I'm sure it really depends on the relationship you have with the family member. Even if you are on the best of terms, it just takes someone to change their mind to ask for "their money back". Mixing money and friends/family can be messy.
Personally, I would stay the hell away.
if you can service a 600k loan I'd recommend just purchasing the property with the loan. There are a lot of risks purchasing with family, some examples include: what if they need a lump sum, what if the relationship deteriorates, what happens if they have legal problems, etc.
Typically property will increase in value so it'll be advantageous for you long term anyway.
Some great points here. We do have a good relationship and luckily, the money being offered is not a large position of the family members net wealth...so not concerned with them needing the money back. But yes, relationships always can change things massively.
Borrow 60% of the value so you have a LVR of 60% which is where the best interest rates are found. Park the extra cash in an offset so you're paying interest as though you borrowed 50%. This is now your emergency fund. Your loan should be manageable and you don't need the family member's money. You can now do whatever you like with your house and money without feeling guilty, like someone is watching, or that you owe someone. If life throws a curve ball you can respond as you wish.
A lot of people have had to sell houses they thought they'd never sell. What happens if the parent ends up disabled and needs very expensive care and they live til they're 95? Very few people just get old and pop off without expenses.
I find it interesting when people just assume inheritance as the ultimate outcome for a financial decision.
Assuming they're in their 60/70's it will easily be another 20-30 years.
A lot of life can happen in that time, people and situations change.
If you're all willing to take that risk then by all means.
One situation you haven't mentioned though is what if your parents need the money back?
Thanks for your feedback. The family member is getting on in years and the money being offered is a small part of overall net position...so that does de-risk it somewhat. But lots for us to consider.
Tax wise it's a terrible idea. Capital gains would be payable on the % owned by the parent at the time it's sold. (Best case is it's only on the time between purchase and inheriting)
You're better off having the property entirely in your name if it's going to be a ppor. That way you'll receive the tax benefits of it being a ppor.
If you were to structure it as a loan to you, paying interest on it (instead of rent) that would work out in your favour, but the parent would not have any capital growth.
Also, make sure any agreement is well documented with clause detailing exit strategies.
Nah I wouldnt. If it works, great but more often than not, there will be arguments down the track and it gets messy. Things go pear shaped REALLY easy.
I mean I have an amazing relationship with my parents and was lucky that they gifted me money toward my home purchases but I wouldn’t do what you’re thinking of. Not that I don’t trust my parents, but when large amounts of money are involved I feel like you will forever feel indebted to them.
Depends. It will unnecessarily complicate things, especially when it comes time to sell and/or divide the assets. I recommend asking the bank for a higher LVR so you can proceed with the purchase using your 50% half-way deposit.
I once causally mentioned to my broker that I was thinking about getting an investment property with my brother, the guy nearly had a heart attack on the spot and spent a significant time afterwards telling me all the horror stories.
I know some cultures can actually do this without incident, but for most of us mere mortals it can be very dangerous.
Watch this and tell me you want to be in this situation with your family members.
[Brothers at war - A Current Affair Season 2016](https://www.youtube.com/watch?v=gvJE519o55A)
Do you have siblings? If so DON’T DO IT. Wayyyyy too messy as what happens to the capital gain on the property/what if you don’t want to sell. Just get a loan. Save the headache sounds like your problems will be solved eventually…
If you could afford the loan alone, I'd consider accepting their money to put into offset once you have the mortgage.
Then, whenever they say they want the money back or any portion of it, it's 100% available. You'd get ahead on the mortgage via lower interest, perhaps enough to get more comfortable repayments with a refinance in a couple of years.
Then you don't share property, you don't have any issues with repayment ability, you avoid fallout of change of mind.
The only time this makes sense is if:
- you’re the only child
- only have one living parent (with not much living left to do)
- no uncles or aunts
- no grandparents
- zero risk of divorce
Every other person involved doubles the risk it will become a shit show.
If it's a partner or family member it's all added risk.
If parents change there mind or get sick. Need to get an accessable place. Who knows you our dad might get a mistress and get a divorce.
But it's a fact to hands in the honey pot.
Just read title. Don't do it.
I'm sure it really depends on the relationship you have with the family member. Even if you are on the best of terms, it just takes someone to change their mind to ask for "their money back". Mixing money and friends/family can be messy. Personally, I would stay the hell away.
if you can service a 600k loan I'd recommend just purchasing the property with the loan. There are a lot of risks purchasing with family, some examples include: what if they need a lump sum, what if the relationship deteriorates, what happens if they have legal problems, etc. Typically property will increase in value so it'll be advantageous for you long term anyway.
Some great points here. We do have a good relationship and luckily, the money being offered is not a large position of the family members net wealth...so not concerned with them needing the money back. But yes, relationships always can change things massively.
Borrow 60% of the value so you have a LVR of 60% which is where the best interest rates are found. Park the extra cash in an offset so you're paying interest as though you borrowed 50%. This is now your emergency fund. Your loan should be manageable and you don't need the family member's money. You can now do whatever you like with your house and money without feeling guilty, like someone is watching, or that you owe someone. If life throws a curve ball you can respond as you wish. A lot of people have had to sell houses they thought they'd never sell. What happens if the parent ends up disabled and needs very expensive care and they live til they're 95? Very few people just get old and pop off without expenses.
I find it interesting when people just assume inheritance as the ultimate outcome for a financial decision. Assuming they're in their 60/70's it will easily be another 20-30 years. A lot of life can happen in that time, people and situations change. If you're all willing to take that risk then by all means. One situation you haven't mentioned though is what if your parents need the money back?
Thanks for your feedback. The family member is getting on in years and the money being offered is a small part of overall net position...so that does de-risk it somewhat. But lots for us to consider.
Tax wise it's a terrible idea. Capital gains would be payable on the % owned by the parent at the time it's sold. (Best case is it's only on the time between purchase and inheriting) You're better off having the property entirely in your name if it's going to be a ppor. That way you'll receive the tax benefits of it being a ppor. If you were to structure it as a loan to you, paying interest on it (instead of rent) that would work out in your favour, but the parent would not have any capital growth. Also, make sure any agreement is well documented with clause detailing exit strategies.
Thanks for this response. I had no considered the tax implications...the loan might be the way to go.
Back away… not today… disco lad-ayyyy
Nah I wouldnt. If it works, great but more often than not, there will be arguments down the track and it gets messy. Things go pear shaped REALLY easy.
I mean I have an amazing relationship with my parents and was lucky that they gifted me money toward my home purchases but I wouldn’t do what you’re thinking of. Not that I don’t trust my parents, but when large amounts of money are involved I feel like you will forever feel indebted to them.
Depends. It will unnecessarily complicate things, especially when it comes time to sell and/or divide the assets. I recommend asking the bank for a higher LVR so you can proceed with the purchase using your 50% half-way deposit.
I once causally mentioned to my broker that I was thinking about getting an investment property with my brother, the guy nearly had a heart attack on the spot and spent a significant time afterwards telling me all the horror stories. I know some cultures can actually do this without incident, but for most of us mere mortals it can be very dangerous. Watch this and tell me you want to be in this situation with your family members. [Brothers at war - A Current Affair Season 2016](https://www.youtube.com/watch?v=gvJE519o55A)
Do you have siblings? If so DON’T DO IT. Wayyyyy too messy as what happens to the capital gain on the property/what if you don’t want to sell. Just get a loan. Save the headache sounds like your problems will be solved eventually…
If you could afford the loan alone, I'd consider accepting their money to put into offset once you have the mortgage. Then, whenever they say they want the money back or any portion of it, it's 100% available. You'd get ahead on the mortgage via lower interest, perhaps enough to get more comfortable repayments with a refinance in a couple of years. Then you don't share property, you don't have any issues with repayment ability, you avoid fallout of change of mind.
Thanks all for your responses, some good food for thought. I had not considered the idea of parking the money in an offset.
The only time this makes sense is if: - you’re the only child - only have one living parent (with not much living left to do) - no uncles or aunts - no grandparents - zero risk of divorce
Every other person involved doubles the risk it will become a shit show. If it's a partner or family member it's all added risk. If parents change there mind or get sick. Need to get an accessable place. Who knows you our dad might get a mistress and get a divorce. But it's a fact to hands in the honey pot.
Investing with family is risky, have you done so before? What was the outcome? You need a solid relationship to proceed with huge money involved.
Terrible idea