$200k from father in law

Discussion in 'Loans & Mortgage Brokers' started by Brian84, 11th Sep, 2015.

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  1. wylie

    wylie Moderator Staff Member

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    I'm curious to know if your FIL has IPs. He may not know that you want to borrow money, claim the interest deductions, but need to add the rent to your income.

    Is he proposing that you buy with cash and don't declare the income? It is putting you at risk, not him. Unless he doesn't understand how it all works, I think it is very strange for him to offer it. Maybe I'm too jaded...
     
  2. Ace in the Hole

    Ace in the Hole Well-Known Member

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    I'd do it.
    Buy a vacant block of land for 200k outright which has a good chance of CG.
    Pay him $1/week in rent.
     
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  3. EN710

    EN710 Well-Known Member

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    Brilliant :)
     
  4. Brian84

    Brian84 Well-Known Member

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    He just sold an ip which he was 50/50 with another bloke in Ulladulla. They had the property together for about 15 years and the other guy wanted to sell and he wasn't in the position to buy him out so now he has the money from the sale to try and invest somewhere else.
     
  5. Ace in the Hole

    Ace in the Hole Well-Known Member

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    So does he have to approve your purchase, or is it your call?
     
  6. euro73

    euro73 Well-Known Member Business Member

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    I'd be purchasing 3 x NRAS. With 200K as seed costs, and sticking to purchase prices of 350-400K, you could easily fund 12% deposits (42-48K ) stamp duty (12-15K) and a cash buffer of 10K x 3 times. ie 65-70K "seed costs" per property x 3 properties

    That would allow you to achieve several things simultaneously;

    1. The 3 properties would generate 55-60K of deductible losses between them ( 18-20K each) which would significantly reduce your tax bill
    2. The 3 properties would also generate 24-30K CF+ tax free between them ( 8-10K each) which will significantly increase your cash flow, allowing you ( conservatively) to recover 120-150K of the 200K within 5 years.

    This would also allow you to renegotiate the deal along the lines of - In return for your 200K we will give you 100% of the tax free surplus that we earn from each NRAS property, each year , for the next 10 years. But we will not give you 50% of the rent received, and we will not have to give you a lump sum of 200K after 5 years.

    This way your cash flow stays neutral on each property, allowing you to hold without drowning in red ink, and your father in law sees a decent return, as he will see the majority of his money returned within 5 years, and will see all of it returned within 7-8 years. His "profit" would be the extra 2 or 3 years he receives in years 8,9 and 10. ( which, when indexing is accounted for, will be @ 13-15K per property by years 8,9 and 10, so 40-50K per annum across the 3 properties)

    At his end - He will get 100% of his 200K back within 7 years and the last 3 years will give him an additional @120-150K profit ( tax free) That's about as good an outcome as he'd get from taking 50% of the rent for 5 years if you bought 3 x NON NRAS for 350-400K each, which rented for 350-400 per week. He'd receive 175-200 per week x 3 properties , which works out to @ 137- 150K over 5 years.

    At your end - beats giving back 200K in a lump sum after 5 years and drowning in super negative cash flow along the way as you hand over half the rent.

    Everyone gets a good result this way, and safely.
     
    Last edited: 11th Sep, 2015
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  7. Biz

    Biz Well-Known Member

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    I would take the 200k and run off to south america. Like a boss.
     
  8. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    Wouldn't last long in any of the 'better' countries and isn't even close to enough to buy yourself into a drug empire (you wanna be the boss amigo). Even in most third world countries you'd want $1m to set yourself up properly and stay off the grid.
     
  9. Biz

    Biz Well-Known Member

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    I wasn't going to move there. Just go for a holiday for like a week, maybe two.
     
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  10. Brian84

    Brian84 Well-Known Member

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    My call.
     
  11. HUGH72

    HUGH72 Well-Known Member

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    Don't do it, the deal doesn't sound particularly generous and is very messy. The FIL gets half the rent? What about half the expenses? With the right cashflow it could work but what happens if there is no cg for 5 years?
    You don't want to be indebted to the out laws.
     
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  12. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    many legal and tax issues to consider too.

    It would be income to him, but possibly not taxable to you. You would be better off using it to pay down non dedutible debt and reborrowing for investment.

    Will he document it? Better for you if he doesn't. Make it a gift to yourself if you can or aa gift to you and spouse. If he wants it as a loan make sure the terms are in your favour.

    What happens if he dies - or the borrower dies?

    What happens if the properties purchased don't perform or your can't borrow to give him back the money.

    Will he want security? Will he lodge a caveat etc
     
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  13. weejimmy

    weejimmy Well-Known Member

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    So if he lends you 200k
    You use it a deposits for say 2 properties @ 400k each.
    Your repayments are 700 a week and the rent is 1000 a week.
    After you give him half the rent(500) where do you get the extra 200 to repay the loan?
    Yeah sounds like he wants somthing over you...
     
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  14. Brian84

    Brian84 Well-Known Member

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    This is true and it is what I was thinking. Just wanted some other opinions.
     
  15. Inov8ive

    Inov8ive Well-Known Member

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    Sounds like a poor deal? A 200k property would involve zero leverage? Let's say it's rented for $200 a week, you get $100 per week for doing nothing? How is this a bad deal? Hard to sell? Obviously you do your due diligence. P.S Do you even realise that there is more usable equity in a 200k property that you 100% own as opposed to a 300k property that you owe 100k on?
     
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  16. jim1964

    jim1964 1941

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    No, you will then be in his pocket, I wouldn't touch this with a 10 foot pole.
     
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  17. FireDragon

    FireDragon Well-Known Member

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    Personally I wouldn't do it, but since the 200K is for both you and your wife, what's your wife's opinion?
     
  18. JenW

    JenW Well-Known Member

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    And, just as importantly - what if you and your FIL disagree at some point.... whose side will your wife take?

    I can see the potential for this to end extremely badly.
     
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  19. Brian84

    Brian84 Well-Known Member

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    She is open minded. Wants to be on both sides.
     
  20. Brian84

    Brian84 Well-Known Member

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    He is actually a step father in law but she looks to him as a father. He is a great bloke so that's why I'm leaning towards not doing the deal because there is the possibility of it ending badly