VIC Buying into property with my parents (Richmond, Abbotsford area)

Hey everyone,

First post here but I’ve been reading this forum for some time- has been a great source of information.

Wanting to get your thoughts on my situation. I’m currently in a situation where I live with my mum who is about to downsize from a 3 bedroom apartment to a 2 bedroom house (the bedroom that is being cut will be mine) so soon I will be without a home. So my alternatives are as follows:

1. I go in with my mum in her new purchase as we think that with my assistance we can afford a 3 bedroom period style house in Richmond, Abbotsford sort of area. I’d be in about 20-25% stake I think. I would likely continue to live in this house at a relatively cheap rate (would likely not pay much for food, bills etc) for another ~2 years.

2. I buy my own investment property (guessing ~$450k budget) and rentvest somewhere else.

3. I buy a PPOR somewhere.

I’m leaning heavily towards option 1. The problems I foresee with this are the following:
- Obvious lack of flexibility- I wouldn’t be able to cash out until such point as my mum sold or could buy me out

- Possible issues with obtaining financing for further purchases because of the issues surrounding joint and several liability issue (total LVR would only be ~30% so hopefully there wouldn’t be too many issues with this)

- Once I move out my mum would have to pay me some sort of pro rata notional market rent indefinitely (until they buy me out) to make up for the fact that I have a stake in it but are no longer living in it

The benefits are that I would definitely be saving some money still living at home in it in the short term, and I think getting a stake in a 3 bedroom period style house in an inner city area (as mentioned Richmond, Abbotsford etc) would get me more bang for my buck than going in on my own (not really sure what I could get in Melbourne in terms of freestanding houses for $450k). It would also be good in that it forces me to get my act into gear and get a foot in the door instead of the constant procrastination I sometime experience.

I’m young without many obligations and would prefer to focus on capital growth over any desperate need for yield. However I would like to buy another investment property within the next few years as well so I am somewhat concerned about banks slamming the breaks because of the shared loan.

Can anyone offer some advice on whether this may be a viable idea? Obviously I would eventually need to speak to mortgage brokers, get tax advice as I would eventually want to turn this into an ‘investment’ property when I move out etc.

Not a huge fan of buying interstate for my first purchase as I feel like the learning curve will already be steep enough.

Any help would be appreciated!

 

I'd be careful with option 1 most of the things you already listed will be huge setbacks. Plus you will miss out on the FHOG if that is an issue? Obviously everyone has different style to investing and goals so its hard to give an appropriate answer but I would sway for option 3. I actually bought my first property using the FHOG lived in it for the 6 months (that was required at the time) and than rented the rooms out for a healthy profit. Hope this helps and good luck.

 

This ^^^^^ will likely be an issue moving forward depending on your income and debt levels, but either way it will likely stop you in your tracks.

Go option 3 and set it up as an IP by going IO with an offset and then rent it out after the required period and go and live with Mum and keep saving and investing. Simples!

 

What about buying one property each?

 

The biggest red flag for me is that if you go in with your mum and get the extra bedroom, but, when you move out would she be in a position to pay you out and pay the mortgage?

How will you pay rent and the mortgage? Or two mortgages for that matter?

Reading between the lines I am guessing you have a (much?) younger sibling who will remain living with your mum. In that case it will be the family home. Would she really be willing to have a random person rent out the room to cover the difference?

If not I don't think it will be the pure commercial investment you think it might be.

You are in a bit of a bind but I think you need to strike out on your own in this situation

 

Thanks for the replies guys,

@Tony Fleming : I haven't really paid much attention to the FHOG since my original plan was to live at home in our current location much longer so I thought the money saved from that would outweigh the stamp duty concession (I wouldn't be buying new so wouldn't get the actual FHOG) however I will give this some serious thought now that mum has pulled the rug out under me so to speak. Buying a place then renting out the spare rooms after 6 months is something I hadn't considered but makes a lot of sense so thanks for the suggestion.

@Colin Rice : Moving back in with mum after would be out of the question as there will be no room in the new place (the second bedroom is for a younger brother)

@Terry_w: Could you please clarify?

@au contraire: In addition to her main job she also has a few other jobs on a casual basis that provide her with cashflow but the bank won't actually assess for her borrowing capacity. I'd have to crunch the sums but I wouldn't think it would be an issue.

Thanks again for the replies its given me some food for thought.

 

With a jointly owned property you only get one CGT free main residence. But if you had one each you could have 2 between you.

If you cannot for servicing reasons then perhaps you could consider owning as tenants in common 90%/10% so that later the 90% owner could buy out the 10% owner with minimal stamp duty and minimal CGT. You might even do 99%/1% but many lenders do not like lending for this situation.

 

My mum did the same when I was early twenties. Get the hint. Find your own place. Renting for a while isn't so bad. It'll help focus your mind.

 

FHGB is a false economy.
Either:
1. House prices in that bracket are inflated by at least the FHBG value as a minimum or
2. H&L package areas/new build areas have an influx of people using the FHBG in those areas, so there is no real growth as there will not be too many sales in those areas for a valuer to compare as people would prefer to build new.
My point is with #2 that it's harder to leverage off the FHBG in that type of instance.

Also, don't get caught up in the analysis of buying, making it a PPR to avoid tax etc etc..
Yes it is a very important consideration, however the asset selection comes first, dealing with the tax consequences, second..