Investing for Mother

Hi All,

I have been reading through the threads and there are a lot of experienced voices with very sound advice on here. Good work.

I have a tricky situation and I'm looking for some options:

My mum had recently moved across to Melbourne on a PR visa. She is retired and widowed and will be living off her pension. She has no debt obligations in the UK and she has sold her UK property and transferred the funds across so she can buy her retirement property in Altona Beach.

That's the easy part; with the exchange rate being what it is, and the property prices in Australia being what they are, she has $300,000 to buy. We have found a place for $370,000 and I (her son) have offered to take a loan to make up the difference. We went to the bank today with the view of getting a loan in mum's name and me going 'guarantor of servicibality'. Sadly, even with 82% of the property value in cash, the bank won't allow mum to take the loan in her name and now insist that I go on the title. I earn $130,000 gross and would not have an issue servicing $70,000 over 10 years.

So, now I have the issue of going on the title. I will be looking to buy with my partner in the next year or so. Should I class this place as my PPR and move in with mum for 6 months (not sure if my partner or I could bare that!) and also get stamp duty reduction and FHOG? Or do I class the $300,000 as a gift and buy the place as an IP, obviously without charging mum rent?

All mum wants is a nice place to live (which she now has), not pay a mortgage or rent (which she won't) and for me not to lose out on any future purchases with my partner.

Any and all advice welcome!

Oh, and the settlement date is mid December and I leave for the USA for work on Saturday so I need to make a decision within 48hrs!!

What do they say about planning?

Cheers
Steve

 

Hi Steve

This sounds like one for your accountant to work out. I will add, however, that you are only entitled to the FHOG and SD concessions if you are buying new. Does this purchase qualify?

 

Have you thought of looking at any type of trust set up. I don't know your situation personally apart from what you have written but i think you also need too look at asset protection. I guess you also have a partner and if anything goes into your name or both your names your partner may have claim too this or if you were sued after a accident or something your mother could be left with less then she originally expected and worked her whole life for.

A trust may have other benefits too apart from asset protection especially with use both as beneficiaries. I wouldn't rush into anything too quickly.

Maybe mum could look at duel occupancy houses or a house with a granny flat or a house with potential for a granny flat too be added that could stream an additional income that could service a loan on her own?

you could also sign a licence too occupy of some sort like a rental agreement that gives your mum the ability too demonstrate she can service a loan.

Anyway just some quick ideas but don't rush in speak too an advisor, research & decide what you think is best

Oh one other thing is too consider is land taxes how dose that work in your state? and first home buyers grant are you entitled? what about mum is she entitled? and how can this be maximised?


Cheers

Jeffery

 

Many things to consider - estate planning issues, asset protection issues, loans etc.

You could go on title with a 1% holding. This may satisfy the bank and also allow you to keep your FHOG status - check with your lawyer.

 

Steve,
Depending on her age, a reverse mortgage may be a possibility to make up the difference. While the rates are about 1% higher than standard variable, it is only a small percentage required. This will mean you do not need to go on title, it protects your own credit rating and borrowing capacity.

Alternatively you purchase this as an investment property and your mum becomes a tenant paying weekly rent to you. It preserves her capital - please consider pension entitlements - it will most likely be negatively geared for you (depending on age of property but rent yields in Altone are lowish) and it will not effect your FHOG entitlement.

Let me know if you would like further information on either option.
Good luck
Greg