Hi, I have an objective to buy an IP with my in-laws as tenants. Background: My In-laws, who are pensioners, own their own property with only a little equity left (50-80K) and as the dwelling is becoming more and more run down We have offered to purchase them a property/land and have them as our tenants. What I would like to ask a person in this forum is has anyone done something similar? Should we joint venture in this? Or should I finance this solo as I can claim the negative gearing? What can we do with their equity (not forgetting they have 3 kids to split to in the will), fix term it at 12 months at a time – collect the interest – advance us the rent due for 12 months? We would probably split the repayments weekly but how to work out the payments split when I use the growing equity for another IP purchase. They understandably don’t like the idea of living in “someone else’s” house but agree that they need a change. Does anyone have any thoughts? Thanks in advance. Roland
all i can say is i hope you and your in laws get along and good luck. i understand that you would probably feel obliged to help seeing as they are your in laws but when it comes to family, finances are always a touchy subject. would you keep the rent low, would you raise it as if they were normal tenants etc.. ive got a sister in law and my partner and i have helped her many times and now i feel like "why did i bother" because she is just digging herself a deep old grave. meh...make sure if you go ahead with it you have everything planned out carefully and in writing in case anything goes wrong. i know they are family, but it doesnt hurt to have a nice safeguard in case anything happens.
Definitely get an agreement in writing - even though it is family. If there is argument about a written agreement, then alarm bells should be ringing about how you'll manage down the track if there are disagreements. One question you need to answer for yourself: Can you afford to fund the property if you have no rent coming in ? More specifically: if your "tenants" fail to pay their rent and you can't afford to fund the property without it - will you kick them out ? Also remember that you should get the property assessed for market rental. If you charge significantly less than market rates, then the ATO may frown upon the deductions and you could get a nasty tax bill.
How about lending them $50K for required repairs and renovations to their place in return for a x% share in their property. It might not work out as a tax deduction but it'll be less stressful than if problems arise with the rental, will achieve the aim of helping them, give you security over the asset and protect the property which presumably will one day be passed on to you. My worry would be if they have got themselves into a situation of having only $50K equity remaining at a late stage in their investing life, are they the type of financial partners you want involved in any type of property investment activity ?
My preference would be to NOT joint venture anything. That way when the deal sours & they move out, you don't have to sell the property or buy them out at a disputed price !! Also, you need to convince the ATO that this is not principally a private or domestic relationship - otherwise they will not assess the rent nor allow deductions. i.e. did you buy the property to just house your relatives ? This is especially important if negative geared as deductions might get limited to the assessable income. So make sure arm's length rent and a standard rental contract - any unusually generous conditions will ring alarm bells. Are you really prepared to evict your elderly relatives ? Cheers, Rob
Rule no. 1 - Never involve family or friends in investment related matters. Rule no. 2 - If in doubt, see Rule no. 3. Rule no. 3 - See Rule no. 1. Mark
G'day all, Thanks for your responses. What I have learned: Ensure I have a JV contract drawn up if I don't go solo. Learn more from the ATO as to the regulations I need to know before going ahead. Maybe there is already a private ruling. Still use a rental contract and rental bond. Try as I can to remove emotions in this deal and have all thinkable assumptions clarified. As an exit plan, I could ask for the equity from the sale from these existing property and an inheritance that is due in the next few years to "buy" us out. So, if the IP is in my name and needs to be transfered to anothers do I need to pay for stamp duty etc. just like a normal sale? Or what if both of our names were on the deeds - will it still cost as much to transfer ownership? I appreciate your responses and can see merit in all of you answers, but I would not be where I am today if it were not for them so I wish to contribute to their comfort using the most suitable strategy. Thanks.
