Forum Replies Created
Thanks costymike.
When writing a formal loan agreement between myself and my trust, I gather the agreement is between myself and the trustee of the trust. So if the trustee is a company where I am the sole director, the signatures on the bottom of the page would both me mine. Can you see any issues with that, or is that sort of thing commonplace?
Cheers,
CarlHi Richard
They hadn’t actually planned to take my GF off the title, at least not yet. As far as I know her mum was just going to take her off the loan, so the facility was in her mums name only.
Is it fair to say that with the two off them on the title (as tennants in common, 99/1 split) there could be two facilities, one in the mums name at 90k or whatever it is, P&I, and a second one in my GF’s name, call it 20k or so, IO, for investing?
My GF’s mums servicability isn’t exactly crash hot, so I don’t believe that the bank would let her take out another loan on top of whats already there, so unless the new facility was in my GF’s name we’ll have to look at something different.
Cheers,
CarlThanks for your input guys.
Ok, so this is how it would work then, in theory:
– I borrow 10k, buy units for 10k in the HDT
– margin loan size is 10k
– lets imagine funds yield $2000 for the year
– $800 is used to pay interest on margin loan
– $700 is distributed to me which I declare as income and use to pay the interest on my loan, which is then tax deductable (as I can prove that I used it to generate that income)
– the remaining $500 is distributed to beneficiary of my choosingFor the purpose of this excercise lets imagine there are no gapital gains to consider..
correct me if I’m wrong, but if I use a unit or hybrid trust and buy units, then when the trust uses the money I paid for the units to buy an asset all the income the asset produces have to be distributed to the owner of the units. That would mean that I can’t distribute the profit to someone else… Is there a way around that?
Hi Terry
Yup, I did. In hind sight it’s pretty obvious that he meant that the TRUST would hold shares, not him holding shares in the trust. I gotta learn not to reply to posts when I havn’t had enough sleep
How did the bangkok property work out by the way?
Hi Toolman
I’m relatively new to property investing myself and far from an expert. However, I’ve read a lot of books and other material from both the ‘positive cashflow’ camp (Steve McKnight, Robert Kiyosaki etc) and the ‘capital growth’ camp (pretty much everyone else), so lets just say I’ve heard both sides of the story many times over. After doing a lot of research myself I have tried to form my own oppinion about how to invest based on all the information available rather than follow one person or company’s formula. I know that’s not for everyone, but that’s my approach anyway…
My advise to you is this: do more research before jumping the gun, especially in relation to selling your property! After reading “0-130 properties in one year” by Steve M I felt exactly the same way you do. Let me just warn you though, there are a lot of hidden risks with positive cash flow property that might not be plain to see, especially if you intend to buy and hold as your main strategy. Remember that Steve made most of his money using Wraps, this wasn’t apparent to me in the book I read..
My personal oppinion is that if you only buy one type of investment property (positive cashflow or capital growth) then you are exposing yourself to a particular collection of risks (for example, buy and hold used with positive cash flow is VERY vulnerable to interest rates, and capital growth is obviously a slave to the property cycles). Just be careful to not put yourself in a situation where factors that are out of your control can put your strategy at risk, or at least have a plan B if things to bad (selling 100 properties over night in country victoria that are no longer profitable just because interest rates jumped 2% would be a bit of a nightmare).
I look at it this way, negative gearing is great for people that pay too much tax, but there is a limit which you reach very quickly depending on your income after which you can no longer keep growing your portfolio due to the negative cash flow. However, even when you reach that point, as long as you have EQUITY you can still buy positive cashflow property or invest in other things that generate cash flow, so owning some good growth properties is certainly not a bad investment choice in itself, unless it stops you from living the life you want and investing in other things too.
I certainly wouldn’t advise to sell your negatively geared property simply because it’s negatively geared. If it’s a good property in a good location, and it’s likey to attract good growth in the future then there is no reason to get rid of it. Unless of course owning the property is stopping you from investing in other things because your cashflow is so damaged, in which case it may be better to pull the plug on it, I don’t know. Just don’t discount it as being a bad investment over all just becuase it’s not improving your cash flow right now.
That’s my two cents, and I’m sure a lot of people on this forum will disagree with me.
Cheers,
CarlA trust doesn’t have shares so I’m assuming that the structure you’re talking about involves a company at some level. Is the company the trustee for the trust or a benificiary of the trust? It sounds like the company is a benificiary of the trust and you are trying to access income from the properties by the company paying out dividends to you, is this correct?
As far as I’m aware, if the company is distributing profits from a previous year, which have already been taxed at 30%, then you as the shareholder will recieve franking credits to reflect this, and not have to pay the same tax again. I.e. if youre in the 30% tax bracket you pay no tax on the dividends, if you are in the 42% bracket you might pay 12% etc. I’m not an expert but that’s how I understand it.
Hello
Stamp duty can’t be claimed period. However I believe that since loan establishment costs are claimable over 5 years normally I’m sure you could claim what remains of this. I.e. if you lived in it for, say, 12 months you can claim 80% of the costs over the first 4 years of renting it out.
Cheers
If the property is already in your name you can’t transfer the title without paying stamp duty (as though you’ve sold the property to the new title holder).
I’m in the same boat with my first property, and I’ve decided to just leave it as is and buy properties in trusts from now on. One set of deductions now and one potential income stream in the future are acceptable to me rather than paying the stamp duty penalties.
If anything I’m more concerned with the lack of flexibility in relation to drawing on the equity (since my property is all about capital growth). But I have a feeling that it’s going to be ok because I’ll need cash for investment purposes from time to time in which case I can draw on this property’s equity, and if I need spending money I’ll draw on equity from another property held in a trust etc. It would have been a different story if I had 5 or 10 properties (especially capital growth properties) in my name.
If asset protection is a concern then there are ways to protect an asset owned in your own name using trusts without actually owning the property in a trust.
Hello
As far as I’m aware if the title is in X’s name and Y is only a guarantor for the loan all income and deductions have to be claimed by X. The only way Y is entitled to deductions is if the loan is in both X and Y’s names (not sure if that it possible without the title also being in both names).
There are a number of ways to equally split the deductions/profits from a property but most require the right structure to be in place before the property is bought. Unless you are prepared to pay the ‘penalty’ stamp duty which would be required to transfer the title (or part there of) I think you’ll have to accept that X get all the deductions (and later potentially any profits and capital gains).
Hope that answers your question.
Good point. I’ll see whether I can figure out what the ATO thinks..
I can’t remember the name of the firm (it was a Melbourne firm). I’ll see if I can find out.
Nice one coastymike, that was exactly the answer I was after. In your experience, would each new property be placed in it’s own unit trust or would you reuse each unit trust for a number of properties (to the point where land tax, or exposure to lenders come into play)? Would you use the same company as trustee for both the hybrid and the unit trust(s) or would it be important to use a different trustee?
In relation to land tax calculation, from what I understand, whether or not the land values are compounded depends on whether a number of trusts have the same benificiaries. So if you use a single hybrid and a number of unit trusts the fact that same hybrid bought the units in the unit trusts would then the land tax be calculated as though the propertied were in the same trust? Could you avoid this by having a different hybrid under each unit trust (the unit trusts would then have different benificiaries), or if each property shound be kept in it’s own unit trust perhaps each hybrid should be used with only a couple of unit trusts.
Any comments?
When a prositively geared property has been transferred to a SMSF I’m guessing the profit from rent would also only be taxed at 15%, is that correct?
I meant more in relation to holding the property itself, where I’ve heard of people using a hybrid to achieve the negative gearing, yet the property might be owned in a separate trust (not hybrid) where the hybrid may in turn have bought units. The place I read it was really dealing with a different issue altogether so the part about the trust structures was pretty vague. Personally I haven’t read anything to indicate that you would really need (or coule benefit from) having more than a single hybrit which owns the property, and where you then buy units. Any comments?
I’ve spoken to a few people privately and the answer to the posted question is: yes, if you’ve got a good insurance broker it can be done and doesn’t cost any more than income protection the normal way.
Richard, I will still take up your offer and run my whole situation by you. Email will be inbound.
Thanks for your input guys.
Redwing, if I hold the loan and purchase units, then rent the property from the trust myself, I loose the negative gearing benifits because with that setup the ATO will view the property as being used for private purposes. However if the loan is held by the trust and not me, I understand that this is not the case. I’m just trying to set up a 100% legit structure whereby I can live in my own investment property and still get the IP benifits.
Cheers
Excellent, I guess that’s all I really needed to know. Thanks.
When I rent it out (and thus turn it into an IP) it will be. My question relates to deductions on depreciations I was entitled to before that point (if it had been an IP), but that I didn’t use (because it wasn’t an IP then).
Cheers guys.
I would also like data about median rental yield and interest rates. If anyone is sitting on this, or know where this data can be found please let me know.
That’s a very important point actually, because she may actually be on some sort of pension. I will definately have to look into that.
