Parents too old for property??

Hi
Just am in need for some advice for my parents who are 67 years old and have a $1.8 million dollar debt on 5 properties. The properties are maxed out, so none of them are payed off. My parents are not working, so the rent from the properties are just covering the loan , except that the bank is taking an extra $5,000 per month extra for principle payments for her properties, which is being taken from her $200,000 in her offset account, which over time will diminish. Also, she has the rates to pay as well for each property which also comes out of this $200,000. She is asking me and my brother for money, but we are trying to build our own lives, We have children and aren't really in a position to help her. She said she will try to refinance with another bank and to try and pay less interest and not pay any principle, l keep telling her nobody is going to refinance you without income and at your age.
I feel guilty but l am not sure what to do.
Can anyone come up with any suggestions.

Thanks Sue
 
Your parents should consider selling one or two to help them (keep in mind CGT and the possibility of selling 1 per fin year etc).

I would be asking them why they are keeping hold of so many. Are your parents intending to keep them so they can pass them onto their kids (ie you and your sibling?).

Should you consider buying it off them (assuming they are decent properties?)
 
I'm reading into this that the properties are slightly positively cash-flow. It's impossible to say for certain without knowing the specifics, but I suspect the parents are going to find it extremely difficult to obtain additional finance. Unfortunately positive cash-flow for the borrow does not equate to positive cash-flow in the lenders eyes.

One move forward might be to move some money from the offset account to redraw and ask for a 'principal reduction' on the loan. This reduces the amount owing and thus reduces the minimum P&I repayment.

Assuming 5% interest over 30 years P&I, reducing the loan by $200k would reduce the total repayments by about $1100 per month.

There are some downsides:
* Once this is done, it's not reversible. It won't be possible to get the $200k back if it's needed.
* Not all lenders will do this.
* $1100 is an optimistic estimate based on several assumptions. The figures need to be double checked.
 
Hi Sue,

your parents must seriously consider a debt reduction strategy - this will mean selling one or more properties to reduce the debt. The downside will be that they may be liable for some cgt but will have lowered their debt substantially.

When you say they have maxed out on the loans, is it 80% or are they at 100% with LMI, hence no redrawable equity?
 
Like Peter said, it may be dificult to refinance without any 'worked' income, but it might not be impossible.

They should get some advice around lending before they choose which one to sell in any case.

It may be possible to refinance at the same time as selling, which puts them in a better position.

Without advice, they could sell, and the bank could keep the whole proceeds without necesarily reducing the repayments.
 
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$5k per month is about $60k per year. The $200k offset may last just 2 to 3 years.

At this stage it may be too late to refinance if there is no employment income. What about super pensions? Some lenders will accept that.

Rents may rise slightly which will slow down the drawing of the offset but this won't effect much in the next few years. They may have to sell one of more properties.

Alternatively you could set up a private loan agreement. You can lend money to your parents so they don't have to sell. This may assist you as well as them as the asset would continue to grow and eventually you and your siblings could inherit the property when both parents die. Your loan could be paid out of the estate so you are not contributing more than your siblings and then having the property split evenly.

I am assisting a client do something similar now, through my law firm. There is on property invovled but mum has an 8% loan and cannot refinance. It would be shame to sell the property so one daughter is lending mum money which will be paid back in the future by either selling the house or out of the estate when mum dies. it all needs to be properly documentated and you should lodge a second mortgage to protect yourself.

Just think that instead of buying an investment property you are really ensuring your future interest in the parents properties continues growing.
 
Hi
Just am in need for some advice for my parents who are 67 years old and have a $1.8 million dollar debt on 5 properties. The properties are maxed out, so none of them are payed off. My parents are not working, so the rent from the properties are just covering the loan , except that the bank is taking an extra $5,000 per month extra for principle payments for her properties, which is being taken from her $200,000 in her offset account, which over time will diminish. Also, she has the rates to pay as well for each property which also comes out of this $200,000. She is asking me and my brother for money, but we are trying to build our own lives, We have children and aren't really in a position to help her. She said she will try to refinance with another bank and to try and pay less interest and not pay any principle, l keep telling her nobody is going to refinance you without income and at your age.
I feel guilty but l am not sure what to do.
Can anyone come up with any suggestions.

Thanks Sue

Hi Sue,

When you say the properties are maxed out, I assume this means around 80% LVR which would mean they still have ~ $400k equity.

It sounds like they need to speak to their accountant to determine which property to sell, based on the CGT liability. It will also depend on the rental return of each property, maintenance costs, whether they are cross-collateralised, etc.

What money do they use for living expenses?

The banks can't discriminate based solely on age but they do need to know the exit strategy and see that the repayments can be made even if the interest rates increase. At this point in their life, your parents should be de-leveraging to be less exposed to the risks of having too much debt and not working.
 
Thanks for all your responses it has been a great help. If my parents sold all the properties they would be left with roughly $650,000.
Is there a way to take over these properties from my mother without incurring all the property costs associated with sale of the property. Changing names from her name to mine on all the properties isn't that simple is it?

Are there any other ways?

Thanks Sue
 
agree with the others. 1.8 is a lot for anyone to service. luckily interest rates are low at present. can you share what their exit plans are? plus how long the properties have been held?

get good advice about which property to sell re tax issues. hopefully they have other income besides rent? or it would be a very uncomfortable position.

age is not the issue, servicing the debt and low returns seems to be the problem.

good luck.
 
Thanks for all your responses it has been a great help. If my parents sold all the properties they would be left with roughly $650,000.
Is there a way to take over these properties from my mother without incurring all the property costs associated with sale of the property. Changing names from her name to mine on all the properties isn't that simple is it?

Are there any other ways?

Thanks Sue

Any transfer in legal title or equitiable interest will result in CGT and stamp duty - except upon death.

You could buy a property from your parents at undermarket value, but the stamp duty and CGT would be at market value.

I can see 2 broad options:
1. Get them to sell a property to reduce the loan interest payable. The proceeds could be parked in the offset acccount. Hope the loans are not cross collateralised for the lender may take all the proceeds and apply it to the other loans.

2. You could loan money to your parents - written loan agreement and secured etc

maybe a 3rd option would be to buy a small interest in one property and go on the loan. This could assist in the refinancing by utlising your income.

And others should learn from this:
1. Plan well ahead prior to stopping work - get 10 or 15 year IO terms if you can.

and

2. Don't cross collateralise
 
That's just the point they don't seem to have any long term plans. My mum is trying to see if she can refinance and what other options are available to her.
Unfortunately her properties are cross collateralised.
Her only source of income is her rental income.

Thanks Sue
 
That's just the point they don't seem to have any long term plans. My mum is trying to see if she can refinance and what other options are available to her.
Unfortunately her properties are cross collateralised.
Her only source of income is her rental income.

Thanks Sue

Get her to ring her bank and see if they can be uncrossed - without having to supply income statements.
 
I was considering splitting up the repayments between my brother and myself, that means it would roughly be $40,000 each we would have to pay each year if all the properties were rented out, more if not.
But l am not sure it is a wise investment even for myself. I am 42 years old and even though properties do go up over the long term, l still have to outlay a minimum of $40,000 per annum to keep things afloat.
I have suggested my mum keep 2 of her best properties and sell the rest, if she did that l would seriously consider taking over for her.
Do you consider this a good investment for myself and my brother?

Thanks Sue
 
Hi
Just am in need for some advice for my parents who are 67 years old and have a $1.8 million dollar debt on 5 properties. The properties are maxed out, so none of them are payed off. My parents are not working, so the rent from the properties are just covering the loan , except that the bank is taking an extra $5,000 per month extra for principle payments for her properties, which is being taken from her $200,000 in her offset account, which over time will diminish. Also, she has the rates to pay as well for each property which also comes out of this $200,000. She is asking me and my brother for money, but we are trying to build our own lives, We have children and aren't really in a position to help her. She said she will try to refinance with another bank and to try and pay less interest and not pay any principle, l keep telling her nobody is going to refinance you without income and at your age.
I feel guilty but l am not sure what to do.
Can anyone come up with any suggestions.

Thanks Sue

Sue,

Are these recent purchases? If not why are they maxed out? If they have been paying P&I like it sounds like they are then there should be equity in them which means selling 1 would increase money in offset, reduce payments and make the other 4 quite possibly positive and income generating.

You should only look at taking on the debt if the IPs suit your own strategy.

You need actual figures from your parents not general statements. Only then can you look to see what the answer might be.
 
I was considering splitting up the repayments between my brother and myself, that means it would roughly be $40,000 each we would have to pay each year if all the properties were rented out, more if not.
But l am not sure it is a wise investment even for myself. I am 42 years old and even though properties do go up over the long term, l still have to outlay a minimum of $40,000 per annum to keep things afloat.
I have suggested my mum keep 2 of her best properties and sell the rest, if she did that l would seriously consider taking over for her.
Do you consider this a good investment for myself and my brother?

Thanks Sue

I have no way of assessing if it is a good investment or not, but whatever you do you should seek proper advice and make sure things are clearly documented. It would not be a good idea to lend you parents money without security and without a written agreement in place.
 
I would suggest getting the actual paperwork together and taking your parents to one of the mortgage brokers who offer so much help on this forum.

Spend some time reading and take note of the names and kudos given to some of the MB here, select someone that gels with you and ask them to look over your parents mortgage situation.

If all loans are P&I then you may be able to make some IO which would slow the draw down of capital but you really need the exact figures and an experienced head to comment IMO
 
Thanks again, will look into property Brokers today and make a some calls.
Another question, would the bank allow her to withdraw $100,000 out of her offset account, which would then leave $100,000. I told her l didn't think the bank would allow her to do that, but she wanted to put it in a higher interest bank.

Thanks Sue
 
dificult to answer. If its in an offset account, then yes she can withdraw it. But she wont get a better itnerest rate anywhere else. Not a term deposit/savings account anyway.........I do hope she isnt considering something higher risk.

Get the paperwork together and speak to or vist a good broker.
 
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