Brother potentially moving in next door - want to check my maths.

Lnextdoormaths on 02/05/2021 - 16:01
Last edited 03/05/2021 - 16:57

So I bought my neighbours house and am giving my brother first dibs at renting it. He currently lives a few suburbs away and likes the idea of moving in next door as it would be closer to other family and save him travel time each day with work. The rent in each suburb is similar and as such what he would receive if he rented out his current home would cover what he would pay me in rent. I know there are tax implications and have made a spreadsheet to get a ballpark figure of whether overall (after tax) he would be better or worse off. My analysis has so far come out pretty even. Am I missing anything major that would change the outcome significantly in one direction or another?

https://imgur.com/a/kOeemey

The screenshot shows 2 scenarios. His current situation with a fictitious salary of 100k on the left, and then on the right how it would look if he rented his out and moved in next door. Example assumes 500k mortgage balance on his current place, mortgage repayments of $2k per month at approx 3% interest.

Thanks in advance for reading and I'm looking forward to reading your comments and learning more (if I have missed anything). Please don't bother with comments saying not to mix finances and family. At this stage I am just wanting to check numbers, not discuss family dynamics.

Update: Thank you for the comments saying not to mix family and finances - message received. In terms of the actual advice I am seeking thanks for the useful comments. My spreadsheet was missing Land Tax, factoring in less than 100% occupancy of my brothers house, Capital Gains Tax if he does not return to his current place within 6 years, and a big row, bold and double underlined, about not mixing family and finances.

Home & Garden

Comments

    • duchy on 04/05/2021 - 07:48
      +1

      Depreciation and property management fees missing from the spreadsheet were the first thing that I found missing as well. Well, maybe the building is 40 years+ old and they'll manage it themselves (I don't recommend that for obvious reasons).

  • node modules on 03/05/2021 - 18:12

    Mixing family and finances is a bit like incest…

  • Kiro on 03/05/2021 - 19:21
    +2

    I'm a bit late to the party but you should watch everybody loves Raymond episode about the distances family should live from you.

    https://youtu.be/Vltq8wwWhA4

    • capslock janitor on 04/05/2021 - 14:11

      bloody love that 🤣

      • Kiro on 04/05/2021 - 20:10

        I followed by with my parents and yes it works.

  • DiscoJango on 03/05/2021 - 21:15

    I know you said you didnt want to hear it, but: asking family members to pay rent, very very high chance of this causing 'drama' down the track. first few months will be good

    if there is any reason for them to delay or not pay rent, they will, and if you even think of enforcing payment on them, you will become the bad guy. if family member cracks it and outright stops paying rent, once again, due to being family, you will not be able to do a thing, as, once again, you will become the bad guy.

    Dont think this will be like a legal tenant where you will be able to use the law to your advantage, that just doesnt work with family. They trash the place and leave without paying rent? youll just have to cop that on the chin.

  • Melong on 03/05/2021 - 21:29
    +1

    Need mspaint drawing

  • froodh on 03/05/2021 - 22:11
    -1

    B28?

    froodh on 03/05/2021 - 22:11 (Collapsed - Offtopic. Show)
    • Kiro on 04/05/2021 - 07:10

      No nfc no deal

  • striker5950 on 03/05/2021 - 23:26
    +1

    7) This rule is so underrated. Keep your family and business completely separated.
    The Notorious B.I.G.

  • Jaspa7 on 04/05/2021 - 00:17

    instructions unclear, how long to leave family in the oven before finances go in?

  • freekay on 04/05/2021 - 08:28
    +5

    Random internet person here. Just wanted to add my perspective to the mix. My wife and I rent out her sister's place (not next door, mind you). We look after it like it were our own place. We fix what needs fixing and we report major issues to my SIL. Because she's family, we take extra care of the place, not the other way around. Likewise, she's responsive if ever we need her to resolve any major issues. Finance-wise, we pay less than market, but we also chip in with rates and minor repairs, etc.

    I guess what I'm trying to say is that it all comes down to your family and the relationship you have with them. You know them better than any of us do.

  • sleet on 04/05/2021 - 08:35
    +1

    Yeah don't even think about it.

    I trusted my family. Lent my sister 30k a few times and she returned it. Lent my brother 20k and 30k and he returned it. I thought all my siblings were great.

    Then my eldest sister asked to borrow 50k, oh the sweet child of the family and most beloved sibling and parents favourite. I lent it no questions asked. Little did I know, it was to feed her husbands gambling addiction and I've written off that cash now.

    So yeah, listen to people's advice on this forum. You think you know your family, but you never know what really happens. I was probably like you, loved my family to bits. You never know.

  • Hangryuman on 04/05/2021 - 10:29

    and when your brother stops paying rent because you're 'family' how do you evict him ?

    the ATO will be looking at market value of rent - if you rent it to related parties at less than free market value, the ATO may refuse tax deductibility on all the loan interest on that property.

    • drfuzzy on 04/05/2021 - 15:50

      The ATO would likely aportion it. Refusing it completely makes no sense.
      You need to be able to provide a rational arguement for why the rent is what it is.
      No need for agent fees and other related expenses might come into the picture.

  • Hirolol on 04/05/2021 - 12:41
    +1

    Slightly off topic but, if everyone says don’t mix finance with family let’s say for example that you decide to go 50/50 with a brother or sister. Literally split everything down the middle, including maintenance cost and all that.
    Wouldn’t that work in the end?
    The only issue I can think is if 1 person wanted to sell but the other didn’t…

  • cashless on 04/05/2021 - 14:10

    Happy to help check maths for you.
    Sadly though, there's nothing I can do about your brother moving next door

  • drfuzzy on 04/05/2021 - 15:41

    I rent a place to my brother.
    Rental is approx a 20-30% discount to market rates.
    No rental increases, has stayed many years.
    No need for agent or pay agent fees.
    No real issues with the ATO.
    There are pluses and minuses, but overall it has worked out quite well for both of us.
    I am not sure what the purpose of your spreadsheet is.

    • Eeples on 10/05/2021 - 21:03

      Who pays the building insurance?

      If he says he does, has he shown you proof?

  • Orpheon on 04/05/2021 - 16:17

    Going by your responses and your calculations it looks like you guys are functioning mature adults who can handle a financial relationship - much to the dismay of OzBargainers everywhere.

    The maths looks solid, is your brother repaying interest + principal every year or just interest?
    If it's I+P, disposable income is just a bit less I think, on a monthly basis subtracting the interest + principal mortgage repayments ($1,948 all up) from monthly income (Income - tax), that gives you:

    Monthly Live-In Rent-vest
    +Income: $6,292 $8,442
    -Mtg Repay: $1,948 $1,948
    -Rates $296 $296
    -Expenses $167 $167
    -Rent - $2,167
    Money Left: $3,881 $3,864

    Not a lot of difference there.

    If your brother wants to save more money, I'd recommend renting around the $350-$450 pw price point, which would see his rent go down to $1,500-$1,950 a month, saving an additional $600 / $200 a month.

  • sbargainseeker on 04/05/2021 - 16:46

    if your brother would look after your property as his own and has a good nature, rent it to your brother. I wouldn't listen to "don't mix family and finances" advice. every family is different. you know the best about your family and make your own judgement.
    This is better than renting someone you don't know and get your place wrecked because agent didn't do their job well with screening and regular inspection. you will be left out to deal with insurance. Remember the stress, time and loss of income while dealing with insurance and renovating isn't worth it than renting to reliable person with a little less money.

  • berger on 04/05/2021 - 18:29

    Same as others said. Family and money don’t generally work out

    I got burnt twice.

  • FrozenFred on 04/05/2021 - 22:35

    Cash in hand (profanity) tax

  • Thatsgold on 05/05/2021 - 10:48

    If you guys have wife's then RIP your relationship…
    I will get down voted hard but this is the harsh reality..
    Women hate women

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