Purchasing parents property

Discussion in 'Investment Strategy' started by Brent2017, 26th Jul, 2017.

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  1. Brent2017

    Brent2017 New Member

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    Im wanting to purchase my parents Sydney property as a favourable purchase.
    In my case it would be my first home purchase.
    How is this going to work if the purchase price is significantly below the market price when it comes to the Stamp duty that I will pay?
    Would a lease to own or vendor finance work also in this situation?
    I have over 10% deposit already and as I would be purchasing well under market value I would be getting significant equity straight away if purchase.
    Looking for best angles to make this work.
    Thanks for any advice.
     
  2. Corey Batt

    Corey Batt Well-Known Member

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    Good question - something which having a bit of knowledge can help immensely in finding out your options.

    As per stamp duty - you pay this on the value of the property, so if transacting well below you would still need to be paying the correct rate of duty.

    In terms of finance - using the right lender for this scenario you can potentially use the equity available to be counted as deposit funds - so depending on the exact figures you may be able to contribute your ~10%+ deposit, but the bank could view it at as a sub 80% LVR loan and not charge you LMI, preferential interest rates etc.

    Get specific advice from a broker used to dealing with more complex scenarios than just a cheap rate quoter - setting this up properly you should be able to come off quite well from the finance side.
     
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  3. Brent2017

    Brent2017 New Member

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    Thanks Corey

    Im also weighing up other options like vendor finance or lease to own arrangements then convert to mortgage in the future.
    Yes the stamp duty is a pain in the backside as it will cost me big $$$ for that.
    The benefit from the vendor finance is that I could purchase right away and also it would be interest free from my olds and can pay them a weekly payment.
    Lots to consider thats for sure.
     
  4. Corey Batt

    Corey Batt Well-Known Member

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    All comes down to how generous the parents are wanting to be.

    Make sure your parents get advice on how this might impact their personal financial side - you don't want to make a decision which leaves them in financial strife from tax or otherwise.
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This is something you should get legal advice on.
    Duty would be at market value and the OSR would probably want to see a valuation.

    There are a number of issues with buying under market value - both legal and tax law - and there are some other strategies to consider.
     
  6. AnthonyK

    AnthonyK Active Member

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  7. AnthonyK

    AnthonyK Active Member

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    Hi Brent2017
    souind like a great opportunity.
    If the property is an old one with a large site, then before you acquire it see if the site can be re-developed either up or out or both. Have a chat with your local council planning dept and see what is possible. This would allow the property to be deemed OK as Business Real Property "BRP" and may be acquired by your SMSF and you.
    Read ATO Ruling 2009/1 which covers BRP issues and gives examples and 2009/4.
    You could acquire the site with your SMSF as Tenants in Common via a Fixed Unit Trust with the fund initially holding less than 5% which is fine by the SISA Part 8 Associates rules. Later the arrangement may be modified to extend the SMSF input. It will take some study and work but will be well paid work for your financial future.
    Regards,
    AK
     
  8. Gockie

    Gockie Life is good ☺️ Premium Member

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    Does this get around the stamp duty problem in any way, shape or form?
     
  9. AnthonyK

    AnthonyK Active Member

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    Hi Brent2017 and All
    No because it involves a change in beneficial interest i.e. your parents to you or much better to your specific design structure.
    Remember though AdV Duty will be deductible as part of your acquisition cost and development process.
    Your SMSF can only be involved if it is BRP. See SISA s66.
    Higher capital returns in property usually involve change of use/rezoning development or similar strategies.
    We need to always to stick to the recipe:
    Buy well,
    Maximise returns,
    Minimise income taxe and CGT.

    Then keep repeating the activities with high capital safety margins.
    Harry T at Meriton has been doing it for about 50 years.
    Regards
    AK
     
  10. Xavier Tench

    Xavier Tench Member

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    Did your parents are ready to sell their house?