Build 2 Townhouses on Parents Land: Loan help!

Hey guys, newbie here!

Hoping to get some guidance as my husband and I are racking our brains as to what we can do.

- Parents have an investment property in Vic (value $1M)
- Approved to build 2 townhouses ($1M+ to build)
- Plan is we fund the build, live in 1 (husband and I) and rent the other (income stream for parents)

The issue is trying to come up with funds for the build, as IP isn’t under our name and partner and I don’t have any property. Our thinking was to buy parents PPOR (to avoid CGT) and use the money for build, however we are still short by about $500k for the build costs

We then considered my brother buying 50% of the IP to help us fund but this will require us to subdivide before even building start which will incur min $60k extra costs and also way too messy...

Sooo...keen to see what are our options to fund the build but also minimising parents tax implications. Are we on the complete wrong track :| any suggestions or contact recommends welcomed! Thanks in advance!

 

“Parents have an investment property”, then you later say, “Buy their PPOR”. So you want to buy their Ppor so they have funds to build on their IP?

 

What's even the point of this project? I'd be looking to just do your own investing and not get family involved at all.

 

A little confused, you're talking about developing your parents INV then buying their PPoR, are you referring to buying their house so they money from the sale can be given to them to construct?

It seems like you need to have a better conversation with a broker as it seems youre a little confused with how to go about this.

 

These things usually sound more like ‘parents want to help kids make some money (kids have been talking about doing a build since attending that seminar but haven’t found the right deal), kids want to help parents rationalise assets (parents talking about how they dont want to deal with repairs in retirement, and the property will belong to the kids anyway), no one knows how really but are sure it will be a family bonding exercise’.

but it’s not a ikea cabinet.

 

Ah sorry for the confusion... the idea was my partner and I would cover the finances of the build buy

Ah sorry for the confusion but yep, spot on! As we didn’t want our parents to be further out of pocket (no CGT on PPOR)

 

Our parents were already offering the land to us to build on it, so we kinda felt obliged besides it’s a great location that we wouldn’t be able to afford. And we’re literally month or so away from starting build.... if we had the funds feels like a waste if we didn’t build...

 

You're a month off starting the build and you only just realised you were 500k short? Did you forget to carry the 1 or something?

 

Ah yes, as we wanted to minimise tax implications for parents (no CGT on ppor). Well that was the plan, but problem is we’re also now short $500k for the build....

 

There are about 5 different ways you could structure this - none too pleasant. Best to seek legal advice.

 

what does this mean? You’ve already signed with a builder or for demolition?

 

Nah

No because we thought my brother would be able to buy half the investment property land, the funds from the sale will contribute to the build (cover the $500k), but hadn’t realised we needed to subdivide before construction, which we’re told will involve another $60k minimum...

 

Any recommends in Melbourne? Thanks

 

For demolition

 

Its possible there is a GST issue here which has been ignored and it may affect and be a unfunded element of the project plan. A supply for vacant land for consideration vs non-market consideration to an enterprise. And a CGT event is likely triggered. I WOULD NOT be demolishing anything without specific tax advice and likely legal advice to follow.

I never understand why people commence a development project without comprehensive tax advice when a project may cost $2m+. (Yes incl the land)
1. They assume if you build you make a profit
2. They assume and dont ask for proper advice
The "live in one, rent the other" view is also flawed if you arent legal owners.

The impact on parents through gifting as well as tax triggers all need advice. This could really harm them.

 

Agreed. Nearly all the plans for something like this that I come across really look like they don't make any money at all after tax, and just end up practically and financially being an absolute pain to navigate.

My point is that you might literally be better off burning you and your parents money! Because at least that would be quick and doesn't involve a 12 month building process and having to deal with the ATO.

Not all developments make money - I'd say most don't.

 

Its a generalisation but 2 lot splits rarely make money eg duplex. Dont think I have ever seen 2 lots of vacant land split and make $$$. The more you construct or dev the more profit generally. Strangely the bigger the dev the more risk but its less risky.

ATO is a partner that often gets up to 40%. Can seem unfair.

 

Assuming that you can find a way to make it work. Has anyone done a feasibility for you to see if it's worth it ?