Hi all, Wanted to run this past the knowledge base here as its an interesting one. Bare with me as it's a bit to explain Our situation, large mortgage with young kids means saving any deposit for investment not possible in the next 5 years till they are both in school, but good incomes and could technically qualify if we had the deposit. My mother inlaw owns outright a small unit after failed marriages, domestic violence and got out with the unit. Really wants to own a house however for the yard space with multiple grandchildren. My partner is obviously keen to help out given our means. I have worked out that we could likely do something where mother inlaw sells unit and uses the funds for stamp duty, all transfer costs and approx 50% of purchase price. My partner and I, and partners sister and her partner then each take on a loan for the remaining 50%. (25% each) with this percentage represented in an equivalent % share of the ownership. So 3 way split, 50%. 25%, 25%. Mother inlaw then lives here rent free until the remaining 50% passed on with inheritance. I have come up with the following pros and cons and would appreciate any others i hadn't thought of. Positives Family goodwill (obvious don't expect you all to include as I'm trying to be objective about the financial side) Get an increased stake in the property market without needing any deposit. Mother inlaw will undertake all maintenance, rates etc Negatives Mother inlaw will pay no rent, this means interest on loan is not tax deductible I believe? Not sure of ways around this. Maybe incorporating rates/bills and payback via rent. Would make a big difference to viability of this option if something could be worked out. Mother inlaw has a recent live in partner who also pays no rent, may be issues if mother inlaw was to die first (however he is considerably older). There is a 3rd sibling who is not a position to help, but as long as title shows percentages don't see how this could cause any problems. Risk of if ourselves or partners sister could no longer afford payments, would be passed to other. Cant sell stake if needed. Issues if family relationship was to breakdown for whatever reason. (would seem unlikely) The objective positives are a no deposit buy in and the negatives are mostly around risk, as well as poor deductability of debt, so any others I'm missing or general thoughts? Thanks all.
You might be seen as liable for the whole loan. Your serviceability will take a hit There are no good practical reasons for doing this.
In general I wouldn't recommend it. I was having a conversation with someone the other day about this. Biggest issue is each of your family members have your own plans moving forward and relationships do go south/breakdown. It's almost impossible to reach an agreement when you have so many stakeholders involved on the title. Say if one wants to sell (for some reason) and the other 3 doesn't - then what do you do? Plus it impacts all of your serviceability - as trainee said you all may be fully liable for the debt going forward when you want to lend for yourself. The cons far outweighs the pros so best to keep it simple & clean and avoid complex structures. Cheers, David
If you have any family or friends that, in approximately 7 to 10 years, you'd like out of your life and be unable to stand being in the same room as then I highly recommend investing/ starting a business with them. Witnessed it multiple times. Works nearly 100% of the time.
The big unknown is mother-in-law’s live-in partner. Just because he is older doesn’t mean he will die first. If he outlives mother-in-law, he will have a claim on her half of the property. Even a relationship break-up may get very messy. Marg
Bit confusing. Do you mean your MIL pays $50% of an investment property but lives with you in your home? Or do you mean she lives in the investment property? What about the remaining sibling? Seems like you are benefitting at the expense of their potential inheritance. Also, seems unfair to expect your mother-in-law to provide so much up front and then to also cover bills etc
Sorry but this is s NO DEAL! The only investment with family/friends is one with a very defined plan and quick exit strategy. What your proposing is an absolute dogs breakfast. Multiple parties, deposit coming from mothers only asset, rent free..... I know you want to help but not like this.
Whoo. Tiger country. Where investing money is involved, friends do not exist and neither should family.
It's a no from me. Dealing with the responsibilities of being the executor (parents still alive) and being the most financial responsible is enough for me. I learned a great life lesson early on - must have been 12 and helping my brother on a bunch of commercial cleaning jobs at the time. Still waiting for payment 20 years on.
@laam your intentions seem noble, however you may be overestimating the goodwill part. The minute something goes wrong (eg,relationship breakdown, someone loses their nerve about something and wants their share of the money urgently) and the dominos start to fall, your effort will be quickly forgotten. Of course, things might not go wrong, however there are a lot of moving parts here and life does throw a lot of curve balls at us... BTW, if you decide not to go down this path and you want to buy an investment property, you may not need to save for a deposit if you have enough equity in your PPOR.
I've have seen this work very well in migrant families. I've also seen this fail spectacularly. If you really want to do it, all 3 parties should get independent legal advise and have everything in writing including exit strategies, one party wants to sell, one party can't pay but still owns their share because the others are paying to not be bankrupt, estate planning, bloodline clauses etc. @Terry_w should be able to help with sane strategies but overall can be complex. Other options include MIL paying 50% rent to the two 25% owners. When done at arms length can result in negative gearing benefits, seek advice of course. If your MIL is retired then this may effect social security payments. I've heard of rent-to-own arrangements between families as well. Lots of moving parts so tread carefully.
Tried doing a development with 2 friends 4 years ago, it was hard work with shifting goal posts. Made a little money as sold with plans early last year. We are still friends but guess we were lucky. It may have been a different story if we had lost money. Your scenario looks like it would head for a lot of heartbreaks as many experienced members has mentioned.
If you already own a PPOR, you may also be liable for land tax on the new property, yet can't claim any deductions
Echoing the sentiments of others here Unfortunatrly, Money brings out the worst in people I trust my immediate family implicitly however we have never been in a push turns to shove situation.
Rarely do I see such a recipy for disasterious drama. But at least you could write a book or make a movie out of it one day. And I do wish you the very best.
