Buying property within family

Hi All,

A relatively new poster on here as I am currently hunting an IP within Brisbane area. I posted 1 or 2 other threads which were related to buying an IP in the $500-$600k price range..... Anyway...

A potential opportunity has recently arisen whereby an elderly within the family is looking to sell her home she's had for over 50yrs. She own's outright and location is Paddington, Brisbane. The reason for her selling is she has needed to relocate into a nursing home and needs $ to pay for bond, as well as ongoing annual costs. The $'s that she needs to continue a comfortable life is approx $550k bond and $20k annual costs. She 86 and both the son (my father inlaw) and daughter believes $20k x 15yrs is more than enough to support her. Therefore they're hunting $850k to be in the clear. Both son/daughter have power of attorney, given the elderly (their mother) has dementia and cant make decisions for herself....

Here's where the opportunity may arise. House went to auction a few weeks ago and no one bid, no offers. They're putting it down to banks tightening lending and no one having $ approved prior to auction. They believe the house is worth somewhere in the $900k's which I would have to agree with. But as time goes on, $ pot to service nursing home is becoming smaller.

My wife and myself have been given pre approval of up to $550k for an investment. Hypothetically, if we could somehow assist in buying the Paddington property we'd need to move out of our PPOR (currently worth approx $670k, $440k oweing) and move into the Paddington property as rental yield is too low to justify renting. We could rent our current PPOR for a bit less than current repayments (Rent approx $520-$540p/w, Repayment $600p/w). This is ofcourse all hypothetical to a)keep house in family and b) pickup a house in Paddington potentially at below market cost.

Is there any way to make up that $300k that we cant quite access? Other family members could kick in if there was an benefit for them.

Or is there another plan that could take place within the family? Eg. Using loan to service nursing home bond and not technically buying house, then having the house gifted to us in her will (save stamp duty, fees, etc.???). Not sure if thats even possible.

I know there's a lot of what ifs in here but just wanted to see if anyone had some ideas that may assist to allow us to help out, while potentially benefiting my self and wife's position. I have no obligations to assist financially with the whole situation, however if I can assist and benefit from it, there lies the opportunity......

Any comments appreciated..... Cheers....

 

Vendor finance

 

• Get an independent valuation of the property's value (backing up what the property is worth in the current market) - this may also protect the vendor so they are not seen as gifting any of the value to yourself thus losing the pension (if applicable).
• Are your current repayments P&I or IO (only the interest component is deductible)
• If you have a shortfall between the bank's valuation and what you require to buy out the vendor, are you in position to negotiate with the POAs to negotiate that you will pay them the $20k pa to cover the nursing home costs? This is on top of the directing the $550k to the bond and other costs (stamp duty etc). What if she dies before the 15 years is up (do you keep paying the $20k/debt forgiven)?

 

Correct.

Well, yes of course I'm needing a good deal to make it worthwhile for me. But also seeing it from a point of view that it could help the Son/Daughter if they cant sell the house. If the price isn't right then I dont buy which is fine but but nothing ventured, nothing gained right?

The transaction would be transparent to everyone in the family (2 other grandchildren) about the potential purchase being made. They would have the same opportunity however dont think either would be in a position to act.

Were these cases quietly played out or discussed within the family prior to happening?

 

Current repayments on PPOR are P&I.

Havent considered that yet as proposition/discussion hasn't commenced with Son/Daughter.

 

Also worth noting that the daughter family (otherside to my wife's immediate family) could potentially be the one offering Vendor Finance which would lean towards no conflict given one of the two grandchildren would be well aware of the situation... Ahhh gosh, its getting complicated just thinking about it! haha.

 

As @Terry_w suggested Vendor Finance could work but for it to be worthwhile to them then you would need to pay a premium hence making it a pointless exercise.

Personally let this one go. Your max borrowing is 550k and not 900k for a reason.

 

The main issue is that you can’t afford it.
Marg

 

Run some realistic numbers. If you could find a bank to lend you enough to buy it, can you actually afford it? Theres a fair gap between 550 and 900. If you cant, forget it.

 

The attorneys should not transfer to you for under market value as they would be breaching their fiduciary duties

 

If the house went to auction in that area and depending on the future zoning and land area and no one put a bid in that would tell you something the quoted price was too high..
As Terry has said ,Vendor finance would be the only way but have a talk to a Accountant and a Lawyer first and obtain some impartial and unemotional advice ,because vendor finance from my experience and the amount of family involved in this it can go from Champagne too s### that quickly and destroy the family..
My advice walk away..imho..

 

My mum went into nursing home on very short notice 2 weeks ago. We are still organising to sell her home. You do not need to have all the money upfront. The financial advisor at Centrelink (a place I had never been before) was very good. She prepared a plan and explained the steps, processes and mums rights to me for well over an hour. The $550k will be the RAD, this is fully refundable and government guaranteed to the estate one day. However if need be this money can be drawn down to pay some of the annual costs. The annual costs are 85% of the pension assuming a pensioner. Additional cost is a means test if there are assets other than the PPOR. I know this does not answer your question re financing the purchase of the home but it might help your in-laws with the difficult processes of navigating the agedcare system. I highly recommend the Centrelink financial advisor to them

 

Thanks everyone for your input. Much appreciated.

 

One more thing to keep in mind, regardless of the purchase price whether it was at market value or less, the CGT and Stamp duty will be calculated at market value.

 

My aunt went into a nursing home about 3 years ago. Her kids put the apartment on the market via a real estate agent. Turns out that another cousin (same side of the family) bought it. Apparently they went out of their way to keep everything at arms length via the agent. Everyone was happy with the result.

I only discovered this when attending the aunt's funeral, but it gets a bit weirder...

The cousin that bought the apartment had recently finalised her divorce. As part of the divorce she sold her previous house. I arranged the finance for the person buying that house. I only realised this when I saw the names on the contract of sale, so I didn't mention it to my cousin until after the settlement.

None of us saw each other in person until we all attended the aunts funeral, where all three of us had a bit of a laugh over it. Funerals can be such fun!

 

An unsecured loan from family?

 

I thought I’d give everyone a little update on this. We ended up buying the Paddington house, only after selling our place. It all happened very quickly, we managed to get a contract on our house 3 days after going to market which was awesome. Above expected price as well which we were also happy about. This was what we sold to allow us to buy the Paddington family property.

1025 Waterworks Road, The Gap, Qld 4061

And this is the property we bought from family.

https://www.realestate.com.au/property/7-charlotte-st-paddington-qld-4064

The deal is now done but would still be interested to know what people think the Paddington place is worth......

 

I think you probably paid a fair price, if you paid $900K. Nice spot, need a lot of work, but you won't over capitalise there. I have an investment in The Gap that I have had for nearly 30 years. I think it was a wise move going from Waterworks Road (your house achieved a good result, for a main road, but it is lovely). In time you won't regret moving from The Gap to Paddington. When we bought our investment at The Gap, it was not much difference in dollars between Ashgrove (where I now live) and The Gap, been kicking myself ever since. Paddington will always do better that The Gap.