10 Strategies to Your Help Children Get into Property

12. Vendor Finance: Instalment contract
A parent could sell an existing property they own to a child on an instalment contract. This works by having the child make payments and the title transferring once the full payments have been made.

There may be some stamp duty and tax benefits in doing this.

13. Rent to Own

A parent could sell an existing property they own to a child under an option agreement. The child might pay the parent a lump sum and then have part of the rent they pay each week going to the reduce the eventual purchase price.

14. Vendor Finance: Deposit

The parent could sell an existing property to the child by lending them to deposit. They might borrow 80% of value from the bank with the remaining 20% being paid to the parents at a later date - either with or without interest.

 

Why not just pool the funds and invest as a family unit. The kids can become the tenants of each others houses and pay down the family assets.

I have heard of some families doing this.

 

I have a few friends and clients who have done this - and not really worked out well financially.

One group of brothers bought their parents main residence. Parents not on title and no trust relationship so no main residence exemption as brothers have their own main residences.
Loan is in 4 names with 5 paying the loan - so a trust relationship for the one on title. There is equity in the property which can't really be used. The loan is difficult to refinance as each has separate loans these days. Family law dispute of one of them could be a disaster. One wanted to get off title - but the others wouldn't buy him out, or couldn't.

If they had sought advice before it could have worked so well.

 

Hi @Terry_w, is there a thread that has links to all of your very helpful tax tips and write ups please?

 

Yes, I have segregated them into 4 categories and listed them here

Index of Legal Tips Terryw's legal Tips Index
Index of Tax Tips Terry's Tax Tips
Index of Strategies Terryw's Structuring Strategies
Index of Loan Tips Terry’s Loan Tips

 

15. Buy and Immediately Sell to Them

Similar to a vendor finance model, you could buy the property yourself and then immediately onsell it to your adult child (or a minor too I guess). This will trigger CGT Even B1, but your cost base will exceed the market value so you are likely to make a capital loss.

It would then be a long settlement period with them having access. It would trigger stamp duty in some states though. Later when title is transferred it will not trigger CGT again so title could be transferred at a later date when they can qualify for a loan.

It would likely be a breach of the mortgagee's agreement with the parent though - if that property was used as security for a loan.

 

How would that be different to the parent buying then renting to the child and then selling to the child in the future? Higher stamp duty and cgt in the future due to higher market price?

 

The parent would be triggering CGT for themselves at that point in the future. Plus the main residence CGT exemption not available to the child.

 

Thanks Terry.

 

16. Apparent Purchaser provisions. May assist with land tax and also asset protection.
Parent has ample cash. Doesnt lend cash to adult child but buys them a house and title is in childs name. Child (adult) may even live in it and get main residence exemption. Submits relevant evidence that the child is a mere "apparent purchaser" and the payment came from parent/s. OSR stamp and accept this and evidence is retained. Years later if a creditor or spouse seeks to make claim on the asset it is transferred back to parents with no transfer duty. The legal owner is a mere custodian. And no CGT or duty concerns is many cases. The AP docs could also be torn up at a later date. Deed of AP may also contain a rule that stops the child using the title as security without parents permission. The cost of exerising the AP deed is lost tax benefits (land tax and main residence usually) but perhas with benefit of protection.

VERY popular in asian legal community. Rules vary by state. High level legal advice needed. Ideally BEFORE any purchase. Can be proven after the event but its then harder.

 

I would love to do this for my kids.

 

Yeah then you die someone finds the fake will and bobs your uncle all your wealth goes to charities

 

easily overcome by revoking it and making sure it cannot be considered a will.

 

I was thinking of selling the interstate properties to them if/when they start studying/working in those states. I was thinking of gifting the 20% deposit. They can start renting out other rooms and get real-life lessons.
Now, your idea seems better. If they go through a divorce, can I at least get my 20%+ unpaid interst back?

 

If it is a loan perhaps you can. Not if it is a gift

 

Will they still be entitled to the FHBG or stamp duty concessions if they purchase a PPOR before the property in trust is transferred to the kid?

 

You would have to look at the relevant legislation. I think it says something like ownership interest - which they would have if they are beneficiary of a bare trust - the property is beneficially theirs even though they don't legally own it.

 

For this option of borrowing against other property, would the parents' bank require them to go on the title of the child's property?

 

no

 

my parents lent me 10pct of purchase price and that has literally set me for my life.