Purchase property from family

[PJ1]

Hello
This is my first post as my wife and I are about to invest in our first investment property.
The house is owned by my mother and is not her PPOR . Part time over the past two years we have undertaken an extensive renovation. The plan was is to repair the house then take out a mortgage , pay mum and rent it out.
Our current situation is
I'm employed full time, wife is employed 3 days a week due to our young child.
We owe $110k on a $320k mortgage. Approx $130k available to redraw.
Next to zero cash on hand.
The IP deal is for $240k. Similar properties are selling for $380k+
I have been advised by several agents we could expect between 360.00 & 400.00 p/w rent. ( I'm using 360.00)

I don't know much about my mothers financial situation other than they are both retired one receives a small pension and own their PPOR with no debts.

If your still with me after all that my question is :
what would be the ideal way to conduct the sale/transfer so my mother ends up with as much of her $240k in her pocket.

Thanks in advance....

 

[Aaron_C]

Does she have a mortgage on the property? What's wrong with paying her the full market value? Either way she is going to get the cash from you/your bank.

 

[Scott No Mates]

Process is to agree a price, each engage a solicitor (just to keep the advice independent for both parties). There is no need to engage a real estate agent.

You will pay transfer duty (stamp duty on Market Value not the sale price, so get a valuation for MV from a valuer to back up the price paid and the MV).

The solicitors will do all that they need with regards to the transfer of title.

IF your mum is on a pension, you may need to confirm with her/centrelink that she won't lose any of her pension due to cash at bank/asset value or having deemed to dispose of an asset and cash etc..

 

[alexlee]

If it's your mum's investment property, capital gains will have to be calculated based on market value. So even if you're only giving her 240k, she's going to have to pay tax as if she'd sold it for around 380k.

 

[Terry_w]

The best way for your 2 mums to get as much money as possible in their hands is to sell to a stranger.

Next best way is for you to pay market price.

But, consider the effect on:
CGT
Social Security benefits
stamp duty
land tax
income tax
asset protection
estate planning.

Is there any reason for mum to sell it now? It could work out better for you if she just leaves it for you in her will (via a testamentary discretionary trust). You will get asset protection, no stamp duty, tax effectiveness and income tax may be less.

Get financial and legal advice - including tax.

 

[gsingh]

Below is the summary in general
(1) First Step will be to get the independent valuation.

(2) Agree to price same as valuation.

(3) If she has mortgage send discharge to her lender, get payout figure

(4) Get your loan sorted, than book settlement with both lenders

(5) Fill the transfer, sign the, witness them and Fill in notice of sale

(6) Ask your Bank for cheques, one for your mum lender, remanning for her or you can make settlement adjustments for water, council, strata etc

(7) Attend settlement

 

[wylie]

Hello
This is my first post as my wife and I are about to invest in our first investment property.
The house is owned by my mother and is not her PPOR . Part time over the past two years we have undertaken an extensive renovation. The plan was is to repair the house then take out a mortgage , pay mum and rent it out.
Our current situation is
I'm employed full time, wife is employed 3 days a week due to our young child.
We owe $110k on a $320k mortgage. Approx $130k available to redraw.
Next to zero cash on hand.
The IP deal is for $240k. Similar properties are selling for $380k+
I have been advised by several agents we could expect between 360.00 & 400.00 p/w rent. ( I'm using 360.00)

I don't know much about my mothers financial situation other than they are both retired one receives a small pension and own their PPOR with no debts.

If your still with me after all that my question is :
what would be the ideal way to conduct the sale/transfer so my mother ends up with as much of her $240k in her pocket.

Thanks in advance....

Did you pay for the renovations done to the property? Or did your mother pay for them?

If you paid for renovations to a property owned by your mother, that muddies the waters a bit insofar as knowing how much you need to pay her. If you buy it from your mother at market rate, how much of the value of it has already been paid by you. You won't want to pay twice.

If you can work out what the property was worth had you not done the renovation on it, that is what you should pay your mother. Paying a cut price is likely to cause issues with other family members.

Apart from all the other issues involved, that Terry has touched on, you need to ensure your mother isn't badly affected by the capital gains tax, or maybe will lost some pension etc. Get legal advice before heading down this path.