FHello savvy investors!
Looking for creative ways to finance the following scenario:
My friend’s mum has decided to offload one of her NG properties due to financial difficulties.
– Current Value: $750K
– Purchase Price: $525k (incl. stamp duty and all other expenses)
– Renovations: $25k
– Rent: $670/week
Her daughter would like to purchase it with her husband, however she is still at uni, and he just started working so NO savings, he makes about $120k/y, so:
a. If the mum were to vendor finance a portion of the loan, or the whole loan, what are the CAPITAL GAINS TAX implications for her? If she has ‘sold’ it, would she not have to dish out ~$100k CAPITAL GAINS from her own pocket straight away?
b. What are some other options they could pursue to purchase the property?
ALTERNATIVELY
She has asked if I would like to purchase the property. It’s not the best purchase for my portfolio, yet I’m thinking if I can either:
a. Offer $670k, which will leave me with $80k equity for more PG purchases
b. Offer $550k to cover her loan, and $150k which I can pay over a period of 5 years
Obviously I would rather her daughter bail her own mum out, and frankly I would rather not bargain with my best mate’s mum, so any ideas on how I could help?
Given the favourable purchase price i believe you could find a lender lend against the valuation rather than the purchase price.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi NHG
If the mother sells the property to her daughter with either a vendor finance Lease/Option or Instalment Contract she should not have to pay CGT straight away. In relation to a Lease/Option, often called a Rent To Own, the property is not 'sold' for CGT purposes until the Option is 'exercised' and the sale is completed (settled). Obviously it's then up to the mother and daughter to set the term of both the Lease and the Option.
A similar situation, with regard to CGT, also applies to a sale with an Instalment Contract. See ATO Interpretive Decision 2004/407 at: http://law.ato.gov.au/atolaw/view.htm?docid=AID/AID2004407/00001
In regard to your alternative 'b', it's generically called Deposit Finance. It's not as easy to get across the line as it used to be before the GFC and the new National Credit Code but there are still a few lenders who'll look at it.
Cheers, Paul
Paul Dobson | Vendor Finance Institute
http://www.vendorfinanceinstitute.com.au
Email Me | Phone MeAn alternative way to finance your home.
Thanks for the replys, helpful.
Hoe would you describe deposit finance, I haven’t heard of it before. How would it work?
Also as the mother has a cleaning business, is it possible to purchase it for $550 and pay say $30k/year for 5 years as a cleaning and property management fee. Would this remove the CGT and allow me to pay her the rest at 30% rltax to her over 5 years. What are the legal implications for this?
Would anyone know the CGT implications for my mates mum if property is purchased as a ‘favourable purchase’ for say $550k.
Is she taxed at the properties true value, and in the future is her daughter taxed at her purchase price of $550k effectively double taxing the family for the value between the two prices?
CGT would be at market rates.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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