What do I need? - Buying first home from family

Hi, I would be grateful for some advice on how best to go into my upcoming house buying situation.

I’m buying my first house soon. Buying from my parents, so that they have the money to build a house in their dream spot without taking out a new mortgage. It’s a strange situation, but that’s family’s I guess.

They’re selling at a very reasonable price, so I’ll most likely be buying the whole thing in cash, shouldn’t need a mortgage if things turn out the way I’m expecting. I’m also planning on applying for the FHOG as well as the new Super scheme.

What kind of profesionals should we be getting involved? Obviously won’t need a real estate agent or a mortgage broker… Is a solicitor all we need? My folks aren’t the most savvy or interested people in this kind of stuff so I’d like to do my part to make it as easy and simple as possible, while keeping overheads low.

Thanks in advance!

 

Both parties should have their own solicitor but take their advice on that.

There are essential elements for a contract of sale including sewer diagram & zoning certificate bites h state's requirements vary.

A building and pest inspection will serve to confirm things that you don't already know about the house as you won't be negotiating price.

 

You should see a solicitor.
But also it would be advisable to get some further advice along the lines of lending and taxation.

One example is if you bought using an 80% LVR loan, you could subsequently borrow to pay that loan off, the date of settlement even, and redraw and invest that money.
The interest on the loan would be deductible, if done right, and
The interest rate would be at owner occupied rates on a loan used for investments.

If you are not paying market value, perhaps you should be.

 

Thanks Mate. I guess that's what I was asking about, will a conveyancer cover all those things? Building inspection for sure, and I'm guessing a valuation for stamp duty regardless of the sale price.

Thanks Terry, I have looked at a few options there, but still considering talking to an expert. I'm looking to minimise my short term outgoings, as I will need to continue to rent interstate for work once I've bought the place... Don't want to get into cashflow issues.

 

Example

You are buying a $500,000 property for $400,000 - a favourable purchase from parents. You have $400,000 cash so plan to buy it outright.

instead, you buy it for $500,000 by getting a $100,000 interest free loan from parents and $400,000 loan from a bank. You park $400,000 cash in the offset account.

Advantages
- If you decide to rent the place out and buy another one to live in you can take your $400k with you and claim all the interest on the loan.
- If you get an IO loan there would be no repayments
- The property would be mortgaged to a bank, so asset protection against someone stealing it
- asset protection upon bankruptcy as the bank is mortgaged (cash is easily moved around)
- asset protection upon divorce as you will have a debt to the parents
- Estate planning protection
= upon your death parents are compensated for market value of property
= upon parents death, you could get the $100k back into their estate and into a TDT
- investing, you could pay the $400k off the loan in full or in part at any point and reborrow to invest, without needing to apply for a new loan and you will get owner occupied rates on the loan and deductible interest.

etc

 

Then paying for the thing in cash isnt the best idea. Reasonable lvr with offset. Are you renting it out?

 

Thanks for taking the time to pass on all that information, I really appreciate it.

I hadn't considered the possibility of a completely offset IO loan. Is the main advantage of that that I have quick access to my money if I want to invest it elsewhere? I feel like your last point goes into this, would you mind expanding further?

I don't fully understand the asset protection part, shows I've still got a bit of work to do. I'll research that now, thank you again.

 

Say you started off with a $400,000 owner occ loan. You then wanted to buy an investment property for $250,000.. Rates on small investment loans may be around 5%, but you could possibly end up with say 3.68% on the investment property by splitting the original loan, paying off $250,000 and then reborrowing $250,000 to pay for the investment property. It may seem you are paying cash for it but you are really borrowing for it and the interest will be deductible if done right, under tax advice.

The new investment property will be 105% borrowed for, but not mortgaged.

 

Brilliant, that sounds pretty straight forward. Cheers!

 

Hi Terry,

Could you please let me know what would be all costs involved in purchasing a property?
I am pretty like Slowspender.
Purchasing as FHB for my parents with no loan.
But I need to know apart from solicitor and pest and building costs what are other costs.
I also need to know how much are these costs.
Really appreciate your help since I have limited knowledge and don’t want to let them down.
They also need to put the property under my title, do you know anything about it.
Someone suggested to sign an agreement between ourself with the help of lawyer but I don’t know about it.
I also need to keep overhead low as they are limited on budget.

Thanks

 

What exactly does buying as fhb in your name for your parents mean? Who is living in it, who will be living in it? Who are you buying from?

 

Seek legal advice.

It is irrelevant if you are pretty or not.

 

I will be first home buyer and they are going to buy it under my title.
They are going to live there.

 

Where will you be living? Will you claim fhb stamp duty exemptions or other grants?

 

I meant quite like slowspender

 

I was only teasing.

 

Would appreciate to have your advise on the related costs for purchasing property apart from what you mentioned

 

Including or not including osr penalties?