Whos name, or which Entity to put a property puchase in

[Quick Learner]

I'm nealry at the stage where I think I have learnt enough and am mentally ready to buy my first IP. My financial situation is readily improving and my parents are wanting to get into an IP themselves. They had a MV on our home of $320,000 but have $100,000 owing on LOC. They are trying to pay this down at the moment and are making some success. They will be getting a large reduction to this debt very soon from an inheritence and will be netter in the postion to enter in a JV with me. Meanwhile we are both lgetting more and more ready to enter the game when things permit.

My qns is how to structure things for finance??.

I am prepared to pay all the outgoings if negatively geared. They are prepared to help me sucure the property with their equity. I'm thinking 50/50 partnership, but dont know how to structure it so everything is fair. We have a long term stretedgy to buy and hold. I will be earning $45,000 a year while my dad is self employed with his own business.

Any ideas for whos name to put the loan in or what entity to use??

I was thinking they could draw down the equity in the house (when they have payed some of their loan off). I could borrow 80% of the valuation of the new property in my name. Then we could both finance the rejuvenation on the property through savings.

Any thoughts would be greatly appreciated,

Thanx,
Jarrad

 

[4GH1RH]

Also still a newbie, but as it is a family venture, perhaps a trust would be worth looking into as the structure to hold the investments? I have not purchased an IP yet, but will do in the next 6-12 month. I want to find out more about trusts first though.

(Yes, Trust Magic is next, I just have to work out how to afford it as its not in my usual budget)

I personally would never invest with my parents. Whilst they have a great saving mentaility, they dont have an investing mentality.

Hopefully some of the more experienced here can offer you some advice. Good luck

 

[Medine]

Hi Quick Learner,

I don'e quite understand - why can't you do this on your own?

Cheers, Medine.

 

[Quick Learner]

Investing seperately??

Medine,

It may mean waiting longer and starting with a lower price IP, but I am starting to think that it might be the best and most uncomplicated option.

I just read up that I would not apply for the FHOG if my parents are on the title deed. I was told in a separate thread that I would only have to occupy the home for 6 months before I can rent it out, I cant find this condition in the grant anywhere???. This may save me money depending on the situation. The FHOG would also add to my deposit initially, enabling me to hopefully obtain the loan easier. If the financials work out I could live in it for 6 months and do it up in that time and have it ready for the time when the occupancy period ends.

I guess in having to wait longer my time spent learning more and more in the mean time will only make me that much more ready. I can still work with my parents to discover property deals, we can help each other.

Any thoughts,
Jarrad

 

[Rixter]

Hi Jarrad,

Why not use your parents equity as security only, so you can purchase an IP with none of your own money - borrow 106% (100% purchase plus 5% for costs plus 1% piggy bank surplus.) Then when your ip increases in value so the loan is 80% of the new value tell the bank to drop your parents security & the property then becomes stand alone self secured.

Your the sole owner on the title so you can maximise your tax advantages, all your financials are kept separate for accounting purposes, you do not need put up a 20% deposit, you do not need to pay LMI & you have used none your own money to secure the deal.

I do it all the time. It works a treat.

P.S. The 1% surplus is there to fall back on incase you have any unexpected repairs and/or if you are taking vacant possesion covers any vacancy period between settlement & finding your first tenant.

 

[Quick Learner]

Where theres a problem theres a solution

Thanx Rixter,
That sound like the best idea I have heard on how to structure things. This forum is great for this. When theres a problem there is always someone who has been there and done it before. I guess now I can use the deposit that I am savign for to do a rejuvenation which will greater help with a revaluation and quicker enable my parents equity to be unencumbered by my IP.

Thanx again ,
Jarrad

 

[Medine]

Hi Jarrad,

I guess you've already come to the conclusion that I was heading for. I believe that the best strategy is to keep things separate from others if you possibly can. It works out the best in the long run, because your serviceability/equity equation is protected in future deals.

Even without agressive borrowing strategies, with the FHO grant and a bit of savings you don't even have to wait that long to be able to afford a deposit, and an independent structure is worth waiting for!

Good luck with it!

Cheers, Medine.

 

[Quick Learner]

Does collaterall prevent other investments

If I use my parents equity as security are they in any way limited from making an investment themselves. Could they still say use a LOC to fund the deposit for their own investment property or would they have to wait until my property can stand alone secured.

THey have $220,000 equity I'm looking to borrow around 160,000 using their equity as colaterall, my initial LVR will be 92%.

Any clarification on this would be great.

Jarrad

 

[Aceyducey]

If I use my parents equity as security are they in any way limited from making an investment themselves.

Without being an expert...

Yes they are more limited.

You cannot use the same equity twice.

As their debt is higher this will cut their serviceability.

Cheers,

Aceyducey

 

[Rolf Latham]

Hi QL

Few points to note if youre going down the assisted equity road.

Id agree with the others that in most instances you are better off till you can do it on your own.

There are a couple of lenders that have "Family" type products

CBAs family equity, and STG Family Pledge

Both of these use the donor's property as security, usually up to a max of 30 % of the buy price thereby providing a deposit without LMI

Each of the products has their pros and cons

STG only requires the guarantor to provide an equity guarantee to the specified amount borrowed out of the property, whereas CBA wants them to support the WHOLE loan.

STG requires 5 % genuine savings, CBA doesnt.

STG allows the same guarantee property to be used for multiple property purchases if the cumulative total of guarantees doesnt exceed 80 %

In addition to the above there are other lenders that will allow a "family" security thing as a policy exception.

ta

rolf