The kids and the Sara Lee option

[MarkandTina]

I'm not sure if anyone else has considered this as an option but I would be interested in opinions, particularly in terms of finance and legal options.

We live in a 1960's house in a very good suburb in Adelaide.
If we spent $150,000 and built up we would have excellent city views.

One option I'm considering is to have my daughter build the upstairs at her cost and move into it, and we continue to live in the existing house underneath.

Pros:
My daughter doesn't have to find the money to buy land, just the structure costs.
She gets to live in a good area.
Her family are close.
Overall when she inherits the remainder of the house she has an excellent asset.

Cons:
Her family are close.

It opens up a myraid of questions in terms of finance, guarantors, capital gains down to even things like council rates and splitting power charges.

Is this too absurd and idea to consider in your opinion?
It seems like western culture is anti this sort of living, but in other cultures this would be more acceptable and practical.

Please let me know.

 

[wylie]

If you would be happy with your daughter upstairs and vice versa then it could work. Any other children?

What happens if you have a falling out in ten years?

What security does she use to borrow the construction cost?

Could work but equally could get complicated if she decides to move or marry.

Plan for all the things that "could" eventuate.

 

[lizzie]

What happens if she wants to sell and move elsewhere - job transfer, future partner, kids?

What happens if you want to sell and move elsewhere - retirement village, seachange, travel, downsize, illness?

 

[MarkandTina]

Appreciate the comments so far, I really am looking for reasons why this wont work.

My daughter (who is 16) has told me already that the only person I'm ever allowed to sell the house to is her and she plans to live in it forever. Her problem is being able to afford it so I'm just throwing ideas around.

We have a son also, who at this stage is planning to rent one of our IP's when he starts working. He will probably inherit that one day.

I would consider going guarantor for my daughters loan.

What happens if we have a falling out or when she gets married, I cant really plan for those. This is about giving her the choice of building a McMansion in the outer suburbs and having a $400k loan or spending $150k and living close to town with city views.

There are plenty of people that split their PPoR block and build townhouses and live in one, I'm just looking to split it in the opposite direction.

 

[lizzie]

There are plenty of people that split their PPoR block and build townhouses and live in one, I'm just looking to split it in the opposite direction.

The BIG difference is that you can subdivide off one and sell it with no dramas to the other.

At 16 do you really think she knows her own future enough to claim "she will never move". At 16 did you know where your life would lead you? Are you still living in the same house, same town, same country as you did when 16 ... I'm a no to all three.

Really, truely, honestly, you have to expect them to grow up and leave eventually. Whether it be for work or love or adventure.

I completely understand your sentiment and desire - but if you can't put a granny flat on the back, could you lend her the money (when she is ready to move out) as a large deposit to buy a unit or townhouse of her own. Why do you assume she will want a McMansion out whoop whoop?

You also can't use the unit as a bargining chip to force her to stay close to you if she wants to leave (not saying this is the case).

If she does want to sell and buy elsewhere, are you in a position to pay her out for the building (plus capital gain)? If so, would you then be comfortable renting out the upstairs to a stranger to recoup some of the cost?

Maybe I'm just a cynic - but to me there are just too many "what ifs" that cannot be planned for to cover the next 74 years of her life - or 35+ of yours.

 

[MarkandTina]

Thanks for the comments Lizzie, given me plenty to think about.

 

[zimby]

Sounds like you've already made you're mind up.
All I can say is that 16 year old's can change their minds pretty quickly.
BTW she is 16, I thought the Legal loan age was 18?
When is this construction going to take place?

 

[travelbug]

Someone I know did that. She was 30 though. Her parents were older and the plan was that she could look after them and then inherit the house.
Lost touch with her after Uni so don't know what happened.

I would only do it if I was in the financial position to buy the daughter out should she wish to move on. You could rent it to pay the loan. But you would have to make sure it was approved for that when built (fire wall etc).

In theory it sounds great but as others have mentioned you need to have a plan for different outcomes. I don't know too many men who would like to live above their mother in law.

 

[Propertunity]

Additionally, it is probably folly to think that your daughter will inherit your PPOR and your son the IP he's renting off you. You will probably split your wealth 50/50 between them and it is unlikely both properties would be worth the same.

This along with the fact that you may (I hope you don't) develop a health condition that requires you to cash in some assets to fund treatment. You may lose a partner (again, I hope you don't) and remarry. Too many variables to plan for IMO.

 

[wylie]

Having just read that your daughter is 16, I say, forget it!

Everything else the other posters have said is worth considering.

If you really "are" looking for reasons it will NOT work, I think you have plenty of them.

I assumed the daughter was much older. At 16, most girls are wanting to listen to music, study, kiss boys, buy fingernail polish etc, etc.

If you get along well with her (as I did with my mother) she will stay as long as you are both happy to be living together. Why even think about a separate dwelling within the dwelling at this age.

Waaaaay too young to even discuss this, certainly too young to know what she wants next WEEK, let alone next year, or for the rest of her life .

 

[jaycee]

Possibly thinking ahead, 16 does sound a bit young. No "urgency" anyway.

But haven't some forum member's people's kids bought properties at almost the same age ?

 

[Aaron_C]

Possibly thining ahed, 16 does sound a bit young. No "urgency" anyway.

But haven't some forum member's people's kids bought properties at almost the same age ?

Even though you have to be 18+ to have capacity to sign a binding contract?

 

[kathryn d]

My 18 year old son (at the time) never wanted us to sell the family home, as he wanted to buy it eventually.
It is certainly out of his price range, and we still have it in our rentals.
At the moment it is on a rent to own option, so technically it could be bought within the next 18 months.(doubt it)
Son is older now, and having been away from that home, and on his own for 4 years, he no longer talks about it.

Kids always change their minds...it's life

 

[jaycee]

Even though you have to be 18+ to have capacity to sign a binding contract?

That's why I asked so maybe those other forum members could possibly clarify what / how / when.

 

[Terryw]

Even though you have to be 18+ to have capacity to sign a binding contract?

Not so. In NSW see the Minors (property and contracts) Act 1970. See esp s 19, a contract will be binding if it is for the child's benefit at the time of participation.

There would be similar acts in other states.

 

[Terryw]

I'm not sure if anyone else has considered this as an option but I would be interested in opinions, particularly in terms of finance and legal options.

We live in a 1960's house in a very good suburb in Adelaide.
If we spent $150,000 and built up we would have excellent city views.

One option I'm considering is to have my daughter build the upstairs at her cost and move into it, and we continue to live in the existing house underneath.

Pros:
My daughter doesn't have to find the money to buy land, just the structure costs.
She gets to live in a good area.
Her family are close.
Overall when she inherits the remainder of the house she has an excellent asset.

Cons:
Her family are close.

It opens up a myraid of questions in terms of finance, guarantors, capital gains down to even things like council rates and splitting power charges.

Is this too absurd and idea to consider in your opinion?
It seems like western culture is anti this sort of living, but in other cultures this would be more acceptable and practical.

Please let me know.

I can see many potential issues which could arise, some would be:

1. Loans. If D is not on title she couldn't get a loan. She wouldn't be able to borrow till she is 18 anyway.

2. Trust. Mum would basically be trustee for the daughter it title is in mum's name but daughter has paid for the loan for the top half etc.

3. Tax. Probably CGT exempt as it is everyone's main residence now, but what happens in the future. eg. mum moved out, daughter stays there - CGT? what about the trust relationship? Is this properly documented?

4. Stamp Duty, If trust relationship is properly documented that may amount to a declaration of trust and stamp duty may be payable even if mum remains sole name on title.

5. Divorce. Imagine D divorces in 20 years, and husband puts a caveat on title to prevent the sale just as mum was hoping to sell to pay for that life saving liver transplant.

6. Brother. brother may think he is getting a raw deal by inheriting an investmnet property with all the CGT attached and he may resent this, or worse, challenge the will etc.

7. Litigation. Mum is sued and goes bankrupt. Trustee in bankruptcy tries to take house - how to prove daughter owns top half? Even if this can be proved daughter will need to buy out the trustee in bankruptcy's share or sell the house (or cohabit?)

8. Cleaning/repairs etc - who is going to pay for the new kitchen downstairs, clean, do gardens etc These little things can cause the biggest problems.

9. Death. What if your daughter predeceases you and leaves her 'share' to her husband who then remarries and moves his new wife in???

 

[WASP]

I'm not sure if anyone else has considered this as an option but I would be interested in opinions, particularly in terms of finance and legal options.

We live in a 1960's house in a very good suburb in Adelaide.
If we spent $150,000 and built up we would have excellent city views.

One option I'm considering is to have my daughter build the upstairs at her cost and move into it, and we continue to live in the existing house underneath.

Pros:
My daughter doesn't have to find the money to buy land, just the structure costs.
She gets to live in a good area.
Her family are close.
Overall when she inherits the remainder of the house she has an excellent asset.

Cons:
Her family are close.

It opens up a myraid of questions in terms of finance, guarantors, capital gains down to even things like council rates and splitting power charges.

Is this too absurd and idea to consider in your opinion?
It seems like western culture is anti this sort of living, but in other cultures this would be more acceptable and practical.

Please let me know.

Is $150,000 for the extension a quoted price?

Is there a chance to use equity within the existing property and for the parents to take out the loan and rent out the upstairs to the daughter to service that loan?

A simple option for power charges would be to look at your current costs over X months and charge anything over that rather than putting in a seperate meter

 

[MarkandTina]

Just to clear this up, I'm looking at options for 4 - 6 years from now, not something that will happen in the next 12 months.

Thank you for all the posts, in particular TerryW's.

The simplest option is now appearing to be to build the extension at our cost, let my daughter use it, and have her pay rent to us that would cover the cost.

I wont go into the details of the pros and cons but its certainly a more flexible option.

 

[lizzie]

Would it not be better to spend you $150k build costs on a substaintial deposit for a completely separate IP, such as a unit/townhouse? Even if it's in the same suburb

That way you are not left with a massive (potentially overcapitalised) house in 5-6-7 years time if she choses not to live there.

I would also mean that her life is her own without having to "be aware" of mum and dad - having parties with friends, boyfriend moving in, getting a pet etc - and that if she leaves, you could rent out the IP without having "strangers" living above you in "your" home.

One would also hope, considering your daughter is only 16, that when the time comes that you fall off the twig you have more than 1ip and 1ppor.

I don't want to know all the reasons why you are set on building onto the home, but - as much as I love my mum - the thought of her being able to keep "a close eye" on what I, as an adult, chose to do with my life ... especially as a early-20-something, partying, drinking, boyfriending adult ... makes me feel uncomfortable even in my 40's.

 

[Ed Barton]

I'm not sure if anyone else has considered this as an option but I would be interested in opinions, particularly in terms of finance and legal options.

We live in a 1960's house in a very good suburb in Adelaide.
If we spent $150,000 and built up we would have excellent city views.

One option I'm considering is to have my daughter build the upstairs at her cost and move into it, and we continue to live in the existing house underneath.

Pros:
My daughter doesn't have to find the money to buy land, just the structure costs.
She gets to live in a good area.
Her family are close.
Overall when she inherits the remainder of the house she has an excellent asset.

Cons:
Her family are close.

It opens up a myraid of questions in terms of finance, guarantors, capital gains down to even things like council rates and splitting power charges.

Is this too absurd and idea to consider in your opinion?
It seems like western culture is anti this sort of living, but in other cultures this would be more acceptable and practical.

Please let me know.

are you mad? 16 year old daughter and you're considering this? although i do like your sense of family.

anyway...

so the plan is to build something with dual living ability where your daughter gets the best bit, the views. if it's in a good area and get's city views then it will have terrible resale. 'city views' type houses don't have granny flats, which is essentially where you will be living. if you do go ahead with ensure it is designed so it can easily be turned back into one house.