Getting out of a bad investment joint mortgage

Discussion in 'Investment Strategy' started by A.J, 28th Dec, 2019.

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  1. A.J

    A.J Member

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    scenario- I have a 660k mortgage on a house in Darwin which i am 50/50 owner with my sister. Was bought at the height of the 2014 Darwin boom and now we would be lucky to get 550k for it. It is a two storey home that she lives in upstairs and i am renting out the bottom half downstairs . We have spent around 150k on renovations to it. She wants to stay and i am happy to cut my losses. Is there any way I can walk away from this and have her take over the mortgage? from doing a bit of reading on the matter it seems as though this isn't possible without re-drawing the loan, and she doesn't have the money for a new deposit. This is turning into an untenable situation and i have no idea what to do, any advice would be much appreciated!
     
  2. Beano

    Beano Well-Known Member

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    What are you renting the downstairs for ?
     
  3. Trainee

    Trainee Well-Known Member

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    Bottom line is that your sister has to take on enough debt to buy you out. That depends on her serviceability but based on those figures, there not enough asset value to support this.

    So either she tips in some money, ties up other assets or you do to reduce the loan required to buy you out.
     
    Last edited: 28th Dec, 2019
  4. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Do an instalment contract, trigger cgt now, remain on title, she becomes sole equitable owner paying you off. When loan reaches 80% you come off title provided she can service
     
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  5. A.J

    A.J Member

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    Actually getting pretty good rent for it 300p.w from a family member. Repayments are 440 per week so I am chipping in 140 to cover it.
     
  6. A.J

    A.J Member

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    Its a tale of two extremes for me. I have another property in Vic that I only owe 30k on which is my current primary residence, this place has gone up a lot in value in the last few years, it would fetch me 500k if i sold it now but I wanted to avoid selling it if I could. Obviously I could sell that place and use the proceeds to pay out my half of the other loan and then play the waiting game for Darwin to recover. Could I use the equity in this house to some how get myself out of the other mortgage?
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    You could borrow against house A and your sister could buy you out of house B. She won't have enough money to discharge the mortgage so you could lend her enough so that her LVR on house B is 80% - assuming she can service you can then come off title.
     
  8. Beano

    Beano Well-Known Member

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    Hold much of the $140 is principal ?
     
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  9. A.J

    A.J Member

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    for example during the past month $1760 was re-payed with $560 contributed by me. I was charged $880 in interest so the loan is coming down by $895 per month at present.The loan is split into halves
     
  10. Beano

    Beano Well-Known Member

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    You pay out $140 pw but loan is going down $895pm ie $206pw
    So you are really making $66pw ?
    Or is the loan going down $103 each ?
    So the loss is $140 less $103 ($37pw)?
    Is there any tax refunds ?
     
    Last edited: 28th Dec, 2019
  11. Beano

    Beano Well-Known Member

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    So you could clear only $500k after RE costs then you need to pay $660k for the mortgage. So your share of the loss could be $80k plus lose your $66pw?
    But if you hold you make $66pw (see above for calculation) and not have to pay out $80k ?
     
    Last edited: 28th Dec, 2019
  12. TMNT

    TMNT Well-Known Member

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    What happens when you trigger cgt, for a loss in an installment contract?

    Anything different to just claiming cgt normally?
     
  13. A.J

    A.J Member

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    the loan is split, i owe 326k she owes 326k, my repayments go to my side, hers to hers, we have separate offsets for each half. my figures were just for my loan not hers, its confusing and this is my first step toward figuring this out as i'm sure you can tell in no property investor, this was bought due to insanely high rent in darwin at the time.
     
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  14. A.J

    A.J Member

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    it has only recently become a rental for me so i haven't had a chance to calculate the profit and loss per year, but just off the top of my head- my half share of rates, water, repairs, insurance, obviously need to see my accountant to see exactly what the loss would be per year after tax benefits, I got a depreciation schedule drawn up on the downstairs but because it is a 1980 build there is no benefit there. don't think it would be a profit. What triggered me to look into walking away from it was i just spent 1k on aircon repair and i can just see it becoming a constant drain on me and i just cant see the market up there recovering in my lifetime
     
  15. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Just as per normal. In this case a capital loss which can be carreid forward
     
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  16. A.J

    A.J Member

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    not looking to sell it, more looking to walk away with her taking over the whole mortgage. the fact property has dropped so much up there (down 40% since purchase) has really deflated me to the point that i want nothing to do with the place, but you make good points about having it as a rental, my mind is so clouded with hatred i hadn't looked at it from that perspective
     
  17. A.J

    A.J Member

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    thanks terry will look into this
     
  18. The Y-man

    The Y-man Moderator Staff Member

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    Hatred for...? The house? The market? Your sister?

    The Y-man
     
  19. A.J

    A.J Member

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    The darwin market and its crash. Buying property only to see it plummet in value is a tough one to take
     
  20. Beano

    Beano Well-Known Member

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    Look at it another way .
    The value of the property is down ..by not selling you are effectively buying a property at the low with no legal , no real estate agent fees no stamp duty .
    The best buys people seem to have are properties brought at their low