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
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