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Going 50/50 in a house......need direction

Discussion in 'Real Estate' started by JACOB, 8th Nov, 2008.

  1. JACOB

    JACOB New Member

    Joined:
    8th Nov, 2008
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    Location:
    Perth
    Gday all need some help, the story goes like this.....my wife and I are going halves in a house with her brother and partner(who i trust)and are looking at purchasing a property around the value of $450,000 to $500,000. He is able to recieve the first home buyers grant and doesnt have to pay stamp dutyas we will be buying it in his name.
    The plan is to sell my house(unit) make a profit of $30 000 and clear my debts of $15 000 which leaves me with $15 000 in the bank, live with her brother for 6 months save $2700 a month, which was my normal loan repayment, which gives me a buffer of $30 000.
    We plan on paying $6000 a month on the $450 000 loan for 2 to 3years
    then bringing the loan down to the $270,000-$300,000 mark and then renting the house out, and then purchasing another house and continue a similar plan of attack. This system seems to be the most rewarding short term(6years to 7years)and is not complicated as other plans we have come up with. I need to know of any tax rules or of things people think might be wrong with this.......do i set up a trust or what! How do i keep legal records of me putting in extra money, IS IT against the law for me to put in the extra $32000 a year do i put it in his offset account! ANY HELP OR ADVICE WILL BE GREAT............I want to be free! Cheers
     
  2. Billv

    Billv Getting there

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    Jacob

    I think any plan can be a good plan when you are the one deciding.
    When you have 3 people deciding it can get very hard to agree on things.

    Sharing the same roof with others can be difficult and having financial transactions could hurt your friendship/relationship.
    If you were to go on a partnership, my suggestion would be not to live in the property. Rent instead and see how it goes.
    $450K at 7% will be costing you $2600/month in interest.
    Renting will be cheaper and you also have the tax deductibility of the investment loan.

    If you do go ahead, ideally the expenses should be evenly split, if not keep receipts of any additional payments you make because there is always a small possibility that things can wrong wrong.

    I am not saying this to discourage you, but I've heard of deals that have gone wrong so it pays to be careful.
    Good luck.
     
  3. Chris C

    Chris C Well-Known Member

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    2nd Apr, 2008
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    At first reading and not knowing the full situation it sounds like it is illegal... not to mention highly complicated. I don't know about you, but if there is one thing I think is more valuable than saving a couple of bucks, it is peace of mind.

    What I don't understand is if you and your wife have a deposit (or the ability to quickly save for one) and are able to make repayments of up to $6000/month I don't understand why you'd want to invest with someone else? Surely doing things by yourself would keep things much simpler...

    Also if you were considering putting the place entirely in his name, then beyond the obvious trust issues, I think the bank will also have something to say in regards to the conditions under which they'd be willing to give out a loan, and I'm pretty sure you telling them you plan to slip him an extra couple of grand a month under the table isn't the sort of security they'll be looking for.

    I imagine your brother in law will need to take out the entire loan, which once again brings up the issue if he can afford to do it himself why would you invest with someone else?

    Also once you turn it into an IP (Investment Property) if the place is entirely under your brother in law's name you won't be able to claim any of the tax benefits associated with negative gearing a property or alternatively if it is positively geared your brother in law will bare the burden of all the tax obligations of the increased income generated by the IP.

    If you were planning to invest in this place with your brother in law and do it above board then my understanding is if anyone who is buying into the property has claimed the FHOG (First Home Owners Grant) in the past then regardless of the fact that your brother in law is eligible wouldn't matter, he still wouldn't be able to claim it.

    In addition to this if he does buy into this place and you guys choose just to make it an IP from the outset then I think when he actually goes to buy his first home he won't be eligible for the stamp duty exemption you can normally get when taking advantage of FHOG.

    Also it sounds like your plan is based on the assumption you will sell you current place for a "profit" I'm not sure how you can be certain what selling price you'd achieve in this market given that property prices Australia wide dropped 1.8% on average last quarter alone. Not to mention the time it is taking to sell places has increased dramatically...

    Whilst I don't completely understand what you plan is at first glance I get the impression that it is way more trouble than it is worth.

    LOL but then again I just bought my first IP with my best mate... so the advice may bit a bit hypocritical, but then again we did everything above board and walked into the investment knowing exactly where we stood when it came to buying/selling/managing the place.
     
  4. JACOB

    JACOB New Member

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    Location:
    Perth
    I was in rush i will try to make it clear......

    2 Couples
    Couple {A} Purchase property and are able to recieve the $14000 first home buyers grant.
    Couple {A} dont have to pay stamp duty on the $450, 000 house which is around $16000 plus.

    Couple {B} (thats me )give couple {A} $ 5000 to $10,000 as a decleared gift for compensation on first home buyers grant. ( Its yet to be decided on amount,to be honest its a hard one)
    Couple {B} move into house with couple {A}
    Couple {A} pay $3000 a month in repayments
    Couple {B} pay $3000 a month into couples offset account
    Total $6000 a month. Total $72000 a year. Total of $216000 in 3 years.
    Savings approx of $20 000 when move in on stamp duty
    Hopefully equity in house go up 3% to 4% a year (house is 10 km from city and i know the area, the land has come down to its true value) and our aggressive repayments will keep the interest down to $10 000 a year, instead of $22 000 plus.
    So in three years plus we could walk away with $90 000 plus each which is why i see this as a good, effective way of doing things.
    Couple {A} will make a nice profit instead of paying $65000 in interest in 3
    years and nothing on the loan , plus i give them the $10 000 compensation.
    And i dont pay so much bloody interest on my loan and just become a loser like every other over worked, stressed out , ausssie.
     
  5. Chris C

    Chris C Well-Known Member

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    Location:
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    Given your reclarication I think what I mentioned above is still applicable.