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Thinking about how to not waste the tenant's money

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  • Thinking about how to not waste the tenant's money

    Hi all

    This may have been covered previously but a quick search over recent topics doesn't raise this scenario. Perhaps many have already considered this and established it's a bad idea. The view here may be that this introduces risk, or perhaps won't achieve what we are after, and I'm interested to get a few opinions on the idea.

    We have 2 properties under a family trust.
    The rental has been tenanted for 3.5 years by good and trustworthy tenants who are very happy with the property and previously expressed interested in purchasing it. Though they are a long way off this being a reality due to a lack of deposit.
    The property value is circa $1.5million with $850k borrowing against it, rented out weekly for $820 (up to $60 below market at present).
    Once lack of interest deducibility starts to bite, this property will cost us approx. $14,000 to hold per annum.

    My thinking is, how do I convert the "rent", being income, to not being rental income.

    One idea is having the tenant's take out a mortgage with the trust (due to roll off July 2022) with mortgage payments then being made directly by the tenants (no longer paying rent).
    An occupation agreement in place which records rights and obligations, similar to a residential tenancy agreement. But also records the benefit agreed to be the tenants' as a result of capital payments made and difference in market value upon "sale of the property".

    The thinking being, in the future, we will either sell it to them, or divest it and they take their slice.

    This seems like a rent to own scheme, without a completely altruistic motive.

    For example:
    2022 valuation $1.5m
    Joint 30 year mortgage of $850k over 5 years at 5%
    Total principle paid $60k after 5 years.
    2027 valuation $1.8m (obviously made up).
    Total equity owed to the tenant by the property/trust:
    $60,000 + $72,000 (being $60k/$1.5m*$1.8m)

    The main risk is if we choose not to sell the house, it's just cost us $132,000 to not pay $70,000 ($14k x 5) in tax.
    If we do sell it, at least what was due to go to the taxman has gone into the tenant's equity pool.