Advice for unique investment situation

Hi all,
Been a fan of this forum and I was hoping for some advise on a unique investment strategy.

Bit of background - Married young couple 30M:26F in Sydney. First time investors and currently renting. I work full time and the wife works casual till she passes her exams to have her overseas dental qualifications valid here.

We’ve saved about 100K so far and my old man whose currently overseas is willing to help us enter the property market with his retirement fund.

He’s willing to give us 400K to invest but given that it’s his pension fund I’d like to pay him back monthly so that he doesn’t miss out on his life.
Was kinda thinking of buying a property and positively gearing with the funds I have. Was hoping to send the monthly rental returns to my old man and take advantage of the capital gains on the IP. This would however increase my taxable income.

I really want to take advantage of this opportunity and was wondering if there were any other suggestions on what investment strategy I could pursue. - Jester

 

You should probably borrow from him under written loan agreement with mortgage. Perhaps interest free.

 

Thanks Rolf and Terry.

Terry - I was thinking about arranging to borrow from my old man but wasn't sure if it was possible to structure it as a loan from my father as such.

 

Any one can lend!

 

Just make sure it’s at arms length (I.e reasonable terms and costs). Professional advice would probably help a lot.

 

No need for it to be arms length even.
Legal advice should be sought.

 

Thanks for your advice.. Would structuring the loan from my father prevent me from getting a loan from a bank in future? Due to owing money even though its from family.

 

Very brave of you to accept your dad's retirement money to invest. Wouldnt want to lose any of it.

 

If i was you I would not accept that $400k from your old man especially his retirement money. He has raised you for 18+ probably more years of your life and I dunno if its just me and my morals or whatever but I would want him to have a great retirement full of holidays/travel and enjoyment.

I would not risk his money for my own benefit especially at your age - you are old enough to look and stand on your own two feet.

He sounds like an awesome father but sometimes giving back to your parents is more satisfying than always accepting from them. Just my 2c.

 

It might. But doesn't have to. I did a matter recently with a parental loan.

 

Yeah I was having similar thoughts too and we discussed this at lengths. I'm very grateful for the opportunity he's giving me and I didn't want to affect his lifestyle. Dad's reasoning was he didn't want me taking a loan from the bank and paying them interest when his money was sitting idle. He would rather invest in me and have me pay him an interest rate rather than giving it away to the banks.

Obviously the rate he charges me would be less than the banks but at least he gets a return on his money and it forces me into entering the property market

 

May be 'idle' but its SAFE.

I'm all for family helping out kids but to risk their only retirement funds? No. You're dad is waaaaaay to kind for his own good.​

 

A question for the mortgage brokers: can Jester's father guarantee the loan without physically lending the money?

 

Only security guarantees are accepted these days. So if he has a property that could be used as security, but cash might be difficult - could in theory be done with a term deposit though.

Too much arsing about for my liking. A straight forward loan and mortgage may be easier.

 

I hate to sound blunt. There is nothing really “unique” about your Situation. Lots of people from migrant background and Aussie backgrounds too that will pool together family savings to build wealth. It is simple economies of scale really.

What concerns is me
- most markets in Australia are at it near a peak and expecting capital growth without adding value seems fraught
- as a previous poster said, you can’t have strong cashflow and rental yield at the same time
- there are forex fees each time you send the money over and currency risk which would affect the return you give to your father overseas

I think
You really need to clarify what your strategy is. Real estate is easy to get into. Slow and hard To get out of if you buy the wrong asset.

The whole point of real estate is leverage. So you can take the $500k and provided you have Australian taxable income, borrow to buy 1-3 high quality residential properties. They will COST YOU money almost certainly . Skimming profits to send overseas seems wishful thinking

The other option is commercial property or shares if you want to generate income for your father but then you sacrifice growth.

Your intentions seem noble but I certainly wouldn’t be risking my fathers hard earns wealth in a foreign jurisdiction without fully educating yourself first.

 

Thanks for your thoughts Bris Developer. I really appreciate your honest feedback as it helps me make an informed and non-emotional decision.
My main strategy (at least what I am aiming for) is to get to financial freedom and to get into the property market and develop enough equity for the next property and hopefully get good capital growth over the next 10-15-20 yrs.
Dad's not really relying on my monthly repayments. He's got other passive income through his years of smart investing and he's just wanting help me gain that as well. The amount he's giving me includes a portion of my inheritance in advance too. I wanted to give him a monthly amount just as a bonus so that he can splash a bit more .

Excuse my lack of property knowledge but can I ask what you mean my high quality residential properties?

 

What ages group are you in? 20s or 30s?
Do you intend to buy a home to live in? Soon or 1 or 3 or 5 years time?
Do you know where you really want to live?
How much can you borrow now if want to buy your first home? Do you want to take the benefit of FHB and rent it out later if investment is your aim?

There are endless choices imho and until you have a plan (could be A, B or C) then it might be clearer for any good suggestions

As if you are a very good son and need to use his $$$ for investment, you could pay him a higher i/o rate than what you would have paid to the bank or if you need to use that money and put in an offset a/c or even promise him a silent owner/partner on your investment

My 2c and time to take my morning medicine

 

Why would you borrow money from your dad only to then buy a cash property? Doesn't really make sense to me, especially if you're worried about his money. In my opinion, you'd be better off not taking your dad's money and getting a mortgage.
Sure, you'll have to pay interest, but your dad can also invest his money, so there shouldn't be a huge difference. Plus he can sleep soundly at night and you don't have to feel guilty if the property was to drop in value.

 

Another option is to borrow 80% and then borrow off your dad, perhaps at a lower rate, and pay off the loan or put in offset. This way you will be able to pay him back if he suddenly needs the money