To Build or Not to Build

ChatCPT on 13/04/2016 - 22:08
Last edited 13/04/2016 - 23:17

Ok the title isn't entirely accurate. It's more like should I build or let my parents build.

So parents jointly own our only house (in Sydney) and we need to build a duplex on it.
Parents will retire in a few years and I will be paying off the loan with help from renting one out.
That's no problem but all this equity will be stuck in their name - houses worth 1.3mil each.

I am keen to invest in property and make decent salary so you'd say transfer house to my name and then build.
Ill get to use the equity, buy a few units and enjoy negative gearing.
But that means paying $50k in stamp duty upfront now (mainly land, house isn't worth much).
Second option is leave it in their name, build and ask them to be guarantor in my property purchases.

Just wondering what the best option is financially. What would you do?

Appreciate your help!

Financial

Comments

  • the-mal on 14/04/2016 - 07:19

    Why not let your parents go guarantor for you, and let them leave the property to you in their will? No point in paying stamp duty if you can avoid it.

    Also, if you've got this situation, you and/or your parents may want to consider purchasing future properties under a Trust to avoid the issues when different family members want to leverage it.

    Oh, and the obligatory "speak to a financial advisor!" A few hundred dollars for solid advice is as bargain if ever there was one.

    • ChatCPT on 14/04/2016 - 09:23

      Thanks for the reply. I know stamp duty is a real pain. But I don't know if it's worth the 50k now so I can leverage more properties in the future and the tax savings will make up for it. Otherwise if they guarantor they will show a tax profit. They are going back to the motherland in a few years to retire. So I will be paying for it without being able to utilise the equity

  • JimB on 14/04/2016 - 09:26

    I'd probably get a valuation and then transfer half the property to you and own it tenants in common.

    Stamp duty will NOT be $50k as you will be only transferring half the value of the property.

    Benefits-

    your parents can build the duplex to live in with your cash (or borrowings).

    You borrow to the purchase the land and building for the 2nd duplex.

    The loan will be tax deductible.

    No CGT issues for them.

    • ChatCPT on 14/04/2016 - 09:30

      i didn't know I could choose what share to tfr. I thought it was split equally. Ie mum dad me. 33% each

      • JimB on 14/04/2016 - 09:32

        Joint tenants = There's a bit more to it, but basically equal % ownership by all owners.

        tenants in common = whatever % you want.

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