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Me either, but I will comment on the family home issue. I think in most cases its more like my wife and I where we bought the family home in our own names because we didn't know better, and now that we do its an expensive exercise to transfer it into a trust because of stamp duty on transfer.
I believe thats correct. The additional protection comes from having the director of the company thats trustee owning no assets. So for instance if our family home was in my wifes name, but as director of the company thats trustee for the family trust I get sued (in that capacity), our family home is still safe. Of course if you're like us and already own the PPOR in joint names its a lot harder (expensive) to set things up that way.
There's many, many flaws in your plan, but at the very least, 20k p/a is around $385 p/w, and 30k p/a is around $575 p/w, so your plan relies on anyone who matters (purchaser/bank/whoever you want to trick here) not realizing that the rent is $200 p/w above market value with no justifiable reason.
Why can't you use some of that $180k – $250k to pay down the mortgage? Does your IO loan not allow it?
Doesn't sound likely. That said, there's always negotiation. Remember, if you don't proceed, he doesn't get anything at all, so maybe you can negotiate down to a consideration that still allows your project to be profitable. Failing that, I guess you can 'land bank' until the 10 years are up. Pity you're already well under way on getting plans approved. I guess you can always still at least get a solicitor to have a look and see if there's any outs for you.
Thoughts? I think if you don't pay, they'll simply disagree.
I guess if I was in your shoes, I'd be trying to get into contact with one of the people who built the "already 4-5 multiple dwelling blocks in the subdivision" and talk to them about how they went about things.
I'd definitely talk to your solicitor. It doesn't sound right to me, but you're better off being sure.
I'm no expert, but I did just cover off a few of these things with my accountant yesterday.
Cost to setup a trust is minimal, few hundred dollars, with no ongoing costs if you decide not to make use of it for a while.
If you want to setup a corporate trustee though, the corporation costs a bit more to setup, and has annual ASIC fees to pay (around $220 per year) whether you're doing anything with the trust or not.
As far as the trust goes, there are two main benefits
1) Income distribution. You don't mention salaries, but for instance if you're in a higher tax bracket than your wife, the trust can choose to distribute income to her and not you, saving on tax. It allows greater flexibility also, for instance maybe at this moment you're on the same tax bracket, but one of you wishes to retire before the other, so for now the income could be split evenly, but in the future the income could be directed to the retired person entirely. If you purchase in your own names, this is a one off decision that lasts for the entire time you own the property.
2) Asset protection. If you bought the IP in your own name, and something went wrong and you got sued, then they can come after all your assets (i.e., your family home as well). If you secure off the IP in a separate entity you have protection against this. I'm a lot less certain about this, but I think this really needs to be done as a corporate trustee rather than personal trustee to achieve the protection, but either someone else here or an accountant/lawyer could help clear it up.
As for cons, the main one is that while income is (must be) distributed, losses are quarantined within the trust. So if you 'negative gear' a property, you don't actually get any tax benefits as those losses can't be offset against your personal income, they stay within the trust and get accumulated to eventually offset future gains. So you do kind of get a benefit, but its delayed, not immediate like most people want from negative gearing.
As for using the equity as against saving up for the trust, the way I had it described to me is that I would personally take out the loan (in fact this would be a sub-account/split loan on the existing) to access the equity, and then basically sign an agreement between myself and the trust to reloan the money to the trust at exactly the same rates, so basically the trust pays the interest to me and I pay the bank meaning no net profit/loss personally. In your situation having no outstanding loan/mortgage I'm not sure if maybe that opens up further options though.
Hope that helps, and if I'm off on anything hopefully someone more expert will chime in.
Hey, those look like almost the exact color scheme I've been wanting to do our house in. I'll have to show these to the wife!
Great job, look forward to hearing how the revalue goes.
Shape, is that just kitchen or any plumbing or something? Is that all states generally? I hadn't heard about that before.
The first thing that jumps out at me, is that you don't seem to have gotten any discount on your interest rates. I know this wasn't your questions, but even the big banks should come in around 7.1% after discounts. Maybe you should talk to your lenders and see if they can do something about reducing them?
My second thought is that you'd do better talking to an accountant than a mortgage broker about your situation. If you don't already have one, but are looking at growing beyond 1 IP then nows probably a good time to get one involved anyway.
Beyond that, Lukes idea sounds like a pretty solid one if you're set on staying in your current area, but want to maximise your investment ability.
Nice vids, very encouraging.
I was reading through a back-issue API that featured you, and it had a quote along the lines of: "you won't find these deals on the internet or an agents window, you need to do the legwork.". I'm wondering if you can expand a bit on that, what kind of legwork? Is it just visiting as many properties as you can? Talking to as many agents? For someone starting out, how do you recommend they go about finding deals like these?
I'm not sure what advantage you see in keeping the suburb secret when it could well let you get better advice if you specified it.
How did you come up with that interest figure? Is that your conservative "what if?" number? It seems to be over 9% p/a.
Make sure you let them know you're leaving the door open while you wait though. "Ok, thanks. Please let them know I'm prepared to listen if they change their minds or want to negotiate, but for now I'll keep looking for something else."
Didnt post the followup on this really. Condition of the Development Permit was to seal the road for the length of the property (approx 42mtrs so about 50mtrs by the time you joined to the front road), also to put in concrete channel and gutter for that length. Spoke to a road construction company and their estimate (not quote, just over the phone) assuming 4 meters wide (so 200 sq m) was around 3.2k to 3.5k, IF they didn't need to dig out the existing road and relay a base. If they did need to do that, then it would be more like 19k (lotta dirt to cart away and bring back). Council seemed to think it shouldn't need to be relayed but that was just a quick inspection, not a proper engineers (or whoever) inspection.
Add in the fact that we were also going to be required to put in a streetlight on a street with no current electricity (estimate from powercor around 6-7k) and there were just too many extras eating into potential profit and too much extra risk creeping in for my comfort. I couldn't make the numbers work for me.
I did it with the second house I bought (3br townhouse in Hawthorn) a number of years back now. RE agent was quoting a range and said vendors only interested in offers prior that were above that mark. At that time underquoting was standard anyway. In our opinion that house was in the upper ranges for quality in the price range we were looking at (frankly nothing else came close), so we put in a fair offer, they came back with $10k more and we snapped it up. They got the price they wanted, and we got it guaranteed at a price we were happy with as against taking the risk that someone with deeper pockets turned up at auction wanting it.
As long as its a price youre happy with, go for it. Nothing bad can really happen (sure maybe you could get lucky and get it cheaper at auction, but you could also get unlucky and have it run hot and go for more). Its a price youre happy with and prepared to pay, so if they accept you should go into it happy with the result.
Thanks for all the responses. I guess at some point brick walls could come back in favor, but by the same light I dont think plaster walls will ever go out of favor. Looking at a block of flats, old 70s brick boxes basically. Structurally ok, kitchens need an update, but with the walls between the flats being bare brick on each side.
Could be, I just figured the 3 years prior to last year would have pushed things up enough to still have had growth over the entire period.
Ahh well, just take a bit longer.
I think I'd go back to the accountant and ask him for figures to show why selling and buying a better tax placed property would be of benefit.
If you're a 30ish single income family in the 30% tax bracket I'd be less worried about tax and more about profit.
Have you asked your accountant what advantages there are to buying a different property 'structured better for tax'?
I'm far from a tax expert, but if the plan is to get positive income in your wifes name (either buying property in her name or through a discretionary trust), then you need to make more than the $23k worth of tax savings to make up for the selling/buying costs you mention. Thats around $70k worth of profit (not income, profit) at your 30% rate you're paying now. Except I assume its already in both your names so its only the 50% of the profit in your name currently taxed at 30%, so more like $140k profit.
On the other hand if he's talking about buying negatively geared property, then of course you only make 30% of your losses back from the tax man, so now you're losing money and only getting marginal help from the tax office. So your single income family now has less money week to week to live on.
I dunno, maybe the experts on here or your accountant cant pick up where I'm going wrong, but I don't see much advantage in selling.
A different option might be to borrow against all that equity in the old PPoR to buy a second IP. Even if you cant find a positive or neutrally geared property on its own, the profits from renting your old PPoR could be used to offset any loss in the new one giving you 2 IPs that cover themselves as a pairing that will move positive as rents increase overtime, and giving you twice the capital growth whenever that happens.
Meh, like I say no expert, just rambling ideas.
