Your siblings? All of you?

Also with line of credits banks can withdraw them at any time, particularly if you aren't going to use it for a few years while your sisters grow up/find work.

 

[Dean1337]

Sounds OK in theory but the question (from a finance point of view) is who will guarantee the loan for the family trust? You? Your siblings? All of you?

Hi Aaron, thank you so much for answering me. I really appreciate it.

Well all my siblings have jobs it is just that one has a very low paying job whilst another is about to have a wedding and also wants to buy a PPOR.

So to answer your question I'd image all of us but I guess ultimately it is what ever we need to do to convince the bank. We were thinking that we would need to establish a trust company and set this company as the trustee. The directors of the company would then be all four us. Therefore I guess the company itself would become the guarantor. But I'm not entire sure of this structure.

 

[Spades]

Wouldn't it be simpler and kinder that your sister + her kids move to kempsey?Am i missing something here?

Is inheritance feeding?

I told my mother anything she has left to leave it to the RSPCA and my 2 bro's and 1 sis agree.
Anyway,i'd rather tie my own shoe laces than wear the sole.

 

[Aaron_C]

Hi Aaron, thank you so much for answering me. I really appreciate it.

Well all my siblings have jobs it is just that one has a very low paying job whilst another is about to have a wedding and also wants to buy a PPOR.

So to answer your question I'd image all of us but I guess ultimately it is what ever we need to do to convince the bank. We were thinking that we would need to establish a trust company and set this company as the trustee. The directors of the company would then be all four us. Therefore I guess the company itself would become the guarantor. But I'm not entire sure of this structure.

In a situation like this all directors would have to give a guarantee usually. Which has the negative effect of impacting each person's borrowing capacity - but at least you know that in advance and can plan for it.

 

[Spades]

Never liked leaches,ticks etc ...

Anyway Dean1337 hope you get it all sorted,
Cheers Spades.

 

[StefanA]

It amazes me how offspring think about the bottom line, and are totally illiterate as to the aging process.

Consider your Mum retires then has a stroke, heart attack, fractured hip, or needs new knees. Sit down as a family and sort out who is going to look after the "house" and your Mum then.

Any person approaching retirement age, and wanting to live alone in a full sized family home or one with stairs, is sadly unrealistic about what is in stall for themselves, health and independence wise.

 

[weg]

This is years away??? Not only could she change her mind, she may want a unit after all in 5 or 10 years time.

That and the fact that she sounds financially naive, makes me think it's best kept simple, as in her name and not in a trust, and if she does go down that path, she probably needs to speak to Centerlink and a lawyer who could explain to her what you plan on doing, the implications, and to advise accordingly.

Just curious... how old are these children that need looking after, and who will look after them over the next few years before mother gets there? What if they're all grown up by then, and why can't they use childcare .

 

[jrc77]

There seems to be two parts to the plan:

1. Buying a place in Brisbane, renting it out as an IP for a few years then converting to your Mum's PPOR.

Have you considered looking for a dual income property? For example, something with a nice granny flat. This could have the added benefit of reducing the out of pocket expenses in the initial years, and then still providing some income when your Mum moves in. She could either live in the granny flat, or the main house depending on circumstances.

Obviously would be harder to find, but might be worth considering. Might be worth talking to a BA to help find one.

2. Doing this in a trust structure

What advantage are you looking for with doing it in a trust structure as apposed to keeping it simple in your Mum's name? Trusts can certainly have their uses, but can also needlessly complicate a situation and add extra expenses.

Regards,

Jason

 

[Angel]

One flaw I see is you havent told us which suburb in Brisbane you are planning to move Mum into. A $400K house may be totally unsuitable for an older lady. It may require major repairs that you havent costed, it may be many miles away from the sister....... Are you talking Brisbane or surrounding LGAs for $400K?

I have just relocated my Mum within Brisbane and finding a suitable flat property in Brisbane within her choice of suburbs has been very difficult indeed. We are a very hilly place.

 

[jclegg]

Hi, I may be wrong here but if you don't charge your Mum market rent for her property then you may not be able to claim all the deductible interest against the loan. Check with an accountant first.

Brisbane has lots of dual occupancy type houses. Your sister and Mum could move in together, one upstairs and one downstairs or side by side in duplex or as previously suggested a granny flat.

From my personal experience, when siblings and money get together it's a recipe for disaster and family feuds. Better your Mum keep her place until it's time to move, then sell it and loan the money to the trust and buy a new house in Brisbane owned by the trust. That way, no matter who is living in it, you will all own it through the trust. Probably holes in this idea too

By the time this all happens most of your circumstances will have changed so any discussions now on who will pay for what may not be relevent in 5 years.

Good luck in finding a solution that works for you all.

 

[Macca]

I would also agree that this is highly likely to end in tears for more than one person. While the preparation and intentions may be thorough and honourable the actual practicality of what you are suggesting is killing an ant with a nuclear bomb.

Please consider making it much simpler, let Mum stay where she is until she is ready to move then look at options.

5 years is a long time healthwise after you hit 50+ it only takes one slip and she will want somewhere small with grounds that are done by the BC and you and others will be looking after her, not the other way around.

To lock all of the family into a complicated trust arrangement which will effect everyone's credit availibility is overkill for a relatively small inheritance which may be all gone by the time you inherit it.

You should also give consideration to the fact that should one sibling lose their job or get sick, the others will have to contribute more of the repayments.

All in all not a very attractive proposition, very little upside and a tangled mess of problems unless everything runs perfectly, which Murphys Law says rarely happens

 

[Dean1337]

Thank you every one for the answers. It is overwhelming to see so many willing to help. It has given me much to think about.

Wouldn't it be simpler and kinder that your sister + her kids move to kempsey?Am i missing something here?
Is inheritance feeding?

Hi Spades, Kempsey has a very high unemployment rate so most people who leave Kempsey general would find it difficult to return and still get good employment.

I told my mother anything she has left to leave it to the RSPCA and my 2 bro's and 1 sis agree.
Anyway,i'd rather tie my own shoe laces than wear the sole.

Personally I would agree with this. We are not really interested in our mother's inheritance. Our main objective is to get Mum up to Brisbane in a place she feels comfortable with. She fears staying in Kempsey would be a lonely existence since our parents are divorced and all of us have left Kempsey. Naturally if anyone, especially our mother, is left high and dry we will not be implementing this idea.

In a situation like this all directors would have to give a guarantee usually. Which has the negative effect of impacting each person's borrowing capacity - but at least you know that in advance and can plan for it.

Thanks Aaron, this certainly changes perceptive since my one of my younger sister's is considering to purchase a PPOR whilst the other is a low income earner. I'll have to raise it with them both.

Consider your Mum retires then has a stroke, heart attack, fractured hip, or needs new knees. Sit down as a family and sort out who is going to look after the "house" and your Mum then.

Thank you Stefan, you are right. We should definitely consider this. I have actually suggested this to her for the very reasons you mentioned but she does not want to live in a unit or villa. Perhaps we should try to find a house with this in mind? It will be hard though.

This is years away??? Not only could she change her mind, she may want a unit after all in 5 or 10 years time.

Hi weg, it is difficult to say. The main reason she is staying in Kempsey now is because of our grandmother. She needs looking after and therefore she will not leave her until she passes on. (I really didn't want to say that) My mum is very caring person.

Just curious... how old are these children that need looking after, and who will look after them over the next few years before mother gets there? What if they're all grown up by then, and why can't they use childcare

My eldest sister is 38, I'm 33 and my two younger sisters are 26 and 24. It is not so much that they can not use child care. They already do. It is more about my mum not wanting to live in Kempsey alone.

Have you considered looking for a dual income property?

Actually I had thought of this in regards to dual income but as you mentioned they are difficult to find. Given that our selection is also limited to suburbs near where my sister lives, it will be even harder still. However, I never considered the use of the granny flat for my mum to use. That will open up options. Thank you for that suggestion Jason.

What advantage are you looking for with doing it in a trust structure as apposed to keeping it simple in your Mum's name?

Since my mum is a low income earner and nearing retirement, I would imagine it would be difficult for mum to convince the banks to lend her money. Even for a loan of approximately 200k. The purpose of the trust is to allow us to handle the asset and obtain a loan base on our income. It is also used to provide asset protection in case one of us gets divorces or sued. Since there is four of us, this is four times more likely. However, if there is a way to keep it in mum's name, that could be preferable. Could it be done?

One flaw I see is you havent told us which suburb in Brisbane you are planning to move Mum into.

Hi Angel, the suburb is Kenmore and surrounding areas as this is where my sister lives. So Moggill, Bellbowrie, Jindalee and Mount Ommaney are also areas she would consider. Indeed, these areas are challenging to find such a place but we have found some. Of course this is just a simple realestate.com.au scan and we haven't really consider whether it is suitable for a person to retire for the long term. Something we definitely should consider though.

Hi, I may be wrong here but if you don't charge your Mum market rent for her property then you may not be able to claim all the deductible interest against the loan. Check with an accountant first.

Hi jclegg, Given that the idea is to place the property into a family trust I think that you can not calm tax deductions anyway. Regardless, we were willing to accept this lose if it meant our mum could retire happily.

Better your Mum keep her place until it's time to move, then sell it and loan the money to the trust and buy a new house in Brisbane owned by the trust.

I guess the main reason for trying to purchase now is because we fear that the market difference between Brisbane (or Kenmore I should say) and Kempsey will growth further apart and purchasing a suitable property in the future will be even more challenging. Kempsey is a high unemployment town and I do not see much growth there were as Brisbane is far more likely to grow in value in the mean time.

I would also agree that this is highly likely to end in tears for more than one person. While the preparation and intentions may be thorough and honourable the actual practicality of what you are suggesting is killing an ant with a nuclear bomb.

Hi Macca, what you say is quite possible. I guess we all just wish to see our mum retire happy but she will not agree to any plan that sees any of us financially burdened. However, if the plan results in tears then it would all be for nothing.

Thank you all for the help. It is overwhelming the good advice you can get from this site. I believe from what a lot of people are saying is to carefully consider whether it is the moral thing to do, particularly for our mother, and if it really worth the effort and risk. Please if any one has other suggestions I would be more than glad to hear it.

Many thanks
Dean

 

[kathryn d]

If your mum is caring for your grandmother, why can't she take the grandmother to Brisbane.
It sounds like your mum is caring for everyone but herself.

If grandma doesn't want to move..maybe have your mum explain the situation to her, and it is in the old girl's best interest.
If she has dementia..don't worry..and just bring her along.

Your mum doesn't need to put other people's wants, including her mum's, wishes ahead of her own.

 

[depreciator]

Good on you for trying to help your mum.

And for dealing so well with all the many suggestions people have thrown at you.

I'm with macca:

Please consider making it much simpler

Split between four of you, your mums assets are a bit incidental, so disregard the whole inheritance notion. Of course, don't tell your mum it's incidental, but don't let it cloud things.

It sounds like she's going to be in Kemsey for a while and when she's ready to leave Kempsey who knows where she'll end up. Your sister with the kids might have moved by then. Or you might have kids. Or goodness knows what might have changed. Locking four siblings and a mother into a trust seems very complicated.

 

[marg4000]

"Since my mum is a low income earner and nearing retirement, I would imagine it would be difficult for mum to convince the banks to lend her money. Even for a loan of approximately 200k. "

This may be an option of you and/or siblings guarantee the loan.
Marg

 

[Dean1337]

If grandma doesn't want to move..maybe have your mum explain the situation to her, and it is in the old girl's best interest.
If she has dementia..don't worry..and just bring her along.

Your mum doesn't need to put other people's wants, including her mum's, wishes ahead of her own.

Hi kathryn, no my grandmother doesn't have dementia and I would suspect she would go kicking and screaming. But yes, my mum does have a tendency to put other wishes ahead of her own. Christmas time she spends way too much on gifts. It is money I would rather see put away for her retirement.

Split between four of you, your mums assets are a bit incidental, so disregard the whole inheritance notion. Of course, don't tell your mum it's incidental, but don't let it cloud things.

It sounds like she's going to be in Kemsey for a while and when she's ready to leave Kempsey who knows where she'll end up. Your sister with the kids might have moved by then. Or you might have kids. Or goodness knows what might have changed. Locking four siblings and a mother into a trust seems very complicated.

Hi depreciator, I think you make a strong point. This inheritance is incidental and we have no idea what is in stall for us all in the next couple of years. This decision to go ahead with this should not be taken lightly. In fact I'm inclined to think that it is too complicated and too many things could go wrong.

This may be an option of you and/or siblings guarantee the loan.
Marg

Hi Marg, Thank you for that suggestion, I didn't think of this before. It could be an option for us. This way the assets remain in Mum's name. This sits with me a lot better. However as others have suggested, getting involved in something like this with other family members can strain relationships. Not something I would like see happen to us. I going to try and think of another way to handle this.

Thanks everyone for the help and support. You guys are truly amazing.