Join Australia's most dynamic and respected property investment community

Buying part-share of family member's house

Discussion in 'The Buying & Selling Process' started by sonofthewest, 6th Jul, 2015.

  1. sonofthewest

    sonofthewest Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    36
    Location:
    Sydney
    One of my family members has offered me the opportunity to buy a unit she currently owns outright for below-market value. I think her offer is extremely generous - too generous in fact.

    As such, I would like to buy the property, but leave her with a residual share of the title (perhaps a 1/8th share, something like that). This way, I can do a bit of reno on it and if I sell it off down the track, she'll be entitled to some of the proceeds.

    I'm going to get some further professional advice about this, but does anyone know whether this can be done, and how to go about setting it up?

    Is it something I should speak to a mortgage lender about, or should I be getting legal/accounting advice as to how to draft up a contract and other necessities?
     
  2. TwoDogs

    TwoDogs Well-Known Member

    Joined:
    25th Jun, 2015
    Posts:
    55
    Location:
    Sydney
    Don't do it ! Buy it outright or not all. You can not control your investment with family influence. Even if you have a controlling share, this does not rule out conflicts with your family and that will influence your decisions.

    Also, your borrowing situation may be compromised. You will probability have to have the loan in both names so your serviceability will be effected by others, and theirs by you. More conflicts.
     
    Perp likes this.
  3. sonofthewest

    sonofthewest Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    36
    Location:
    Sydney
    I understand your concerns, and I haven't committed to doing this yet. Not until I get further professional advice regarding the costs, risks, and other possible consequences.

    That being said, I feel bad buying the place for below market value (even though the owner is happy to do so). While adding her onto the title means that I may have problems later on, her offer will give her problems if there is a falling out (i.e. she won't have legal right to additional proceeds if I somehow re-sell it for a fortune down the track).

    Are there any alternatives that could benefit the both of us?
     
  4. skater

    skater Capitalist Premium Member

    Joined:
    18th Jun, 2015
    Posts:
    1,408
    Location:
    Sydney
    Just buy it.....or don't. Don't complicate the issue!

    If it is such a great opportunity, then just make sure that you treat this person with the love & respect they deserve. This could be their way of helping you get into the market. It could also be doing them a favour, if they want to sell, but don't want Agents &/or strangers walking through the place.
     
  5. citystar

    citystar Well-Known Member

    Joined:
    19th Jun, 2015
    Posts:
    167
    Location:
    QLD
    I believe stamp duty will be based on the current market value of the property however this is the least of your issues to consider.
    As TwoDog suggested, purchase it outright, don't leave her name on the title. Nothing stopping you from gifting her money after you sell the property as a way to thank her for the generous sale price. What happens in the event of her passing, going bankrupt, being sued, etc. Plus being on the title could affect her ability to access finances.
     
  6. sonofthewest

    sonofthewest Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    36
    Location:
    Sydney
    Yes, stamp duty's based on the property value rather than the sale price. A bit of a bummer, but a very minor issue considering the price I'll end up paying for it.

    I'm happy to take on the (overwhelming) advice to buy it outright, but out of interest, who do you need to talk to for tenants in common arrangements like this? Lawyers? Accountants?
     
  7. Chilliblue

    Chilliblue Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    1,578
    Location:
    Australia
    Buy it all as your own and clear your conscious by ensuring the seller had independent advice before selling.

    If you want to reward them later than you can.
     
    Last edited: 6th Jul, 2015
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,940
    Location:
    Sydney
    You need advice from a lawyer on the consequences and how to do this.

    But just because it can be done doesn't mean it should be.

    Undermarket value = subject to clawback by creditor, beneficiaries under a will, taxation issues

    If she is on title she will need to be on all loans - either as a borrow or a guarantor.

    you won't be able to deal with the property without her consent.

    What if you die? What if she dies?

    I would suggest you look at buying it off her for full market value and she could give you a cash gift if she wanted to.

    Stamp duty and CGT would be at market value anyway.
     
  9. sonofthewest

    sonofthewest Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    36
    Location:
    Sydney
    Ugh, what sort of taxation issues? I'm aware that the stamp duty/CGT are independent of the sale price, but what other consequences could occur?
     
  10. Meisterin

    Meisterin Member

    Joined:
    19th Jun, 2015
    Posts:
    18
    Location:
    Sydney
    Well you can give her "life interest" which means that after her death the property will automatically pass on to you. While she is alive she has total control of the property except that she can only sell "life interest" to another living party.

    The value of "life interest" will be determined by her age and gender etc and this could make the market price of the place cheaper. The only issue you may have to consider is what happens if she outlives you.

    But I haven't seen many titles with life interests noted on it so I wouldn't know how many lawyers are willing to act in such transaction.
     
  11. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

    Joined:
    18th Jun, 2015
    Posts:
    8,940
    Location:
    Sydney
    Deductibility of interest if it will be rented.
     
  12. wylie

    wylie Moderator Staff Member

    Joined:
    18th Jun, 2015
    Posts:
    2,917
    Location:
    Brisbane
    This is what I think too. Pay market rate and she can give you something if she wishes. There are too many issues that could arise from such a complicated scenario (especially when dealing with family members).
     
  13. Tillie

    Tillie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    248
    Location:
    Melbourne
    As everyone else has done before me, my recommendation is: don't do it.

    All business dealings with relatives should be avoided if possible. There is always a risk that something goes wrong and it destroys the relationship.

    If you still are planning to go ahead, buy it outright with the market value or buy it outright below market value but make a deal that she gets 50% of profit when you sell the unit.
     
  14. Tillie

    Tillie Well-Known Member

    Joined:
    18th Jun, 2015
    Posts:
    248
    Location:
    Melbourne
    As everyone else has done before me, my recommendation is: don't do it.

    All business dealings with relatives should be avoided if possible. There is always a risk that something goes wrong and it destroys the relationship.

    If you still are planning to go ahead, buy it outright with the market value as Terry and Wylie suggested or buy it outright below market value but make a deal that she gets 50% of profit when you sell the unit.
     
  15. sonofthewest

    sonofthewest Active Member

    Joined:
    2nd Jul, 2015
    Posts:
    36
    Location:
    Sydney
    Thanks again for all the responses guys! I like the idea of giving her a portion of the proceeds should I sell it off.

    As for buying it at full value, I'll have to check my borrowing capacity to make sure I can actually do that. If I can, fantastic (I'll use the difference to repay part of the principal or throw it in an offset account), but if not I guess I'll have to take the tax hit. Either way, I'll have finally entered the property market in a good area with strong capital growth potential, so it'd be pretty rich for me to complain!