Strata report issue - Should I buy this investment property - advice please?
- Thread starter Novice100
- Start date
Its not an arms length transaction. You give you mother rent money and she pays it back to you. Your own money is paying the mortgage which reduces or negates the investment property status.
If she was paying her own rent from her own funds/income/pension and it was market rent that is another story.
I am giving my mum an allowance and she is choosing to spend part if that allowance on rent in a property that suits her best and the rent us at market rates
I am sure you see it that way, but the ATO likely wont, should an audit happen.
EDIT: I just asked an accountant I know, he made a scrunched up face and said its iffy and would depend on how the money is gifted to your mother. If done in the wrong way it will land you and her in hot water.
it isnt free rent.
novice is gifting his mum money which she is then using to rent his place at market rent. i think he'll be ok but im no expert
by the way i salute your intentions, too many people are only concerned with themselves nowadays so for you to effectively buy your mum a place to live in is great.
re the issue at hand, as youve alluded to there is certainly a level where buying it would be worth the risk. where that level is is hard to say as we do not know the ins and outs of the property and the rust etc.
i will say though that in this case since the owner is not really willing to drop his price you arent gaining much or buying under market value at all so in this case even if he agrees to hold say $30k in trust account it wouldnt be worth the risk. i assume this would be held in trust for a fixed period but this fight with the builder could drag on for quite a while.
is there nowhere else close by where you can find a place appropriate for your mum for similar money?
best of luck by the way and pls dont be afraid to ask more questions. at the heart of the matter you're trying to do something pretty cool so im sure at least some (or most imo) of us would like you to avoid any pitfalls you can
You say your Mum has no money, in that case why doesn't she apply for the pension 
If she gets a pension then she can get a rent allowance and would pay you rent officially which would cover the ATO
Maybe you then employ her as a house keeper to earn just enough to stay under the pension limits. She can "eat at your place" and pay you rent.
I think it would be a much safer way of setting it up just in case the ATO arrives.
If she gets a pension then she can get a rent allowance and would pay you rent officially which would cover the ATO
Maybe you then employ her as a house keeper to earn just enough to stay under the pension limits. She can "eat at your place" and pay you rent.
I think it would be a much safer way of setting it up just in case the ATO arrives.
Novice, you could ask your financial advisor to get a private binding ruling from the ATO on what you are planning to do re paying your mother an allowance who in turn uses the money to pay you rent from which you will negative gear (I assume).
Dont want to sound pessimistic but this sounds like the ATO would view it as a tax avoidance scheme and under Part IVA, the ATO could knock back your claims. My opinion only.
Dont want to sound pessimistic but this sounds like the ATO would view it as a tax avoidance scheme and under Part IVA, the ATO could knock back your claims. My opinion only.
You say your Mum has no money, in that case why doesn't she apply for the pension
If she gets a pension then she can get a rent allowance and would pay you rent officially which would cover the ATO
Maybe you then employ her as a house keeper to earn just enough to stay under the pension limits. She can "eat at your place" and pay you rent.
I think it would be a much safer way of setting it up just in case the ATO arrives.
my mum is overseas and not entitled to an Oz pension. I have no real concern about the tax issues because as i mentioned I have consulted a very reputable accountant as well as my fianancial advisor both of whom are very much above the board types, informally my friends wife (who is a tax lawyer) has also said she has no concerns about the proposed strategy, additionally i know others doing exactly the same thing - one was audited 2 years ago and i am not aware of any issues being raised.
also I'm not sure about the legality of employing my own mum as a housekeeper - i prefer to do everything 100% above the board when it comes to financial/accounting issues - i work in a position that is frequently targeted by the ATO for audits and the majority of my colleagues have been audited in the past and i fully expect to be audited in the future
the money will be gifted to my mother via distributions from a family trust of which she is a beneficiary
i don't see how its tax avoidance as i am paying tax on the rental income at 46.5% and my mum will be paying tax on any income she receives from me that is above the tax free threshold
speaking to the agent today i think the vendor is willing to negotiate on price now, having seen the strata reports although I'm uncertain how much
my main query now is how much is the upper limit of costs likely to be to correct a corrosion issue? -the insured value of the entire property is $54mill
this is the agents latest email
"Strata manager normally will not disclose any info to third parties other than the owner. ( he was kind enough to talk to me this morning and give me some info). To be fair, this does not necessary indicate the situation is bad.
From my experiences, the builders and strata manager are putting every issues/defects on the strata report as the worst possible scenario. This is a common practice they do to protect themselves from any further liability. You can speak to your solicitors about this and they will agree too.
I have spoken to the vendor this morning and she is aware of some defects in the building and there have been contractors on site almost every day to follow up with all the issues. ( this is also confirmed by the strata manager when I spoke to him on the phone). However, she was not aware of any legal actions or special levies. She actually has a letter dated Nov 2011 from the strata manager showing that legal action will only be a contingency plan.
The strata manager also confirmed the second claim of defect list was lodged to the insurance/builder before the warranty expires in 2011 and this process of assessing the claim normally take a long time to be finished as the building is not small. In a normal scenario, the claim should be accepted as the building was under warranty.
I do not have any info regarding the steel corrosion issue from the strata manager but the owner told me it is to do with the rusting of the steel coating. I am sure most of the details about the defect item are on the strata report you sent me.
i guess the question you have to ask yourself is, "is this property worth the headache"? is there nothing you can buy in the area that will provide your mum with the same lifestyle at the same price?
if there are other options then it would be masochistic to even consider this, especially as you said that ultimately it isnt just about money here
if there are other options then it would be masochistic to even consider this, especially as you said that ultimately it isnt just about money here
i have not seen anywhere as nearly good as this place within the location i want although i have only been looking properly for over a month and have inspected 8 properties and viewed all other potentials online - this place is ideal (apart from the problems i initially described) and i have not seen anything after trawling old listing - so i will keep looking and hope something similar comes up - but then i wonder (as the agent suggested) whether all strata complexes will have one issue or other
one of the things i am trying to determine is how much headache would this actually bring me? I think i would basically not have any involvment apart from paying the odd special levy which i would not find stressful or time consuming unless the cost involved was unexpectedly high (a relative term)
so i am not certain that it would cause me any problems at all unless the cost of fixing a corrosion issue blew out to >$5million or so but i have no idea whether or not this is a likely scenario
Unfortunately most of us wouldnt have the answer for you unless we are the engineers involved in whats happening to the building over there. If we could give you answer, that answer has alot of 'ifs' or we should be buying lotto
In the end of all discussion, I don't that there's anything more we can add here from what has been said.
Update - strata levy loan experiences?
update
the vendor is an elderly lady and is apparently very spooked/disturbed about the whole strata issue and has reduced her asking price to $650k negotiable
other owners in the complex and people in other strata complexes with large repair issues have told me that when older people in strata complexes cannot pay special levies for big repair bills it has not been a big problem because the strata can simply get a strata finance loan (SFL) (upto $25k per unit) to fund the repairs
- apparently this increases the strata levies by only a modest very manageable amount so that special levies are not needed and pushed the costs onto the next owners rather than current owner but have the downside of driving the property price down (by the value of the SFL per unit) until the SFL is repaid (although if i buy i would not be looking to sell in the short/medium term so this does not seem a big downside for me)
- reading on strata forums there seem to be many people in strata complexes with numerous problems who have been greatly helped by SFL's to the extent that it sounds like they are an excellent solution
- does anyone have any experiences with SFL's and info about how common these are and how applicable to this situation?
update
the vendor is an elderly lady and is apparently very spooked/disturbed about the whole strata issue and has reduced her asking price to $650k negotiable
other owners in the complex and people in other strata complexes with large repair issues have told me that when older people in strata complexes cannot pay special levies for big repair bills it has not been a big problem because the strata can simply get a strata finance loan (SFL) (upto $25k per unit) to fund the repairs
- apparently this increases the strata levies by only a modest very manageable amount so that special levies are not needed and pushed the costs onto the next owners rather than current owner but have the downside of driving the property price down (by the value of the SFL per unit) until the SFL is repaid (although if i buy i would not be looking to sell in the short/medium term so this does not seem a big downside for me)
- reading on strata forums there seem to be many people in strata complexes with numerous problems who have been greatly helped by SFL's to the extent that it sounds like they are an excellent solution
- does anyone have any experiences with SFL's and info about how common these are and how applicable to this situation?
No experience, but this is just getting more & more complicated and risky sounding as time goes on...
http://www.flat-chat.com.au/
have you tried this forum? lots of stuff about strata living etc in nsw?
have you tried this forum? lots of stuff about strata living etc in nsw?
