Browse Forums Home Finance 1 Jan 26, 2012 4:35 pm Hey all My wife and I currently live in a battle-axe block which is split with another house. Our neighbour mentioned recently wanting to sell up later this year to move into a retirement village. We had talked before about this happening and thought about the possibility of buying their place and renting it to my wife's mother. We talked to a broker yesterday and he said that I would not be able to borrow the money needed on my own, but suggested splitting the loan with the m-i-l I've got a few questions about it though 1 - if we put all three names on the mortgage and then in 5 years want to fully take over the loan ourselves (once the wife finishes uni and the kids are at school), what sort of fees would be involved? We've already talked to the m-i-l about taking her name off the mortgage / loan and she doesn't care. She would be paying the same in rent to someone else and just wants to be sure she has a roof over her head and would be happy to help us get it 2 - the broker apparently spoke with the bank and was told that even though one owner would be living there (at first), it would still be handled as an investment property "for tax purposes". We couldn't negatively gear any money directly paid to the mortgage, but could claim for "general upkeep". Does that sound right? Our long term goal would be to take over the full value of the loan in 5 years times and then pay down both properties to a value where we can take full advantage of negative gearing to upgrade to a bigger house in about 10 years time (this one is on the small side for a family with teenagers) Re: Buying a second home Questions 2Jan 26, 2012 9:54 pm Hi, Welcome to the forum! Firstly not sure if your broker has looked into it; but some banks allows for a much higher borrowing capacity ( the top 6 are); 1. Choose to fix the rate 2. make it P & I 3. keep LVR under 80% ( cash or equity) 4. claim Negative gearing benefit from the loan 5. Close your credit cards - or if you pay them off in full every month then use a lender that will disregard cc 6. A lender that will look at your current loan at it's given rate/commiment rather then loading the rate. a mixture of any of the above features could push your standard borrowing capacity by 10-20% depending on the bank and your situation. ---- 1. If you put all 3 names on and you decide to buy your MIL out in x years time; expect to pay the follow - Stamp duty ( on her part - based on market value) - She will pay CGT ( discounted after 12 month) - Some small admin and title change fee ~$400 - You need lender approval to make sure you have enough income to service the new "part of the debt" 2. Not sure why your broker had to ask the bank; as this is not the banks job + some bankers arn't expose to tax questions + You dont lodgre tax returns with the bank...in fact they play no part beside providing a yearly report in july about how much interest you paid. http://www.ato.gov.au/individuals/print ... 270214.htm In most case; you can claim the deduction on your part you rent out ( but you need a written tenancy agreement in place). However you will need to consultant your tax agent + you may need to get a ruling from the ATO> One way to solve both your problem to a point is to buy it under a family trust. Pro 1. No need to pay Stamp duty - as your MIL can just transfer her "units" over to you. 2. The trust can claim full interest deduction and expenses ( BUT within the trust only-- See below) 3. More flexability and control + asset protection Con: 1. No CGT discounting when the trust sells 2. Can not pass the negative gearing to the owners- but to the trust itself only. One thing to note: negative gearing may make your situation worst; especially if your having serviceability issues already. If it's big enough may be cheaper to build a granny for your MIL etc.. Regards Michael Michael Chan | Australia wide Mortgage Broker Michael@ShapeHomeLoans.com.au | 1300 74 5626 | Fax: 02 8212 8909 http://www.ShapeHomeLoans.com.au Re: Buying a second home Questions 3Jan 26, 2012 10:09 pm Thanks for the reply We're arranging to see an accountant in the new couple of weeks where I'll be asking all these questions again. I've had other people mention family trusts before but mentioned that in certain situations, it can add more costs and complexity then the value of what you're actually getting out of it I make no bones about not knowing anything about it Re: Buying a second home Questions 4Jan 26, 2012 10:13 pm shape 1. Choose to fix the rate 2. make it P & I 3. keep LVR under 80% ( cash or equity) 4. claim Negative gearing benefit from the loan 5. Close your credit cards - or if you pay them off in full every month then use a lender that will disregard cc 6. A lender that will look at your current loan at it's given rate/commiment rather then loading the rate. We did go through all the options to "help" me get the loan without involving a third party. Unfortunately we just don't have the equity in our current house yet to do it. Regarding the credit cards... we pay down the card every month and only have a low limit. My theory is "if I can't pay for it in one month, then I don't need it this month" and will just save the money instead I honestly hoped the neighbours stayed for another 18 months before deciding to move on. I have large projects coming up with work that would have GREATLY increased our savings. 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