I think the topic is synonymous to the "sky is falling down" articles pushed by newsletter artists trying to sell you their system to survive in the coming crisis.

The truth is that central banks around the world are standing by ready to backstop any backdrop that may occur. Everything is highly manipulated these days therefore normal indicators do not apply, that's why despite numerous predictions of collapse that on the surface make perfect sense the market just keeps going up and up.

My advice – keep investing, just don't follow the crowd and don't buy overpriced properties using 95% leverage without enough cash in the bank to withstand 2-3 years of interest payments on the loan then you will be fine.

If crisis hits people would still need to live somewhere, they may not be able to pay outrages rents but they would be able to pay something. I remember in GFC my tenant was one of the first to lose his banking job. To stay in the property he applied for government rent assistance and with some other odd income was able to navigate through the crisis. I think if crisis were to happen again many people would do the same – ask government to print some money and give it to them.

Hi Dom,

I think you need to look at your situation from a broader point of view – you have equity in your own home and I assume as any reasonable person want to maximise your future wealth via investing in property as well as via minimising the tax that you are currently paying.

The correct way of structuring this purchase really depends on your overall objectives, let me explain why:

One way to purchase investment property would be to borrow 80% from the bank and then pull out the remaining 20-25% from your own home, this way all of your expenses will be 100% tax deductible. However, buying one property is not really going to make you wealthy so if you are planning on purchasing multiple properties then you may want to structure your deal a bit differently – borrow 95% from the bank, pay LMI and pull the rest from your own home. This way you will get around 90k at a cost of around 12% p/a so you need to have a way to invest the extra cash at the return higher than 12% p/a.

Renting the townhouse to your parents in the future at anything but market rate is not a good idea because ATO has specific provisions around it and will consider your expenses non tax deductible.

Regarding your question on whether to purchase property in your own name, jointly with your wife or in the trust the answer really depends on your particular circumstances. For example is your wife going to be working continuously for the next 5-10 years or is she planning to take a break for a few years? Purchasing property in trust is a smart way to minimise tax, especially if you have parents who don't work. However the problem here is that $600k townhouse is likely to generate losses for many many years to come and standard discretionary trust does not allow distribution of losses. You can set up what is called a hybrid trust which initially will distribute losses to yourself and then at a later date convert to discretionary trust so you can distribute gains to your wife and parents, however I am not a specialist in this area and ATO has previously raised a number of issues with poorly structured hybrid trusts.

I hope you can see from the above that nobody on this forum can give you a definite answer as there is so much to consider, on the other hand this is not a rocket science so any good accountant should be able to give you a more definite advice (I wish it was that simple).

You need to run a discounted cashflow analysis for different purchase scenarios and look at the NPV for each of them, this way you will be well equipped when evaluating the best scenario with your accountant.

I would suggest that in the analysis you consider the following details:

– Expected rental yield

– Are you going to manage it yourself or get agency to manage

– Are you going to purchase a run down property and renovate to add sweat equity

– Capital growth expectations

– Holding horizon 5 years, 10 years or forever

And finally, have you considered purchasing a few cheaper investment properties instead of more expensive ones? For example you can buy two properties for 250-300k each and get around $700 p/w in rent meaning that these properties will be cashflow positive from day one. If you think that more expensive properties located close to the CBD appreciate more in value then as an option you can sell your home and buy more expensive one thus increasing your exposure to the property market and saving on the future CGT.

Regards,

EW