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How to handle refinance with a silent partner

Discussion in 'Property Finance' started by bob shovel, 1st Aug, 2015.

  1. bob shovel

    bob shovel Well-Known Member

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    Gday all,

    little situation which isn't an issue but potentially could be...

    Im am refinancing and getting ready for the next steps but when i bought originally my parents went in with 10% cash to help keep repayments down. Its a silent arrangement and they havent been collecting a share of the rent or anything to technical, just somewhere for them to park some cash and help me out when i bought.

    but... now that im refinancing and ready to go (they arent aware as yet) how should i handle it. i plan to leave a buffer when buying next if they decide to ask to be bought out in the near future, but how should i handle the use of the equity pulled?

    and also, if i tell them i am buying with full use equity avail are they then entitled to a share of the next purchases??

    property price - 10%, less loan amount = equity "I" can play with?
    or is there another way to look at it??

    i dont particularly want to buy them out yet as the market has a bit go (they probably arent aware) and its sat flat for a while! plus id like to use that cash for deposits
     
  2. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    They will need to apply with you on any loan.

    Why not take the opportunity to fix this up
     
  3. Jess Peletier

    Jess Peletier Mortgage Broker - Australia Wide Business Member

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    Are they on the title or just gave you cash?
     
  4. bob shovel

    bob shovel Well-Known Member

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    Just cash, they aren't and won't be on any paperwork
    I'd like to fix it up now but also want to use the cash, plus the market is still moving and I think that's fair they get a bit more out if it
     
  5. Steven Ryan

    Steven Ryan Mortgage Broker Business Plus Member

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    Depends on your original agreement, right? Sounds pretty casual but what were the terms e.g. repay in full by x date, repay over time + interest, don't repay but provide an interest in a future purchase able to be acquired as a result of their gift etc.

    Sounds like you can't shake loose enough equity to repay them and buy again. Might be an opportunity to allocate a bit of the new equity to repay a portion with an agreement to repay more in chunks over time.

    There are a million options, you just need to confer with them. They might say "Keep it, just repay 10x in 20 years, deal?".

    Personally, I don't like the idea of owing family. My old man loaned me just over $10k towards stamps on my first purchase and I proceeded to work 40hours freelance on top of my fulltime day job to repay him as soon as humanly possible.
     
  6. bob shovel

    bob shovel Well-Known Member

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    Originally it was 10% share, never greatly discussed when but is was agreed at 10% of the value at the time.

    I'll be able to buy one but not the second...or if we go buy and build 2 it will be a stretch.

    I like the payment plan option.but how would that work over say 2 or 3 payments? Market value would increase so it would need a clear arrangement.
    their share would decrease as % paid back.

    Eg.
    pay back 5% of value. Share reduces to 5%
    Then pay back the remaining market value 5% in agreed years

    I have wanted it gone for a while but the market hadn't moved so they wouldn't have made anything out of it, now that it has I'd feel I'd be short changing them paying out now, when in a year or 2 could be slightly higher value
     
  7. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    These sorts of things can get messy quickly.

    You are really in a trust relationship with them. You are acting as trustee for their 10%.