Using inherited property to start investment portfolio

[Baker]

Hi,

I'm a recently joined member and would like to thank everyone for the interesting discussions in the forum. Some really good information and lovely people.

I've looked but haven't seen any threads that match my present situation, so I'm going to ask for thoughts.


I've inherited a strata-titled freehold property from my late mother. My father still lives there, and he will do until he drops. I've set up a rental agreement that breaks even for him (as landlord I provide foxtel, internet, telephone, water), and he can access gov't rental support - this extra money is what I use to pay my costs. So I basically break even here.

After a refinance to a better rate and an IO loan, I'm about to move out of my (first) PPOR to make that my first IP, and in a rental apartment.


LONG STORY, here's the actual question:

What are my options to utilise the equity in the ~$350k asset that my father lives in to begin investing in further properties?

Many thanks for any ideas or opinions.
Cheers.

 

[spludgey]

As long as you have the rest of your finances in order, you'll be able to borrow against this property. You can get 80% of the value (Or an 80% LVR) pretty easily and without paying additional costs.
If the property is worth $350k, that means $280k. You can then again use this for a deposit and costs of purchasing IPs. Assuming 5% costs (on the high side) and 80% LVR for those properties as well, that means that you can buy IPs to a total value of $1.12M.
You might not want to do this to start with though. I'd start slow and buy a single property. You could still get an 80% LVR against your inherited property and then park whatever you're not using in an offset account against one of the properties. Then, whenever you are feeling confident in your investing, buy the next one.

A mortgage broker will be able to help to make more definite plans, but this is the basic template you can use.

 

[Jamie M]

LONG STORY, here's the actual question:

What are my options to utilise the equity in the ~$350k asset that my father lives in to begin investing in further properties?

Many thanks for any ideas or opinions.
Cheers.

Hiya

Assuming your borrowing capacity is ok - you'd release equity in that property to fund the deposit/costs on future purchases.

How much equity you should release is dependent on your goals, borrowing capacity, security type, etc

Cheers

Jamie

 

[sanj]

youre gonna charge your father rent on a property your mother gave you??

 

[Terry_w]

What are my options to utilise the equity in the ~$350k asset that my father lives in to begin investing in further properties?

Many thanks for any ideas or opinions.
Cheers.

Being an inherited property doesn't really change anything. You could set up a LOC attached to this property and/or your PPOR and then use this to invest.

However you may be better off charging your father market rents so you can claim the full amount of any expenses such as rates etc. If you are not charging market rents you cannot claim the full amounts. Your dad may also get more rent assistance. market rents will also help you with servicing further loans.

If you want to make a monetary gift to your dad then you could do this separately - consider centrelink issues.

I am assuming your dad is not a life tenant.

 

[Rolf Latham]

LONG STORY, here's the actual question:

What are my options to utilise the equity in the ~$350k asset that my father lives in to begin investing in further properties?
.

With the long story often comes a short interim answer

Work out what you want first, then work out how to get it.

hard to get what you dont know that you want

There are probably dozens of iterations available to harness the equity

ta

rolf

 

[Corey Batt]

Hi Baker,

Pending serviceability, you can access equity from the inherited property, which can be used as deposits for further purchases, renovation funds etc.

Sit down and speak to a savvy broker if you haven't already, making sure you setup your finance to help your future purchases and GOALS.

 

[spludgey]

youre gonna charge your father rent on a property your mother gave you??

It sounds to me like the father gets benefits for paying rent that he wouldn't get if he lived rent free. Plus OP pays extras for the dad, I don't have a problem with any of that.

 

[Baker]

youre gonna charge your father rent on a property your mother gave you??

Only on paper. When I first inherited the place Dad was paying for foxtel, water, internet etc. and I wasn't charging any rent. I've now set up a rental agreement and worked it out so the money he'd spend on those services now comes as part of the rental. He's not losing out, see below.

Being an inherited property doesn't really change anything. You could set up a LOC attached to this property and/or your PPOR and then use this to invest.

However you may be better off charging your father market rents so you can claim the full amount of any expenses such as rates etc. If you are not charging market rents you cannot claim the full amounts. Your dad may also get more rent assistance. market rents will also help you with servicing further loans.

If you want to make a monetary gift to your dad then you could do this separately - consider centrelink issues.

I am assuming your dad is not a life tenant.

Yes he is a life tenant as stipulated by Mum's will. I'd never kick him out anyway, I love the old bugger.

I set the rent just over the maximum for single with no dependant children ($300 per fortnight), so he gets the most gov't support ($127.60 per fortnight). So he contributes $172.40 per fortnight from his pocket, which is basically what he was paying for those services personally before, only now they are a deduction for me on the IP. The portion that comes from the gov't is what I can pay strata, rates etc with. It's pretty much break-even for us both.

It sounds to me like the father gets benefits for paying rent that he wouldn't get if he lived rent free. Plus OP pays extras for the dad, I don't have a problem with any of that.

Yep, that was the idea, as above.


So in summary, a LOC on the unit up to 80% LVR, then utilise that facility for deposit(s) on future IP purchase.

Am I right in that this ISN'T cross collateralising as the loans are all discrete?

Many thanks all.

 

[Terry_w]

A lender will have issue with a life tenant. If you default on the loan and they have to take possession your dad will come with the property.

And, are you even allowed to charge him rent according to the will?

 

[spludgey]

Don't LOCs have higher interest rates than getting a loan and putting it into an offset.

 

[Rolf Latham]

A lender will have issue with a life tenant. If you default on the loan and they have to take possession your dad will come with the property.

indeed, most lenders will run.

a long way, and fast, since its a very compromised security

ta
rolf

 

[Rolf Latham]

Properties with 'Lease of Life' covenants on title are typically unsuitable security.

if there is no such impingement on the title, then there are no issues

ta
rolf

 

[Rolf Latham]

Don't LOCs have higher interest rates than getting a loan and putting it into an offset.

sure, by 15 to 20 pts often

But thats not a sensible reason if you need the facility features

Im not big on Loc for resilient "volume" debt for reasons peops will only find if they read their loan docs on detail, not all loc have this, nut most do

repayable on demand.................

ta
rolf