Subdividing mums block

[matt-t]

What would be the most economical strategy?
Mums block is unencumbered but she only has a part time job which isn`t enough to service a loan.

I can service it to enable the subdivision with new house at the rear.

I can`t borrow against anything myself so can mum and I jointly borrow with her equity and my serviceability, I`m sure we could have this setup but what would be the best for her peace of mind knowing she hasn`t got her house riding on anything (as she is an old school thinker)?

Thanks


Matt

 

[Qlds007]

Matt

Couple of issues:

1) You are not a party to the title and most lenders would struggle to accept the fact that there was any financial benefit in agreeing to take you as a co-borrower. Unlike a spousal arrangement.
2) If the property is being used as security then regretfully she will still be liable for any debt secured against it.

With equity you are always able to borrow against the security but she would be liable for the debt.

If the project is relatively short term you could always have the interest capitalised so she doesnt have to come up with the monthly interest.

All boils down to the actual figures.

 

[matt-t]

Thanks.
Yep it will be short term and I would be capitalising the interest, for which would hopefully be a construction loan feeding us (or moreso the home building co.) bits at certain steps in the process.

Block value apprx $500k
New house with subdivision apprx $150k
150k @ 9% = $260p/week repay (cheap rent for me whilst on market)
Sale value of completed new dwelling $450k ( 250-270k left for mums super)

 

[Qlds007]

Matt

The figures all seem to stack up ok on a LVR basis but as i mentioned earlier there is no way around the fact that the loan would be in your mothers name and the security would be the property.

 

[Bradsdad]

G'day Matt,

Not a lot of chance of getting this through under a resi deal as Richard pointed out. An option maybe to look at it from a commercial point of veiw and maybe set up a company/trust for investment purposes with your mother. Borrowing then done company/trust name with mum supplying security. The costs will be a little higher but may just get the idea of the ground, leading to a profit . Have a chat to your accountant and if you need assistance with the finance I'll put you in touch with someone local to you.


Regards
Steve

 

[matt-t]

Great point there.
I actually have a trust set up already which is sitting there doing nothing. Shouldn`t be too much drama assigning mum as a trustee.

It is inevitable that mums property will be security over the loan and I think that with a view to her retirement fund benefiting from the whole deal her peace of mind will be eased.

Thanks Brad, I would never have thought of this idea.

 

[Twitch]

Matt, the question I have is why is your mum on limited income, living in an unemcumbered house, and an "old school thinker" (which means conservative?) going into the property development business? Those things don't add up.

A better solution for your mum would be to get the approval to sub-divide, then sell house and after the ink is dry on the selling contract, look to buy a smaller property, and then put the left over equity into super to support her into old age.

 

[Bradsdad]

Great point there.
I actually have a trust set up already which is sitting there doing nothing. Shouldn`t be too much drama assigning mum as a trustee.

It is inevitable that mums property will be security over the loan and I think that with a view to her retirement fund benefiting from the whole deal her peace of mind will be eased.

Thanks Brad, I would never have thought of this idea.

Thinking outside the square sometimes helps. My only problem is finding a way back in the damn thing


Regards
Steve
(father of Brad)