Need help with a plan?

Share it Own it – Family Enabled Retirement (SiOi-FER)

What is it?
(SiOi-FER) is here to help soon to be retirees and their families in having another option when it comes to financial retirement plans. All this is done with the help of your own family and the Share it Own it platform. It works by helping release mortgage debt that the parents might have and transfers this to the children in return for an equity share of the property. All this is done with the help of your own family and the Share it Own it platform. We’ve spent years working on the process, to make it as simple, pain free and as cost effective as possible.

Who can benefit from this plan?
– Mid 50’s plus and looking to get rid of debt before retirement
– Mid 50’s plus and looking to get a lump sum of cash before retirement
– Children who want to help Mum and Dad for an equity share of property (and to help out Mum and Dad)

Overview
– Retiring baby boomers may not have achieved full repayment of debt within their working lives.
– Retired home-owners often have significant equity in their home, but no way to benefit from it whilst they are alive
– Reverse Annuity Mortgages are no longer widely available and are not always appropriate given the capitalisation effect of accrued interest (nothing left for the kids when they die).

According to the Deloitte Australia report, the total value of the New Zealand reverse mortgage market is similar to the pre-global financial crisis period. But the number of mortgages has been decreasing while the average loan size has increased. In December 2008 there were 6878 reverse mortgages and the average loan size was $62,516. As at December 2013 there were 5338 with an average loan size of $83,229.

– Very capable ‘would-be’ first home buyers are giving up on the dream of home ownership and their parents are often very willing to help
– Kids often don’t want their parents selling their home to fund their retirement and would be willing to help fund some of the retirement costs, if it was fair and equitable for all parties

Historical solutions:
– Parents have often acted as ‘guarantors’ where they put up collateral security to give the bank the comfort they need with first time borrowers. This is being made incredibly difficult however due to the ‘Responsible Lending Code’ (lenders cannot lend to any family situation where there could be a vulnerable party).
– RAM – reverse mortgages could provide funding in retirement but this was effectively a gigantic revolving line of credit that effectively had compounding interest.
– Sell and downgrade, and pop the difference in the bank. Very hard to move out of an area often where all your friends and family are.

FER – The proposal

Family purchase shares in the parents homes. Parents use these funds to pay off mortgage debt, fund living costs, medical costs or provide an advance on their children’s inheritance.

Example of SiOi – Family Enabled Retirement

Lisa, Jono and Dave (siblings), have parents, Jill and Pete. The parents worked hard raising three kids and sacrificed a lot for their children, especially when they were young and they wanted to spending time with them in the early years. The three kids love their parents and would love to be able to give back in some way. The parents need help as unfortunately they haven’t managed to put away enough of their resources during their working lives, to cater well for their needs in retirement. In fact they are both 67 years old and wanting to finish work next year but they still have a mortgage! How do they release themselves from their mortgage so they can enjoy the golden years without a huge debt to worry about. The kids hatch a plan, get in touch with SiOi, and here’s what happened…

The Family Enabled Retirement (FER) plan was put into place. This requires a portion of the parents house to be sold to the kids so the parents could repay their mortgage. In return each of the kids who put in get a share of equity.

Parents, Jill and Pete are more than happy with the plan and sell a portion of their home to their kids. They look at it as the kids are going to inherit it one day regardless so why not make that now and not in the future.

– Lisa has $75k savings / Jono has $30k savings /  Dave has $5k.
– The parents’ home is worth $1m and they have a mortgage of $100k.
– The number of shares ended up being: 75,000 shares to Lisa / 30,000 shares to Jono / 5,000 shares to Dave / 890,000 shares to Jill and Pete.
– The funds from the children was used to pay off the $100k mortgage and associated costs.

Where to from here for Jill and Pete?
6 years later Pete may need some funds to pay for knee surgery. Lisa has been keen to purchase more and she can raise funds off her own home and purchase more in the future – so, another tranche of shares are transferred.  A little later on Jill and Pete agree to sell more shares to fund another operation and take a worldwide cruise. Luckily they can manage to hang on to the property as it’s in a good area – the capital gains are now funding their lifestyle and they haven’t had to move house!

The kids are winning also – Two of the three kids don’t actually own any other property apart from their parents home. Their portion of shares in the family home have now increased at a rate which is faster than savings in a bank too.

So, a little help from the kids and SiOi, and everyone’s winning!

Features :

– Shareholders can progressively increase and decrease their holding in the property owning company
– First home buyers (kids) can purchase a share of property and whilst they may never own the house they live in, they will be able to own property
– Parents are effectively tapping into a tax-free revenue stream which they would not normally see until the house is sold. Benefits :
– The property owning company is managed by SIOI to ensure that the company constitution is adhered to and all parties treated fairly.
– If any family member does not own shares in the parents home, that’s fine, as everything is openly disclosed on the companies website and at the time where the parent’s estate is divided, all is transparent.
– Intergenerational wealth is transferred fairly to the next generation efficiently and at the right time.
– Parents can fund their retirement via capital gains in their property.