Forum Replies Created
Duo,
This sounds like a great opportunity to get some free money!
If the Vendor reneges on their contractual obligations, they’ve breached the contract. This could make them liable to pay you damages. And if they sell the property for a higher price while it’s still under contract, you could sue them to get the profit you would have made if you sold the property at that price.
However, whether or not you’re in the box seat or stuffed depends on the exact wording of your contract. I strongly suggest that you march straight into a solicitor’s office to get some preliminary advice on where you stand.
Also, I wouldn’t wait too long before you do something about, it, because you could end up losing your rights.
The bottom line is – don’t let them get away with it! All the best!
Cheers
MNote: this is not intended to constitute legal advice – you really should go see a lawyer.
Hi fullout,
I hate to say this, but the stuff the salesman fed you about having to make a quick decision was typical sales drivel. I think that’s quite unacceptable if you’re not even given a chance to properly think over your decision, or to thoroughly read the prospectus.
Your gut feeling about have to do due diligence is correct.
In all my years of working with both small and big businesses, I’ve never come across a single businessman or company director who made a snap decision to commit financially, and didn’t regret something about it later.
I’d bet you that these people probably spent months crunching the numbers and negotiating the contracts for the project before they decided to go ahead with it. No snap decisions there!
Are you saying that you charged your credit card with a $5,000 payment to buy into the project?
Anyway, I don’t think the credit card company will let you cancel the payment unless it was an unauthorised transaction.
You’d probably have to try to recover your money by alleging some kind of misleading and deceptive conduct, which you relied on in making your decision to invest. If they refuse to refund your money, the first stop is to complain to ASIC about their behaviour. If ASIC doesn’t want to know about it, you’ll probably have to hire a lawyer to get some legal advice. (please note: my post is not intended to constitute legal advice – you’ll need to hire a lawyer to give you proper legal advice).
Hope things work out for you.
Cheers
MAnd there’s an up front fee of around 1% of the loan. However, this is still cheaper than mortgage insurance, which I think is around 1.5%.
I used the Liberty loan – I thought it was great to help give me a leg up into my first property, but it’s definitely only a short term loan, and the people at Liberty actually acknowledge that. I’ve refinanced after 12 months to a much more comfortable rate, but am still quite thankful that Liberty was there to give me a hand when the banks didn’t want to know me.
The other plus is that there’s no “break” or refinancing fees. I don’t know if that still applies, but that was the case for me. Like I said, Liberty has the realistic expectation that people will want to refinance as soon as they can.
Cheers
MChandara made a really insightful comment in one of his posts on another thread – namely that if you start getting property investment tips from your taxi driver, you’d better start preparing for a correction.
Of course, the problem is always when, not if.
I’m personally preparing myself for a correction, so that when it happens, I’ll be in a good financial position to pick up some bargains.
The risk is usually because these developments are hocked up to the eyeballs, and mezzanine debt is borrowed based on the anticipated value of the completed project.
As for mortgages, it’s usually a second, or even a third, mortgage, but definitely ranking below the bank’s mortgage (how it works is that the developer borrows most of the money from the bank, usually around 70%, and the rest from mezzanine debt and equity investors).
When the project goes sour, it usually does so before it’s completed. Which means that the bank steps in – and they only care about getting just enough to cover what they’re owed. If there’s no surplus, the mezzanine investor’s 2nd mortgage is as worthless as a politician’s promise to lower taxes (that is, sometimes it happens, but it usually doesn’t).
In some cases, the mezzanine debt is “wrapped” up in a trust structure, so you don’t even have direct rights to enforce the mortgage – you have to go through the trustee, who is usually an entity put in place by the developer. Even if it’s an independent party, there’s no guarantee that what the trustee thinks is the best course of action is what you really want done.
As you can see, the risks are high, which is why the returns are also high – to compensate for the risk. Obviously, there are projects that work, and the mezzanine investors get a nice fat payout. But you need to be prepared to lose everything you invested. If not, then invest your money somewhere else.
GMan has a point – check to see if there’s a prospectus. If there isn’t one, it may be illegal, or an unregulated “gold card” investment (meaning that it’s only for “sophisticated” or professional investors). However GMan – those $500,000+ investments you talked about are unlikely to have a prospectus, since they would be gold card investments.
Cheers
MSure – I’d love to hear your views.
Will e-mail you tonight when I get home.
As long as you had any ownership interest in a residential property before, you automatically become ineligible.
But you could still inquire at the relevant State Revenue office to see if your particular circumstances are okay. There’s nothing wrong with making an application anyway, as long as you fully disclose these facts.
If you fail to disclose these things, you could be up for a hefty fine and criminal prosecution.
Hi guys,
Does anyone have any recommendations regarding country towns in WA?
Thanks
MHi Steve,
Congratulations! I’m in the process of trying to write a book myself (not so much on property investment, but on how to do your own settlement/conveyancing for residential IPs you buy), and am looking forward to the feeling when I finally finish it!
Anyway, I’m keen on a copy of your book too Steve. Always on the lookout for more learning material.
BTW – just for budgeting purposes, how much do I need to save up for your book?
Cheers
MHi guys,
I think that the experts have a reasonably good idea of what’s going to happen, but not when. It’s the same with the property boom in the 90’s. It’s the same with every stockmarket boom.
That said, I’m still looking to buy IPs. My view is that it’s not whether you buy in boom or bust, but whether or not you got the property for a fair price or below when you buy. If you do, then logic suggests that when the market does tank, you wouldn’t be affected as much, since you didn’t pay a “boom” or blue-sky premium for your property.
Then again, I could be proven wrong when the market does go south. Who knows?
Cheers
MI suspect that if you are an Australian tax resident when you sell your UK property, you may indeed be up for some tax.
I’m not too sure about how it all works, unfortunately. Perhaps someone else on this forum would know.
At the end of the day, if you’re talking about a lot of money in potential CGT, you should probably consult a good Australian tax accountant. It’ll be worth the several hundred dollars or thousand plus bucks that you have to pay, if it means the difference between you having to pay tens of thousands of dollars in CGT or not.
I don’t know if there’s any CGT equivalent in the UK – you should also check that out with a UK accountant.
I think the simple answer is that if there’s no UK CGT, then you should sell your UK property before you become an Australian tax resident. It seems to boil down to a question of timing everything perfectly. As to exactly when you become an Australian tax resident, whether any of my assumptions above are correct, or how you need to time each step in the whole process, you should spend the money on the 2 accountants, because I’m not one.
I’ve got a good accountant whom I use in Perth – if you want his details, just send me an e-mail.
Cheers
MG’day Matrix,
I was impressed by his 2-hour seminar, so I signed up for one of his Fast Property weekend seminars a few years ago, and paid a $615 deposit to secure my spot. Back then he was operating out of a company called Asset Corporation Australia Pty Ltd, based in Victoria.
However, I couldn’t make it, due to impending work commitments, so I called them up and asked them if I could cancel and have a refund – I would still be keen to attend the next weekend seminar they held in Perth. They said ok.
A couple of weeks later, I still hadn’t received any refund. I called their office so many times I could remember the number off the top of my head. The first few times, I was assured that the money would be refunded. Later on, I couldn’t get through at all – I had to leave messages for someone to call me, but nobody did. wrote some letters to their office in Melbourne, and subsequently directly to Warren’s home (the ASIC public database has lots of information!), but no response.
I finally had to get a law firm to write a rather firm letter to them. Guess what? I got a call from them within a few days! After 1.5 months of trying to sort it out myself, with nobody bothering to return my calls. Anyway, they promptly refunded my money shortly after the call.
I’m not making any allegations. I’m merely stating the facts of what happened to me, and my personal opinion and feelings about these facts. I personally was very impressed with Warren’s 2-hour seminar, and really did want to attend his weekend seminar when it was next in Perth. But this whole experience has left me quite disappointed and unimpressed.
However, it may be that the weekend seminar is indeed worth the money. Unfortunately, I’ll probably never find out for myself firsthand.
Cheers
MHi lints,
Your plan is great, except for a little problem. You still have to pay stamp duty on the transfer of the shares in the company to you. And if the company’s only asset is the block of units, and the value of the block is more than $1 million, it’s a land rich company, which means that the stamp duty you must pay is the same as if you bought the units in your own name.
Read one of the other posts I made (yesterday I think it was) regarding the ins and outs of stamp duty.
Also, there’s another thread where everyone is talking about using companies versus trusts or just having the IP in your name.
Cheers
MHi dhdtang,
respectfully, I don’t agree with you there. As I said in my earlier post, you can in fact have a postive cashflow IP which is ALSO negatively geared. That’s the beauty of depreciation.
Depreciation is a non-cash flow expense. It doesn’t take any money out of your pocket. Some people call it a “phantom” expense. But it’s quite legitimate, and you’re in fact entitled to claim a depreciation allowance on an IP as part of the expenses relating to an income producing asset.
The only thing is to ensure that you’re claiming the correct amount of depreciation – you’ll need a licensed quantity surveyor to prepare a depreciation schedule for you, and maybe an accountant too to advise you on specific depreciation issues.
You asked what the definition of negative gearing is – the simple definition is that it’s where you make a net loss (including depreciation) from your IP, which entitles you to claim a tax refund.
It’s true that not every property you come across will fall within the parameters I’ve described above, but if you find one like it, why wouldn’t you go for it? It gives you the best of both worlds – positive cash flow AND a tax refund!
Positive gearing is a slightly different concept from positive cashflow investing. Positive gearing simply means that your total income exceeds your total expenses, including depreciation. As I tried to explain above, just because you have a positive cashflow IP doesn’t mean you are positive gearing.
I’ll leave you all with some food for thought – is too much positive gearing a good idea? Some would say that if you overly positively gear an IP, you’re incurring an opportunity cost, because you’ve got too much equity tied up in the IP when you should be making full use of other people’s money.
Cheers
MHi Diana,
What do you mean by “overseas property sales”? Are you talking about your property in the UK, or are you talking about a property you might buy in Australia?
Cheers
MSorry TheEnjoLady, but the answer is indeed No.
If you transfer the PI into a trust, even though the company is the trustee and the PI remains in the company’s name, there’s a transfer of beneficial ownership, which is a CGT event of the worse sort – you’re up for CGT, but you didn’t even sell the PI and therefore have to pay for it out of your own pocket! What’s worse, if you sell the PI that’s now in the trust, you’ll still have to pay CGT if the sale price is higher than the new cost base (ie the market price at the time the PI was put into the trust). Talk about a double whammy.
The main benefit of a company has, and always will be, limited liability. If for example the roof caves in because the owner (ie the company) was negligent and didn’t maintain it, and the tenant is injured and his belongings are damaged, he can only sue the company, not the directors. The directors will usually only be personally liable if they breached their duties as directors of the company, they gave personal guarantees (eg to the bank) or if they allowed the company to trade while insolvent.
So there is still a benefit of having a PI in a company, although the liability issue can usually be minimised through insurance, and as everyone else has rightly said, you lose out on a lot of benefits that you would have if the PI was in your name (or in a trust).
That said, it’s still worthwhile checking with a good adviser (eg accountant or lawyer) regarding whether you are in fact able to salvage the situation.
Cheers
MHi dosser,
Saskatoon is right – it’s probably cheaper but equally as effective to use a good tax accountant than a tax lawyer.
Tax lawyers are usually only used by high net worth individuals (net assets of over $1m) and bigger companies. While they will no doubt provide an excellent service, the question is whether their services are cost effective, having regard to the potential tax exposure you are facing.
While some may disagree with me, I don’t think many financial planners are on top of tax issues enough to be able to give you specific tax structuring advice. Taxation is an extremely complex area of practice, and you really need to be doing it on a daily basis to get a good grasp of how things stand and new developments.
Cheers
MHi Ms Elvis,
There’s not much you can do – CGT is here to stay, and the ATO can see through, and has complete power to brush aside, artificial schemes to avoid it.
You’re right, your friend’s property must have been her PPOR. If not, I wouldn’t go around telling the whole world about it.
The only legitimate ways I know of to reduce your CGT liability is to hold the IP for at least a year before you sell (you get the 50% CGT discount, like I mentioned in my reply to one of your other posts), or to increase your cost base (which means that when you sell, your capital gain is less). The second option is a little too complicated for me to explain – I’m not an accountant.
Sorry – I don’t know any accountants in SA. Perhaps someone else can help.
Cheers
MThat real estate agent seems to be getting taxation advice from a different country (I think what he’s saying may apply in some US States).
Stu is right – he should stick to selling real estate before he gets his nose chopped off (professionally and financially, that is) for making misleading and deceptive statements for financial gain.
There’s no way of avoiding CGT unless, as MJK said, it’s your PPOR you’re selling. You do get a 50% CGT discount if you own the IP for more than 12 months before selling it, which doesn’t seem to apply here, since your IP has only just been completed
If it’s already appreciated 70%, chances are the rent has also gone up (but probably not as much as 70%). This may well mean that if you rent it out, you may get a positive cashflow property, which is a great thing, since it pays for itself. You’d have to do the sums to confirm that, though. I personally would keep it, rent it out, and use the equity in it to buy another IP.
Cheers
MHi Ms Elvis,
There are some helpful posts in the last few days on buying property jointly with someone other than your spouse or partner, particularly on the pitfalls of doing so. One of the most important things to do is to sit down with your friend and clarify exactly what each of you want to achieve, level of commitment, etc. I’ve tried to work out “joint ventures” with my friends in the past, but we realised that although we were all investing in property, we had very different goals and ideas on how to go about doing it. I wasn’t comfortable with what they wanted to do (subdivisions), since I had a different plan (cash-flow positive properties). And the best thing I did for our friendship was not to buy a property together with them.
As far as structures are concerned, there is a whole range of different structures you could use, each with good and bad bits. It really depends on your individual financial circumstances and goals. For example, you could simply buy as tenants in common with the title in both your names, which is essentially a partnership, but you need to clarify what each partner is allowed to do and what happens at the end of the partnership; you could buy through a company, but you won’t be able to personally have access to any tax deductions relating to the property, and it’s not as easy getting money out; you could set up a trust structure, which allows you to have access to deductions, but it’s a bit more complicated in terms of accounting.
In terms of setting up a bigger “group”, just remember that, while you’re free to get into business arrangements with people you know, you will start getting in grey, and possibly illegal, areas if you advertise (whether in the paper or by word of mouth) to the public to join in.
It may be worthwhile paying the money and getting advice from a decent accountant.
Cheers
M
