i'm considering forming a family co or trust with my wife and children to purchase investment properties.`There will be 2 parents and 5 children aged 28,27,15,13 and 11,the older 2 have good job's and mortgages as well as we have.Our first purchase would be one of our own homes as to free up some cash.doing it this way we dont have sell on the open market and take best offer or have a firesale.Loan servicing will be mainly from rent and topping up from the 4 income earners.the property value is aprox $150,000 and we will put in 20%.As capitol growth and income improve we will purchase more.the older 2 children don't have partners.We will have to pay stampduty again and CGT [we've had it for 4 years]but have share market losses to offset that.So my question is what is the best structure to do what i have proposed. Thanking you in advance. Bill
A couple of things to bear in mind:
1) The assets & liabilities of all of the Trustees / Directors (If you use a Corporate Trustee) will need to be taken into account by the lender when assessing loan serviceability and whilst this may be ok now if any of the parties wanted to buy on their own they may find this affects the capacity to borrow.
Remember and natural person under the age of 18 is unable to sign a mortgage or hold an interest in land and therefore this should have some bearing on your way forward.
2) I am unsure why you would want to sell the property to yourself unless it is an uncumbered PPOR which you want to make into an IP and buy another PPOR. Merely to raise a little cash i can think 101 ways to go rather than the expense of selling to yourself.
All in all i think there are better ways to get to where you want to be but without more information it is difficult to comment.
Richard Taylor | Australia's leading private lender
thanks for your reply richard. At the moment we are struggling to service our debt, if we sell one of our properties it will take the pressure off.In this market we may not get top dollar so if we were to sell at bargain prices to someone else ,we as a family should buy it. But what structure should we use.?There is also another property purchase oppurtunity next month.We have plenty of equity but serviceability is a problem .thanks again bill
I have a client who keeps selling properties to himself/family – crazy waste of stamp duty. He needs to because his credit report has gotten very messy due to slackness.
I would suggest to Bill to think about how to make things as flexible as possible from a borrowing POV as well as tax etc. Don't just go and form a company with everyone as trustee – some do this – and it just ruins serviceability and adds risk.
Start thinking who will take part in the first deal in terms of servicing. I would suggest a company as trustee with a discretionary trust – but be careful of naming beneficiaries as some lenders will insist on personal guarantees from all named adult beneficiaries. Maybe have a few trusts set up so that one trust is the beneficiary of the first and the proit can be distributed to the 2nd one which could have everybody named if need be.
Do one or two and then maybe you will need a new company and another trust setup.
Another thing to think about is is some members do not have shares in the trustee company, then how do you protect them. Same with appointors as it is the appointor who can sack the trustee – so maybe another company as appointor or some sort of written agreement which you should get legal advice for.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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