What should i do?

[tj22]

Hi all

So my situation is that i cannot get bank finance, because i'm on a low income. i will be on the average income in about 12-18 months and will be able to get finance.

so for my first property (230-240k) i will be buying it with my mum. as she is a high income earner (the property is cash flow 3,600 p.a) I was thinking of my options. i live in VIC btw.

option 1. buy in her name and the cash flow will be taxed at the highest tax rate. and be in her name and i will just have a caveat on the property / maybe a POA.

option 2. buy in a trust with a company for a trustee mum being director this allowing me after 1-2 years to become director and then i'll have 100% control. but this way would cost me around 2,310 p.a in fees to hold in a trust structure

both ways aren't really that good. but the property is a good buy and i really want to start my property portfolio already.

Is it possible to have a joint venture agreement where i could have 50-80% of the cash flow so it gets taxed at my tax rate (low tax rate)?

being in Victoria is it possible for my mum to have a tenancy agreement with me and then i on rent it to the actual tenant leaving me with some cash flow?

thoughts guys?

 

[wylie]

Have you seen a good broker? You may be very surprised at what you can borrow.

 

[tj22]

yea i've looked at that, if i had a 20% deposit and a guarantor. still was only like 130k was a joke.

i'm thinking i'll just use my mums name. cheers all

 

[Macca]

yea i've looked at that, if i had a 20% deposit and a guarantor. still was only like 130k was a joke.

i'm thinking i'll just use my mums name. cheers all

Are you 22 (wish I was ) young, impatient, eager to take on the world

TJ, slow down and learn, if you get the first one wrong it can set you back 10 years and then you would have the right to be impatient.

Let others comment for a few days, talk to some of the brokers on here, create a plan, then attack

 

[A Jeremy]

Pump the brakes man.

There will always be good deals.

Did you say the property is cashflow positive at $3600 p.a.? YOu're looking in the right direction.

The most valuable thing you can acquire from this situation is maybe not a property but a lesson in patience and discipline. If you only look at the fiscal value of the deal you won't understand what I'm talking about but if you take the time to educate yourself properly and wait until you can set up the correct structures you will end up far richer (in actual dollars) than this one deal will allow.

 

[wylie]

Maybe check with another broker. Our son is 22 and has just bought a house. We used a family loan to settle for him only because he is about to graduate and earn full time. The plan is that he will refinance immediately he is made permanent (any day now) and repay the family loan.

Before we started looking, we spoke with our broker and even on his casual wage (he is working 40 hours per week though), he could have borrowed around $300K. You just need a broker who thinks outside the box and has access to banks that might be more flexible.

 

[tj22]

Maybe check with another broker. Our son is 22 and has just bought a house. We used a family loan to settle for him only because he is about to graduate and earn full time. The plan is that he will refinance immediately he is made permanent (any day now) and repay the family loan.

Before we started looking, we spoke with our broker and even on his casual wage (he is working 40 hours per week though), he could have borrowed around $300K. You just need a broker who thinks outside the box and has access to banks that might be more flexible.

hows much was his income?

 

[wylie]

hows much was his income?

I just checked the email from two months ago when I asked if he could borrow on his casual wage. I'm sorry but I think I got my figures wrong in that previous post. These are two of the scenarios I was given -

Option 1
Based solely on his current income of at best $33,579 pa the maximum amount that could be borrowed would be $170,000 and with the $70,000 deposit that would mean a purchase price of $240,000. (He was still studying at this time, and not working a 40 hour week.)

Option 2
If he was to wait till he had a full time job with a salary of $62,000 pa the maximum amount that could be borrowed would be $380,000 and with the $70,000 deposit that would mean a purchase price of $450,000.

There were another two options that involved him buying and not living in the house, but renting it. However, he will be moving in so I've left those out.

In our son's case the $70K deposit is an inheritence that is coming from a trust set up by our parents (both now passed away). They didn't want us to give any of the grandchildren their money before age 25 except for something like education (not for cars or travel). My late parents would have been thrilled that three of their grandchildren have now bought houses, and we therefore decided to put this money up as a deposit so they can buy now rather than make them wait until age 25. They know it is a huge step up for them.

Our oldest (now 25) bought at age 21 and at that time we hadn't told him of the money coming to him. He bought a unit for $295K. He lived there for nearly two years and then bought a house. He has done up the house and just sold it and buying again, and it is only now that he is taking advantage of his inheritance money.

My brother's son has just contracted to buy a townhouse further from the city where he lives now. It is $295K and we will give him his inheritance now to help him as he has just started an apprenticeship ($10 per hour) and needs it now to get into his own place.

We just have to hope that nobody else decides to buy a house for a little while or we could go broke .

Without this money, they would have still purchased, but (for our two sons) further out where prices were cheaper. This help from their grandparents, via us, means they can move closer in. They are very fortunate indeed and they do appreciate the help (financial and renovating help).

Also, this middle son (two months after we first went to our broker) is now earning more since graduating and working 40 hours casual earning $42,500. The plan was to wait until he is put on full time, but this house came up and so we lent him money to settle. He is paying us instead of paying a bank, and will be getting a loan within the next month to pay us back.

In Option 2 above, the figure of $62K is conservative, but he preferred to make sure he could afford to move out so we worked on a "worst case" first job figure of $62K. If he cannot afford on that salary to borrow enough to pay out the trust loan we used to settle, he will keep a small residual debt until he can refinance.

 

[tj22]

Very interesting!

with the above sentence

My brother's son has just contracted to buy a townhouse further from the city where he lives now. It is $295K and we will give him his inheritance now to help him as he has just started an apprenticeship ($10 per hour) and needs it now to get into his own place.

your brothers son is doing a apprenticeship $10 a hour, how can he afford a $295k house? unless the inheritance was 295k?

 

[tj22]

Maybe check with another broker. Our son is 22 and has just bought a house. We used a family loan to settle for him only because he is about to graduate and earn full time. The plan is that he will refinance immediately he is made permanent (any day now) and repay the family loan.

Before we started looking, we spoke with our broker and even on his casual wage (he is working 40 hours per week though), he could have borrowed around $300K. You just need a broker who thinks outside the box and has access to banks that might be more flexible.

"Family loan" as in you bought it in joint names? and the he refinances so it's his own loan and you (family) are then taken of the title?

making him the only owner on the title and on the loan?

 

[wylie]

Very interesting!

with the above sentence

My brother's son has just contracted to buy a townhouse further from the city where he lives now. It is $295K and we will give him his inheritance now to help him as he has just started an apprenticeship ($10 per hour) and needs it now to get into his own place.

your brothers son is doing a apprenticeship $10 a hour, how can he afford a $295k house? unless the inheritance was 295k?

My brother's son is only 19 but keen to get started. On such a low salary, we are using family loan to settle for him but we will not ask him to repay the whole of the loan. We will ask that he get bank finance within a year or so. This loan doesn't use up too much of our loan facility, so we will carry him for a little while until he gets on his feet, but he needs to pay interest to us.

His wanting to buy now has put a strain on our finances though as we have just settled for my son, but he will be applying for a loan now (sooner than planned and before he is on a full time salary - so he will borrow what he can now, and refinance as soon as he can). We just used our LOC to settle for him and it allowed him to safely put in a cash, unconditional offer without a finance clause, hence his offer was strong. But it is not a free ride.

My brother's son needs only to repay to the family $220K ($290K was price - I made a little typo). That will likely work out to half of what he earns, but he has the drive to make it work. If that means working in his father's business some weekends, that is what he will do, or risk having to sell.

"Family loan" as in you bought it in joint names? and the he refinances so it's his own loan and you (family) are then taken of the title?

making him the only owner on the title and on the loan?

Each house was bought in the name of the son purchasing. They are on the title, not us. They have borrowed from us, and are paying interest to us. We are simply using a LOC secured by houses in a trust instead of them getting bank finance. Settlement proceeds came from us rather than from a bank.

Our kids are very lucky to have this opportunity. Without the family loan, they would be buying much further out or having to wait until they earn more. But they must make payments to us just like they would to a bank.

But I know that for my middle boy on his casual wage, he could still have bought a small unit in Holland Park or a little further out right now without help from us, if he was prepared to have a friend help him with expenses, or buy a house on a main road or at Slacks Creek if he waited until he was on a full time wage.

He won't have money to throw around, but his loan will stay the same and his income will increase, so he is comfortable and so are we.

 

[wylie]

Just thinking whilst showering and thought I would also add a couple of things -

This son did have the option of paying higher stamp duty, renting out the house he has just bought and staying at home. He didn't want to do that, but he knows if he cannot manage living there, he can pay the higher stamp duty and turn this house into a rental. That would be last resort though. This son has done spreadsheets and worked things out very carefully. Way more than I've ever done for any purchase.

He also knows that we would not let him go under. If he lost his job or couldn't make his payments for some reason, we would prop him up until he found another job or got sorted. We would not have let any of these sons enter into this arrangement on a whim. We feel very comfortable that they totally understand what they are getting into, understand the risks and consequences.

I guess I'm just trying to show that with a good broker, you may be able to afford something, even on a low wage. Perhaps you can buy something to rent out whilst you rent somewhere cheaper yourself. There are many ways to skin a cat.

And... we (via my late parents) have been able to help our kids to get into the market sooner and more easily than without our help, but without us, they would have done it a different way, moved further out, bought cheaper, bought it as a rental and stayed home a bit longer.

Our oldest son would never want to live in the crappy little unit he first bought at age 21, but it was his, he did it up mostly himself, lived there until he could buy something better. At the time, it was all he could afford, and even that was something that many people said couldn't be done on his low wage at the time.

I say don't risk losing your shirt, but look at what sort of calculated risks you could consider to get into the market.