Wife and I are considering helping family member into their first home, advice please

[Kawipole]

Hi guys - been a bit of a lurker lately and time has come to ask my own questions.

Wife and I have increased equity in our property and would like to use it as an investment.

We've been looking for a financial investor but haven't got that far, however recently we've thought about helping her brother get into a house in Auckland.

He's single and it's taking a while for him to build up a deposit.

He's also a builder so has some solid skills to work from if we decided to find a 'do up'.

We want to cover off all the bases that will help us make an informed decision about whether we put down a deposit for him.

Would be great to hear people's thoughts about this.

Thanks

[speights boy]

This westpac product limits your guarantee, and the hold over your security is released upon repayment of the iniitial deposit guarantee.

https://www.westpac.co.nz/home-loans/your-home-loan-options/family-springboard-/

[Leftette]

I'm not sure I know what the question is?

[Keys]

42 is the answer

[PTILoveYou]

Well if I were you I will look at the deposit solution for him first:
1) setup a revolving credit facility against your home, then lend a specified amount of money from the RC to the brother. He will pay you interest of course.
You may want to get an agreement drawn up and sign in front of lawyers. If your brother defaults, he owes you this money.

2) use your own home as collateral, and personally guarantee the deposit amount for your brother to buy. This is more messy as your brother's property will be tied with yours, with the same bank. If your brother defaults on his loan, your property will be affected.

After this is sorted, time to get finance, aka pre-approval:
3) your brother needs to prepare his bank statements & accounts (sole trader), along with either 1) or 2), and get a preapproval through a broker or the bank.

After deposit and finance are sorted, go look for a property that he likes, with do-up potential if possible, but most important of all, buy at a discount.

After he has done up the purchase, he can get the renovated property valued, top up his mortgage, and 1) pay you back the deposit or 2) release you & your property as collateral/security.

[jimO]

i have just done the same thing for one of my boys, he is a apprentice builder and was wanting on the property ladder but was no where near it. The big thing is its my house and he rents it from me with some flatmates, in the future if he wants to buy it we will work out a deal where as the work he has done etc goes towards ownership like sweat equity, if he decides to move to Aus or somewhere else we will sell and he may get a payout or i will keep it and him and his brothers can fight over the various houses when i cark

[Kawipole]

Gary thanks for your input.

Is there a particular scenario you would recommend regarding our investment in the purchase of the property to the total sale price once the house has been renovated and sold?

Something else I've been wondering about is how to protect ourselves in case the brother fails ill, injures himself at work etc.

[Kawipole]

^jimO This is a house you owned prior to setting up the arrangement with your son?

[artemis]

i have just done the same thing for one of my boys, he is a apprentice builder and was wanting on the property ladder but was no where near it. The big thing is its my house and he rents it from me with some flatmates, in the future if he wants to buy it we will work out a deal where as the work he has done etc goes towards ownership like sweat equity, if he decides to move to Aus or somewhere else we will sell and he may get a payout or i will keep it and him and his brothers can fight over the various houses when i cark

I have done similar, own a rental and tenant is son and family. Works well all round (well, almost) as for all practical purposes they own it, and one day will. They pay close to market rent and I pay the expenses. We keep it on a business footing. I say 'almost' as they always want stuff done, to a higher quality than a standard rental, and for me to foot the bill.

Meantime for me expenses are deductible and I am fortunately in a position to help out. And if the couple breaks up the house stays in my family. Which is a significant consideration actually. Breakup seems unlikely but it is second time around for both parties, and it could have been ugly first time round had I not retained ownership.

[PTILoveYou]

Gary thanks for your input.

Is there a particular scenario you would recommend regarding our investment in the purchase of the property to the total sale price once the house has been renovated and sold?

Something else I've been wondering about is how to protect ourselves in case the brother fails ill, injures himself at work etc.

Get your brother to take out life & disability insurance!

[jimO]

^jimO This is a house you owned prior to setting up the arrangement with your son?

no i bought it for him to live in as he was renting rooms in dirty old student flats, him and his flatmates are paying $50 a week each less for a room in a decent house with new kitchen and bathroom than they were in a rottin old dump

[Gladdynook]

Gary thanks for your input.

Is there a particular scenario you would recommend regarding our investment in the purchase of the property to the total sale price once the house has been renovated and sold?

Something else I've been wondering about is how to protect ourselves in case the brother fails ill, injures himself at work etc.

I'd borrow the deposit against your home Gary suggested in option one. Gift/loan this to your brother law (with interest payable of course).

Then get your brother in law to borrow the remainder from the bank to purchase the house. This way you aren't liable for the loan.

Keep a record of all expenses throughout the renovation, interest costs for loans, legal fees, materials, etc. Also record the hours spent by both parties. This way once the house is sold, it's not just 50/50, but allows for individual effort.

So you put in the deposit, but receive a fair share the profit for very little work your part. If course if it doesn't make a profit, then you just have your deposit at risk which you may decide still requires payment in time. Your call.

[Kawipole]

I'd borrow the deposit against your home Gary suggested in option one. Gift/loan this to your brother law (with interest payable of course).

Then get your brother in law to borrow the remainder from the bank to purchase the house. This way you aren't liable for the loan.

Keep a record of all expenses throughout the renovation, interest costs for loans, legal fees, materials, etc. Also record the hours spent by both parties. This way once the house is sold, it's not just 50/50, but allows for individual effort.

So you put in the deposit, but receive a fair share the profit for very little work your part. If course if it doesn't make a profit, then you just have your deposit at risk which you may decide still requires payment in time. Your call.

Great explanation. Why would you go down the deposit route rather than like jimO who purchased the house?

[Gladdynook]

If you buy the house like Jimo , then you are limiting your ability to finance any other project ie.another investment property. However with just lending the deposit you will have more options available. If you are in it for the long term, and can cover the repayments if your brother in law defaults for whatever reason, then buying the house could be a good option.

[BigDreamer]

Get your brother to take out life & disability insurance!

I haven't considered that type of insurance. How much does it cost yearly on average?