Helping my Parents Invest

Hi guys,

My parents approached me this afternoon and asked how they might be about to help my siblings and I, and how we might be able to help them.

Their situation:
- Own their home (circa $1.5-2.0M) - no mortgage
- Collectively they have about $350k in their Super. Dad is 66 and Mum is 57
- A company they own (Company X) owes them $600k. Company X is currently making around $8k/month and is paying this to them as a repayment of the debt (this is tax-free)
- They have no other income, no other debts and no other major assets

They have basically asked me if there is a way they could help myself and my 2 siblings create wealth for the future using the equity in their home, which is just sitting there. I'd also like to see if there is a way which does this, but also creates income for them so they can enjoy themselves a bit more.

Questions:
1) Would they be able to purchase something themselves using their equity? Would the money being paid to them as a repayment of debt from Company be considered 'income' to a lender? This would be the ideal scenario, as it would be the least complicated. I could then help them purchase something income-producing.

2) What would be another strategy for myself and my 2 siblings to utilise this equity to purchase property, creating wealth for us, and creating income for my parents? I have more or less max'd out my serviceability but my siblings have a high income. (This is probably the least preferred option, given this would involve myself, my parents, my 2 siblings and both their spouses all being on the same page all the time. One of my siblings is pretty risk adverse so it may be hard to have everyone on the same page all the time).

3) I want to buy more property but my current salary is holding me back a little bit. My commission will be very high this year and moving forward, but I don't have enough history of commission for most financiers to acknowledge. Perhaps an alternative would be for my parents to use this equity to loan me funds? This might allow me to purchase more, and would create income for my parents. Is this a possibility?

Any help/suggestions would be appreciated. My parents have worked very hard to get to where they are, but unfortunately they weren't well-educated so I'd like to do all I can to help them.

Cheers

 

I'm not sure if there are people that are financial planners and buyers' agents in one, if there are, this might actually be a good application for both.
No offence, but you don't sound (and I may be wrong, I'm judging from the tone of your post) experienced enough to be creating an income stream from property for your parents.
You'd be fine doing it for yourself, but I believe that if you do something like this for someone else, you really have to know what you're doing. Especially if it's your family, as this has the potential to drive a wedge between you if things go sour, and it's just not worth that risk (for me at least).

 

Hi spludgey, thanks for your reply. I'm 23, I have 4 IPs and will have another 2 in the next few months. I'm also in the real estate industry myself.

A 'professional' financial planner is the reason my parents have no other properties. They were 'advised' to sell down their properties less than 2 years ago, when I told them to hang on to them. They sold 1 in Sydney for $210k which is now worth $350k, and sold one in QLD for $280k which is now closer to $380k. Both properties were cashflow positive, and I could see they were both about to boom, but the 'professional' financial planner thought it was better to sell them.

Anyhow, I know I'm no expert but I don't want them to rely solely on a financial planner again. My parents are too trusting and have been taken advantage of in the past so I want to do everything possible to ensure this doesn't happen again. Also, the solution to this problem may require some 'out of the box' thinking. They've come to me for advice, so I want to get some ideas on what options might be available to them, and then I can talk to the relevant people about the advantages and disadvantages of each option. I have a great mortgage broker, accountant and solicitor who I trust to help with this and would run the solution past all 3, as well as my parents' accountant before doing anything.

Also, I'd like to find a solution which helps create income for my parents, which isn't something they would ask a financial planner for help with, but it's something I'd like to make happen if possible.

Any suggestions would be much appreciated.

Cheers

 

The repayment of capital from the company won't be income, but if the company itself is making $8k per month that will be income. If one or both is the owner of that company then they will be treated as self employed and this could get them a loan.

Probably the first thing to do would be to tap into their equity as much as they can, in the form of a LOC or IO term loan. This could then be on lent to the children. Lending is good for asset protection reasons - from spouses and creditors. It will also form part of their estate on death. Encourage them to set up discretionary testamentary trusts in their will too. Encourage them to take security for loans too.

They could start drawing a pension from super too - and this would be classed as income for borrowing purposes.

Also the children would have the option of using their home as a family pledge loan security too after they have tapped out.

Overall you can work together to help each other, save tax and propel yourself along much faster.

Be wary of financial planners - some are good, many are not.

 

Many people have experienced the same mate. My general advice to most ppl is to stay far away from them, especially if they are not successful in what they preach.

 

See these posts I wrote too
Legal Tip 12 Parents Helping Adult Children
https://propertychat.com.au/community/threads/legal-tipe-12-parents-helping-adult-children.736/

Legal Tip 25 Children helping parents out
https://propertychat.com.au/community/threads/legal-tip-25-children-helping-parents-out.1323/

 

Hi Jmillar,

I'd be very careful of involving your entire family in an investment proposition which utilities your parents equity in their home. Your parents are at the stage in life where they don't have enough working years left to recover if it goes pear shaped.

Keep your investments and your siblings investments separate.

In terms of generating an income stream for your parents, they could set up a LOC against the equity in their home and buy shares on the ASX gradually over time. I wouldn't be advising them to buy residential property at this stage in their lives.

All the best with your decision.

 

Hi Jingo,

Point taken. I'm very wary about having 5 or more people owning a property, and all having different goals etc. Also mindful they shouldn't be looking at anything with any associated risk.

Just wondering if anyone has any more ideas on this?

Cheers

 

What I would do (people would consider this risky)

1. Get parents to borrow as much as they can service (equity) (1-1.5 mil?)
2. Find development site that fits budget
3. Develop site and sell taking profits accordingly (Should have it developed within 2 years, because they would want to realise the profits while their healthy to enjoy it)
4. Rinse & repeat

I would structure it accordingly with an accountant, maybe they can do something funky inside the super to pay a low tax rate (just an idea)? I would also hire someone to help with the development and factor that into the feasibility. Provided you all agreed the plan was to sell them. You will pay a lot of tax, but it's money you would of never had otherwise.

OR

Use their equity to go guarantor on siblings that can service appropriate loans for IP buy & holds. They won't get anything out of this but their siblings will get a great start into investment.

All investment will have some form of risk.

Like the above posts their definitely seems to be some options on the table, but I would be mindful you're not affecting their retirement.

 

Step 1: Talk to a broker and shake out as much PPOR equity as possible, park in offset.

Step 2: Determine most suitable approach and exit strategies. Tread with extreme caution when mixing multiple interests in property.

There are lots of options to consider e.g. commercial, development (might be a really good way to create a solid profit in a few years max), buy and reno, buy for cashflow and also and whether your parents are willing to gift large chunks of equity to yourself and your siblings.

No harm in parking a few hundred grand in an offset against one of your IPs until your income rises enough to turn that into deposits for more IPs, @Jmillar.

 

Plenty of harm can result from this - seek legal advice first.