Hi all,
7 years ago I bought an investment property and sold it after 5 years. Never thought about it, never analysed it and profited nicely from it. No problem.Now that I want to get into it again more seriously though, I'm reading everything I can get my hands on and find I'm more confused than ever.
Here's my situation. I'm looking to buy 5-10 properties over the next 5-6 years. Nothing too crazy, just a nice little portfolio that will help me in retirement (I'm 38 wanting to retire at 50). I currently have access to $160,000 cash. In addition I have around $150,000 equity in my PPOR.
FINANCE QUESTIONS
My PPOR is 60% owned by me and 40% owned by my family trust. This is because I used 40% of my home for my business. My accountant wants me to buy future property under my trust for both to save on CGT and I suspect to protect the investment. I want to buy at least one property in my business so I can claim the tax deductions. I know the same deductions apply to the trust, but I can benefit more from applying the losses to my company straight away so I was thinking that the company should buy the first property in a desired inner city location (Richmond, South Yarra etc) and benefit from the tax deductions, then use the trust to buy the other properties that would hopefully have a higher rental yield. My trust doesn't have any real income yet my business has surplus income and can afford to sustain the losses beter. Sure I could take the cash out of the business and give it to my trust to pay the mortgage but is that the best option I wonder? I've asked my accountant but he just wants me to do nothing and pay off my PPOR. I don't want to see a financial advisor and yes I totally understand any advise on this forum is simply friendly advice and not to be taken verbatim.INVESTMENT QUESTIONS
Based on having up to $300K to use for deposits, am I better off sticking to inner city while I can afford to and wait to focus on the higher rental yield properties a bit later on. Should I spread the risk focusing on $300-$400K properties or should I get that nice high growth inner-city $700K property now while I can afford to?My goal is not to be stupidly rich. Ideally I want to retire at 50 and sell the properties as I need the cash to live on.
Hi RaeMelb,
I think you need to sit down with a different accountant and map out what you want to achieve- or a broker. You have a lot of options but you need to work out what is right for you. For my own, I would spread my risk and buy many properties that provide you with a return. Inner city is great but look at what the aging population is looking for as to what will be investment of choice in the future- when you are 50. I was until recently a real estate agent (more intent on investing-hence my postings on forums here). Often I would see where we would sell a dual occ for as much or more than we would sell a similarly located and appointed property- that is the retirees would want this type of home and with more disposable income would push the price up.
I hope you are able to find what you want- buy lots of properties!Hi Rae
I think the crux of your question is can you finance the deal within your Trust without evidence of Tax returns and P & L Accounts.
Simple answer is still YES subject to a few conditions.
Some lenders / mortgage insurers require evidence of your last 2 Business Activity Statements and 6 months Bank trading statements others require merely a self declaration of income.
Certainly can be funded with 20% deposit plus costs.
Richard Taylor | Australia's leading private lender
Thanks Richard. I'm not concerned with the tax returns etc. I'm the sole director of both my company and my trust so the bank will look at both regardless of which one does the investing. The company is profitable whilst the trust doesn't really do anything. My real question is whether it's better to make an investment with my trust due to the protection of assets ir offers, or my company which could sustain any costs and would benefit better from the tax deductions but is at higher risk if the company was sued or something .
Rahrahprincess. Great advise. Where would I want to live when I'm 50 is a good question and definitely one to consider. I think I'm going to go for a mix of inner city and growing outer suburban – spread the risk I guess.If you buy in your company you lose the 50% CGT discount. Also, if you do decide to keep some or all of the properties you may want to later transfer control to a smsf which you can only do with certain types of trusts. Take a look at the different trust structures (not a family/discretionary trust) to see if you can achieve the immediate tax deductions anyway (see the 'how to' guides here (they use macquarie deeds) http://www.investorone.com.au/index.aspx?p=trusts )
If you disagree with your accountant or feel he isn't giving you the info you need for you particular situation why don't you set up one or two meetings with an accountant who specialises in property investment. He should tailor his advice to your circumstances and goals and answer all your questions accurately. You could save yourself a lot of headaches by getting the structure right upfront rather than trying to make an educated guess and not necessarily knowing all the variables (for example the cgt thing).
A few things to consider…..
are you looking to hold these until you retire?
have you thought of the tax implications?
the best tax haven for investment is your supperannuation. If you held your properties through super, then in the years to come when you retire you will pay no tax!!!! and in the mean time only pay 15% rather than your marginal tax rate. HOWEVER!!!! this needs to be structured correctly, as you cannot borrow in Super. This is a field that I specialize in.Then, where and how much?
one option is ( i will talk Sydney just for arguments sake)…
If I buy a brand new appartment, which will give me enormous tax considerations over the first few years, within a 10 km radius of the CBD at the average appartment price, ie $500k. Why? well in due time if i go to sell, this will still be at the average appt price, which will hopefully increase in years to come. why that radius of 10 km?well, in sydney the avg appart price is $500k…. in the same areas the avg home prices can be around the $1mill mark, so a good option as it means i have an exit stategy if i need to sell, as a first home buyer wanting thisd area has only one eye on that price range. Whereas if i gi further out ie Parramatta, avg appt price is still $400, but avg house price is $500k…. therefor exit strategy means that the buyer will also have an eye on a home 'for a little bit more'……..
just a bit for thought…..
PSorry Piersw
Just to correct a couple of matters in your last post:
1) You cannot borrow in Super. No quiet right although admitedly the borrowing needs to be done through a Instalment Warrant.
2) and in the mean time only pay 15%. 15% is only paid on the deductible contributions and the fund annual profit. If the fund is entitled to received concessional CGT on the sale of an Asset within the fund the rate is 10%.
Richard Taylor | Australia's leading private lender
My My RaelMelb, you have stirred up quite a lot of responses. I was not so much thinking about where you want to live but thinking about the aging population. Where are you best to put your assets that they will have the most demand over the time – and that is a looong time lol til you are 50. We have an aging population, not all young swingers have the $$ to but an inner city apartment when the time comes for you to sell. Our older generation are putting pressure on the type of accommodation that they desire. Well, you can also ask what you would prefer to live in when you are 50 but look at where the pressures are.
Yes, you can go to a tax adviser. All of the contributions here are good advice but you really need to seek advice for your own situation. This is a great forum to see what else is out there and what other "normal" people are thinking.See you
Thanks all for the contributions. It will be helpful when I meet with my accountant next week.
You must be logged in to reply to this topic. If you don't have an account, you can register here.
