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Family member investing in my PPOR

Discussion in 'General Property Chat' started by CheckMate, 4th Dec, 2015.

  1. CheckMate

    CheckMate Member

    Joined:
    4th Dec, 2015
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    Location:
    Sydney
    Hi All,

    I have a situation where my brother is willing to help me to buy my own PPOR in Sydney.
    Let's say I'm buying a house for $1M where my brother gives 200K, I'm putting my own $200K and the rest $600K is a bank loan.
    So actually his share of the house will be 20% and he wants to hold it as an investment.

    Putting aside all the human relationships issues and "what if" questions, what would be a fair agreement that will work best for both of us.

    One option is when he plays "another bank" role and I'm paying him a loan interest but then he doesn't share any potential price growth of the property.
    But I'm trying to think about an option where he actually can enjoy any price growth in the future.
    Another option where he just invests 20% into the property and doesn't receive any income out of it until I sell it in the future or pay his share off doesn't seem as a good investment in my view.

    Again as a property will serve as my own PPOR we cannot share all the incomes and expenses equally. What are your thoughts?
    Appreciate any input.

    Thanks!
     
  2. Big Will

    Big Will Well-Known Member

    Joined:
    18th Jun, 2015
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    Location:
    Melbourne, Australia
    Family and business don't mix.

    If you were going down this path you should both seek independent legal advise and know exactly what you both are getting into and the exit strategies (what if one wants to sell? etc).

    Technically there is no income but you are living rent free which if you bought as a rental your brother would of received a share of the income.

    So you cannot put just a total investment into the property as a % as yours would gain in share with the mortgage payments and his share would sink.

    Simplistic sake is he gets a 20% of an independent valuation at the time of him wanting to leave (or you wanting to buy him out, that is if he allows it). As you need to work out what benefit would be for him to risk $200,000.

    End of the day I wouldn't entertain the idea.
     
    melbournian likes this.
  3. CheckMate

    CheckMate Member

    Joined:
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    Location:
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    "you need to work out what benefit would be for him to risk $200,000"

    That's exactly is my question...
     
  4. Scott No Mates

    Scott No Mates Well-Known Member

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    Location:
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    Two perspectives:

    1. Your brother is a secondary lender only. He gets paid interest (possibly a % above bank rate as a secondary security holder), he doesn't share in capital gains and gets paid out when you sell or pay off his mortgage to you
    2. Your brother is a co-owner with a 20% interest in the property (joint tenants). You will both lose access to any fhbg. Both liable for expenses in % of ownership. Both share in any capital gains. He will pay %cgt, you won't as its your ppor.
     
  5. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I was going to say the same as Scott, but add where you pay him market rates for renting his share of the property he may be able to claim expenses.

    Also keep in mind he will either go on the loan or need to act as a guarantor. So any accessing equity is problematic.

    The lender option may be better as less messy and you can pay him out later.
     
  6. melbournian

    melbournian Well-Known Member

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    Posts:
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    Location:
    melbourne
    The Vietnamese community do this all the time family buys one house with 2 families either 2 brothers with their children all chipping in from their kids etc and then stay together. No contracts just a mutual understanding etc. I couldn't for the life as in purchase and share but I remember one who bought in Kew and stayed on till they had enough cash to subdivide and build 2 units