Some Tough decisions to be made here.

Perhaps the following story from my similar situation will help.

We were in the same boat as this mid last year. We had three investments that were neg geared.

We were out of cash. Had about $1000 left of holding costs, about 2 months worth, and after that? could see danger up ahead.

1 unit not renting well, daggy, underperforming, would be hard to sell.
1 house renting great, but neg geared, but growing in rent, and cap growth nicely.
1 margin loan share portfolio doing well but costing us too much per month.

Add to that new baby, 1 income, Hecs debt, car loan.

After some tough soul searching, lots of talk with advisors, paper scenarios, loss of sleep:

We sold the shares and made some gains there.
This stopped the bleeding a bit.

Finished paying off the car – and finished paying off Hecs, this stopped bleeding even more.

Then to stop the bleeding even MORE – we decided to sell the underperforming unit. (Going backwards!)

We used some money from shares to do up the unit and have now sold it.
(still in that process of sale – nearly finished)

Will take most (70%) of the money and put it to our homeloan and give us more equity and accelerated repayments – but we are spending a bit too!
Got to have some reward for being skint and stressed for ages!

I guess the moral of the story is:
Shoot the dogs!
Adjust your life style if necessary.

If it is Underperforming – and hurting you too much – then you could consider selling.

If it is going well, and you see potential for gain, you could consider adjusting other areas of your life to make up for it.

It’s a risk I guess. We decided to keep one and sell the others.
Once that’s finalised, we’ll go again to the market – older, wiser, and more savvy!

I hope the story of what WE did helps you?

Cheers,
ac

Over a nice lunch (not just liquid mind you!!) I talked with my accountant. A great way to pick someones brain and be guided away from dangerous assumptions…

Amongst other things, I floated the idea of selling my house to a trust and renting it back. Short answer: No.

The ATO looks very dimly on this they issued a warning to accountants late last year in fact – as the anti-tax avoidance laws state all transactions must be undertaken for a valid commercial reason – not JUST to avoid tax. They would view the sole reason of this is to turn a non deductible debt into deductible, and therefore would classify it as tax avoidance. Essentially they are right, the only reason I would want to do it is to avoid non-deductible debt.

My accountant said – it is like waving a flag to a bull and saying “Audit me!!, Fine me!!” which no one wants.

If it was done for a valid reason, like this example:
I am going to move to another house and want to turn it to an IP, and sell it to the trust, and then rent it to someone else –

then it would be kosher.

I am still going ahead with the HDT with limited liability company as trustee for asset protection – can still do neg gearing within it, using the purchase of special units type. This is perfectly legal and kosher.

NB – loan in my name, I buy units from trust, company as trustee for the trust buys the property. All this settles simultaneously, so as far as the bank is concerned – they lent money to buy a property.

I will be a shareholder of the company, and so will my wife, $2 shares issued, and I will be a director of said company.

It will cost me about $2300 or so to set up with a valid trust deed.

Ongoing costs – tax filing, asic company filing etc etc.

I will set it up to do various asset accumulation with as we are about to enter a buy phase.

Cheers,
alwayscurious

Fantastic. So if this house is seen anyway as a “Stepping stone” then it would be a good thing to do from that angle.

Secondly – re land tax – is this payable immediately or is it once the portfolio of the entity reaches a certain $ amount per state?

I believe that is the way land tax is for real humans, is it the same for other entities or is it payable immediately.

Cashflow positive? Not such a big drama for this forum I think can always distribute earnings to lower income partner. Children under 16 I understand attract a savage 66% tax on distributions..

Terry, like your idea about the furniture. I don’t think one of the trustees would approve of the big screen TV – I think the court battles wouldn’t be worth it though

Cheers All. Off to pick my accountants brains over lunch on Wednesday (my shout) – will take this thread with me.

AC.

I would very much like to see some more discussion in this thread also. The author has succinctly asked the right questions that are mulling about in my head also, and I look forward to seeing some answers.

Cheers
ac

Correct me if I am wrong – but

If you don’t claim it, I think you still have to pay the same capital gains tax as if you do?

it’s not the ATO’s problem if you don’t claim it – they offer it to help private investors house tenants.

OOPS – Scott – you got to it first. Should have read your reply more closely.

As useless as a hatfull of busted ars*****s!

My fave:
As happy as a dog with two tails!

“It’s Easier to ask forgiveness than permission”

My Dad’s (From Jackeroo days)
All over the place like a mad woman’s s**t !

I watched an interview with “Crazy John” ilhan – the mobile phone guy. Basically he grew up in a tough scenario and his attitude is if someone says “you can’t do that” He says “Pardon?” What did you just say? And a dangerous look crosses his face….

Red flag to a bull!! Then he goes and does it.

I like that attitude. Too often I’ve been told the same thing – you’ll never be able to get a job in today’s market – they’re laying everyone off, “we’ll be next”, you’ll never afford that dream home,
Bollocks. Bollocks Bollocks Bollocks.

And more Bollocks! I used to take it to heart and think, heck they’re right!

Now I just smile and say “watch me”

I just finished reading ’12 ordinary millionaires’ it’s a great inspirational read.

Get started and become a finisher mate! Focus you’re eyes on the goal.

You may have to leave some people behind to get there.

Go hard.
Cheers
alwayscurious.

Sounds like a scam. If you’ve had the pest control reports done every year tell them that you will happily provide them with the reports and that they can deal with your pest company. Another bargaining point is that you were prepared to buy the house with the existing damage and have been VERY careful *yearly inspections* which is more than most.

You have done the right thing – be confident in your decision.

The purchaser is just trying to reduce the price down. The vehicle for this happens to be
a) quick settlement
b) existing damage which can remain till the end of time without problems.

This is quite common technique – I know someone who had a reduce price because of a damaged soffit board (1) which would have cost $300 to replace (including labour). The purchaser asked for a $300 reduction in price!

Obviously you enjoyed it twice as much as I did emcdonald!!

Hehe, I found my english deterioated significantly after living overseas for a year.

I dropped into the local patios and I find myself still doing it – even if the person I am speaking to has perfect english!!

That made me giggle a bit. I remember this one chap who was from elsewhere in Asia who had to run from the law, ended up in China ‘teaching english’ – I couldn’t understand him, and I certainly couldn’t understand his graduates. I didn’t have the heart to tell them that it wasn’t their fault, it was most probably their teacher!

But I had a crack at speaking Cantonese, which caused many people to fall about the place and laugh at ME.

I remember asking politely “what is your last name (honorably surname)” but I asked “How is your Ghost?”

[blush2]