Hi Guys,
I’m in my early twenties and I’m looking to buy my first IP which will most likely be negatively geared.
What are your experiences buying an investment property under a 1) your personal title 2) company title 3) Trust.
What lessons have you learnt both short and long term?
Although the costs and benefits of a company and trust are probably not applicable to my situation right now, I’m keen to explore the positives and negatives of each form of ownership before I buy; because by changing the title down the track (ie. when I have a family, accumulate more property etc), I could be up for thousands in additional stamp duty and/or capital gains tax.
Cheers
There are multiple options and different benefits and drawbacks for different options in different states.
Company by itself can be useful for a development but not for investment (No CGT discount for example)
Land Tax varies greatly for different entities in different states.
If you are negative gearing a discretionary trust is not going to help.
But you could buy 50% in your own name and 50% in a discretionary trust. You could buy in your own name but utilise a layered structure with a discretionary trust for asset protection but actual title held in your name for negative gearing.
If you were in NSW then land tax will kill you on a discretionary trust.
RPI | Certus Legal Group / PRO Town Planners
http://www.certuslegal.com.au
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TRM390,
The first rule in property investing is keep it simple. Of the 100 plus properties we buy for clients in a year, less than 10 would be inside a structure. Of those, 7 or 8 would be for people who own north of 15 properties and the other 2 -3 are lawyers who are very risk adverse.
Also, I am surprised that at today interest rates the property you are buying is negative geared, is this before tax or after tax? What percentage of debt are you borrowing (LVR)?
Modernity Investing
Email MeYou could buy in your own name but utilise a layered structure with a discretionary trust for asset protection but actual title held in your name for negative gearing.
kane9539 | Real Estate
http://thewatersal.com/
Email Me | Phone MeWhat lessons have you learnt both short and long term?
Hi TRM
If you’re considering purchasing in a different entity you’ll need to consult some professionals who will tailor advice to your specific circumstances. Speak with a good solicitor and accountant about the different entity options.
Agree with Mark though – the majority of clients I deal with purchase under their own name.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
It’s great that you’re thinking about the end game now.
You might also like to find out about testamentary trusts if you’re concerned about estate planning, they activate as part of your will and might you help with passing on assets in the most advantageous way.It’s not a black/white choice either, you can start off investing in your own name and then for future purchases buy in a structure. The cost of setting one up and keeping it compliant can add up, and you’ll need to consider other impacts such as land tax as already mentioned.
CanberraClaire | Capital Buyers Agency
http://www.capitalbuyersagency.com.au
Email Me | Phone MeExclusively for property buyers
Thanks for all the great discussion points guys!
I am in Victoria, so I need to look into how holding a property in a trust is affected by land tax. Does anyone know off the top of there head if it is similar to NSW?
Hi Mark & Jamie – Thanks for your insight guys! I understand that the majority of people buy in their own name, however I guess looking at the end game I would like to be in the minority who own more than just the average 1-2. So if I can take notes from those who have done really well, I hope it to put me a little ahead of the game.
After a little more research over the past week, the negative gearing is my next sticking point. I have a conditionally approved loan for an amount which allows me to buy a small 2 bedroom house/unit around where I am currently living in eastern suburbs Melbourne which I know well. An area which has experienced some great growth in recent times – has some major developement plans in the next few years, it is close to schools, shopping centres, major train station etc. However my LVR is around the 95% mark which slight concerns me.
I have started looking at:
– Properties in regional victoria which would be neutrally/positively geared however I just don’t know the areas that well and obviously they are harder to go visit over the weekend.
– Suburbs a little out of where I am currently looking, which will be slightly better geared but probably won’t get the capital gains as they are that annoying 15min from the freeways and will probably attract a lesser quality tenant given the current demographics of the suburb.Thoughts on a LVR of around 95%?
Capital growth is king! Always target capital growth as your primary goal, yield should be your secondary goal. At todays interest rates you should be positively geared after tax, this is an important point when looking for an investment property. Everything we are buying with 100% debt (borrowing the 20% deposit included) is positively geared after tax.
Modernity Investing
Email MeLand tax is vic is different to NSW. Trusts do get a threshold there, unlike NSW, but it is very small. But the rates of land tax are higher for trusts than individuals unlike NSW.
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
Land tax is vic is different to NSW. Trusts do get a threshold there, unlike NSW, but it is very small. But the rates of land tax are higher for trusts than individuals unlike NSW.
Given this I would consider own name if I was you. (unless your day job is high risk of being sued like medical dr or similar)
BuyersAgent | Precium
http://www.precium.com.au
Email Me | Phone MeSouth Coast NSW Independent Buyers Agent - Wollongong to Batemans Bay and Regional NSW. DOWNLOAD OUR FREE 14 POINT PROPERTY BUYER'S CHEATSHEET to avoid painful mistakes at precium.com.au
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