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Help my father in retirement by using his property as equity to buy more.

Discussion in 'Property Finance' started by LoanSharkJR, 22nd Jul, 2016.

  1. LoanSharkJR

    LoanSharkJR Active Member

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    So my father's super has taken a decent hit or two over the last 9 years and it has dwindled to a measly $125k. Dad is 73, still very active and no health issues to speak of. He has a wife and they live in a small 1br unit in Croydon VIC, est value to be $300k, no mortgage. He owns a second property a stones throw from his PPOR, that property is a double block, worth at least $900K.The problem he has is a reducing super balance by him drawing $40K pa to live on, and his $900k double block he would like to develop it but doesn't have the income to service any loans he may be approved for. The other major problem he has is hoarding, the dbl block is trashed with rubbish and his belongings that he never wants to part with.

    So I was thinking how can I help him get a stable yearly income that would not run out after 3 years, maybe around $40 to $50k net income per year would be good enough for him. While keeping his mini garbage dump block safe for him to wander and remember the "Good Ol'Days"

    1. If he gifted his 900k property to me, I could draw on the equity to fund deposits for 7 properties @$500k each (assuming 20% deposit + 5% costs)
    So that is $3,500,000 (7 x $500k)

    I would put all the properties in my husband's name as he is the earner in our family with taxable income of $180,000 per year.

    I would love to be able to then send money to dad when the properties LVR lowers and I can either sell one to pay down some debt, or borrow against the portfolio to give dad money to live on.

    Is this a crazy idea? Would you do it differently? Glad to hear all comments, please be kind.

    My background: I have PPOR in Mitcham $850,000.
    I have 2 IP's: A 2br unit in Croydon VIC $350,000 and a 4br house in Griffin QLD $480,000.
    The latter I purchase through OPEN WEALTH CREATION (also known as OPEN CORP)
    I don't know them from a bar of soap, but after months of watching their youtube "WODS" I needed to take a leap of faith and honestly I can say they were and still are terrific at what they do. No hard sell, we bought a H&L OTP and it was my first time doing that too but they helped us every step of the way. I would highly recommend them.
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This is a legal minefield – he will need to get good legal advice on the consequences of gifting.

    Does your father have the capacity to gift? (mental capacity).

    You should also get good legal advice on your side, such as

    What if you lose his money??

    Stamp duty

    CGT

    Even worse if you are putting the properties in your husband’s name. What if he loses the money?

    What about the tax consequences of making his income even higher.

    What about the stress and worry for your father

    What about the allegations of ‘elder abuse’

    Estate planning consequences for yourself and your father and other relatives

    How would your husband buying 7 properties help your dad?



    Another way to do this would be

    1. You gift dad $40k pa to live on, or

    2. You lend him $40k

    3. Reverse mortgage

    4. You or husband purchase a 10% share of the property and borrow against it for your dad’s living expenses (unlikely a lender will knowingly lend for this)

    5. Sell to you at market rates

    6. Sell to someone else
     
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  3. Barny

    Barny Well-Known Member

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    Wow interesting scenario. Why does he need to gift the house to your husband...what if your husband decided to leave you for Jessica Alba?

    He can just sell the house with plans and permits for development, or as is and keep all the cash for himself and generate at least 40-50k straight away.

    I don't understand why he needs to gift the property to another person. He's 73, what's he gonna do, wait till he's 90 till your properties increase, then sell down to pay some debt then give him his cash.
     
  4. LoanSharkJR

    LoanSharkJR Active Member

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    OK OK, I really get it that you guys don't understand his motives for wanting to keep the property, let me hopefully try to explain: He is very sound of mind, but with the exception of this property has sentimental value to him, far beyond money. He has been told by his SMSF to sell it and we, the family have told him to sell it, but he has his reasons, and I have been down that road of arguments over this damn property too numerous to mention. I thought that if he gifted it to me, I would make sure that I did not do a single physical thing to change it, just use it to leverage more property.
    Yes, I may loose his money if I invested frivolously and not heeded the advice of those who have proven themselves countless time previous.
    I cannot lend him money because how will he pay it back when he is on the pension??
    I could gift him $40 once, but not every year, we are not millionaires just yet!!
    Reverse mortgage is a good alternative, I should broach that with him tomorrow! He won't sell, flat out won't sell, to anyone. I have tried. But will keep trying.
     
  5. LoanSharkJR

    LoanSharkJR Active Member

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    I would also like to add that just after mu mother's death on 2007, my father took to the classified's "Dating Scene" and got caught up in a horrible con artist called "Hearts United"who managed to swindle almost $30k from him, by stringing him along on texts and phone calls, always getting him to sens money into their bank account or by his credit card, but never meetings, until they got him to fly up to the gold coast to an office, get him drunk and took him to the bank to withdraw $5k then got him to request his super fund to send another $30k to them. He called me in a panic from his hotel room, and I had to plead with his fund not to release the money. Ever since then I co-sign on all withdrawals from his SMSF. Now you have the rest of my story.
     
  6. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    I don't think you understand the risks. You may have good intentions, but what if your investing doesn't work.

    Did he come up with the idea of gifting to you?

    How does a SMSF tell someone to sell something? Is the property owned by the trustee of the SMSF? He would be the trustee or the controlling mind of the trustee, perhaps with others.

    You can lend him money - if you want to - his estate can pay you back. It can be with interest or without.
     
  7. LoanSharkJR

    LoanSharkJR Active Member

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    Yes, I would love to lend him the money to live on, but I am not a bank and don't have heaps just lying around, my equity is quickly chewed up in the next investment property.
    His SMSF just advises that instead of his block just costing him $$$ he may benefit by selling and investing it back into the fund. He owns the property outright, no trustee involved.
    I am an only child, He has consulted with me about gifting this block before, but I was not in a position to develop it how he would like. He wanted to develop it by himself, and live in one of the units when finished. This dream of his has drifted further and further from him, as he procrastinates and makes it hard for anyone to help him. I am not after his assets although it could quite easily come across that way!
     
  8. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    A SMSF is an entity it cannot speak - who is it that is advising him?
    (furthermore it is an entity controlled him your dad)

    Do you and your husband have the borrowing capacity to do all this?

    You will need to leave evidence that he is doing this of his own free will in cases there are allegations of 'elder abuse'.

    is it a preCGT property?

    BTW it is fairly common for well meaning children to do things like this and to lose the assets of the parents - many legal cases out there.
     
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  9. LoanSharkJR

    LoanSharkJR Active Member

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    Yes, I am well meaning, and I really hope I don't lose his money, that would be awful. What is pre CGT? He purchased the property in 1982 I believe.
    I have been conservative with my previous investments and kept the LVR to 80%, we currently have 340k loc just waiting for the next couple of properties to wander by, I assumed with hubby's income, our ability to service loans would not be a problem, since these loans are all for investment properties with tenants paying rent, which ultimately pays most if not all of the interest repayments on the loans. Sorry to be long-winded.
     
  10. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    1982 is before CGT came in.
    So there property will never be paid on its increase in value (unless developed). if you transferred to now it would be subject to CGT on any subsequent growth - a huge disadvantage.

    Everybody thinks they will be able to continuously service loans, but there are many cases in the courts each day with people who default on loans. You are also proposing to borrow 100%, or 105% of each property.
     
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  11. LoanSharkJR

    LoanSharkJR Active Member

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    I am happy to draw up any legal agreement fit for the circumstances, but the reverse mortgage seems like the best option right now. I feel Dad won't be happy about that either, as he has shown me his will, in it, he leaves this big block to me, but leave his PPOR to his partner - well, the right to occupancy of the property, but only until she dies or leaves or askes to buy it from me, then that also will come to me. His partner is from the Philippines, yes, oh yes it gets better and better.
     
  12. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    It is extremely likely the will will be challenged under a family provision claim as that would be inadequate.

    Any gift prior to death could also be potentially voided.
     
  13. LoanSharkJR

    LoanSharkJR Active Member

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    No, never proposed borrowing 100%, that would be ludicrous for that to come from my mouth, but perhaps you misunderstood my words, easily done. I am not a seasoned investor and perhaps got it wrong somewhere, I only want to borrow 80%, nothing more.
     
  14. LoanSharkJR

    LoanSharkJR Active Member

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    Good point, so glad I have experienced comments to mull over. Much appreciated Terry_W
     
  15. LoanSharkJR

    LoanSharkJR Active Member

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    Yes, yes, The penny dropped. I am borrowing 105%, just using it from two different banks! That's what confused me.
     
  16. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    You mentioned you want to borrow against your dad's property for the deposits?
     
  17. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    In cases like this it may be worth considering gifting assets prior to death as an asset protection strategy.

    Seek legal advice.
     
  18. Phase2

    Phase2 Well-Known Member

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    If your dad wants to develop the block and live in one of the units, why not look for a builder/developer as a JV partner? You could be part of the JV too?

    Then he can can profit from the development and have a new place to live, while keeping the current ppor as an ip for income?
     
    Last edited: 23rd Jul, 2016
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  19. Joynz

    Joynz Well-Known Member

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    Is the double block vacant or does it have a rentable house or two on it?
     
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  20. LoanSharkJR

    LoanSharkJR Active Member

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    The dbl block has a run-down house, huge garage, huge shed and basically 90% of the land is occupied by junk i.e Hoarders paradise. What this means is a knock-down, demolish and clear first which could be pricey ($40k??) The block also backs onto the Lilydale train line which will be a bit noisy for the back units if built.