Forum Replies Created
There is a CGT exemption on your Primary place of residence.
With any 'investment' – property, shares, whatever – you pay tax at your marginal rate on any profits (capital gains) realised when you sell. If you hold the investment for more than 1 year, you only pay CGT on half the gain.
You don't pay CGT at all on your PPOR (if held for more than 1 year IIRC).
RE Strategy, only you can really decide whether + or – gearing is best for you and it depends entirely on what you actually want achieve from property investment. Do you want to supplement your income – in which case you should probably + gear – or do you want to reduce your tax bill – in which case you should negative gear.
These aren't the only two options, of course, but the point is you really need to do your homework first. Talk to an accountant and (perhaps) a financial advisor. Discuss your circumstances and your objectives and listen to what they tell you.
Education and preparation are the 2 most important things, whichever road you choose.
Good Luck!
Thanks Tools,
Found the 2 screws last night.
Appreciate your help.
J
Different story again…
My wife and I had our PPOR for about 2.5 years before we purchased IP #1 in October last year.
Before we did though, we set up a Family Trust to hold it (and future properties) under and used my existing company as Trustee.
Purchased in country Vic for approx $73000 with 20% down and it's CF+ as we speak.
It's small time investing with a view to growing the size of investments with each purchase.
Am looking to purchase another by the end of this year but my 2 rules are 20% deposit and CF+.As mentioned before, time is not the important thing… For me, it's more important to have a strategy and stick to it.
Ptialv,
Sorry it's taken so long to get back to you.
It sounds like you have the strategy worked out and by now you should have the structure firgured out.
What advice did your accountant give you re structure?
For mine, given that you're looking for a positively geared property and a buy and hold strategy, a family trust may be beneficial. Reason being any profits from the trust can be distributed to minimise tax.
Have you started looking yet?
keiko wrote:I would definitly never use that solicitor again, sometimes it pays to pay extra for a top solicitor and then you get a top job.Couldn't agree more.
I pay my solicitors top dollar and they are worth every cent. They are there every step of the way and do an excellent job.
First things first – what research or preparation have you done to this point?
Do you have a goal or strategy in mind and if so what is it? Is it tax reduction or passive income? Is asset protection a priority? Are you looking to buy / renovate / sell or buy and hold?
Have you spoken to your accountant / financial advisor / lawyer and set up legal structures that are suitable for this (if necessary)?Investing in property is fantastic, but it's not simply a matter of buying a house, getting a tennant and putting a property manager in place. It needs to work FOR YOU.
Preparation is the key
Good luck!I think (but don't quote me) that if you use something claimed by the company as an expense for personal use, you need to include this as a fringe benefit, and therefore that part is actually taxable.
For instance, I was thinking of purchasing a couple of football memberships and claim them as client entertainment expenses. If I was to use the tickets myself, it would be considered a fringe benefit.
It really depends on your investment goals / objective as to whether negative gearing is a good choice.
Before you start looking at places, make sure your objective is clearly defined (owning an IP is a goal, yes, but WHY do you want to own one? What is it a means to? Is property the best way of achieving it?) and that you have the correct legal structures in place (What would be the effect on your tax if you put it in both names? or just in one name?) Investment is 90% research and preparation (including talking to financial advisors, accountants etc) and 10% purchasing, not the other way around.
For mine, now is not the time to be negative gearing with high LVRs unless you pick your location VERY carefully. But then, my objective is passive income, not tax minimisation…
RE the apartment thing, it generally depends on the size of the apartment you are purchasing, not the fact that it is an apartment per se.
Hi Snowy, enjoy your stay!
First words of advice –
Define your objectives.
Research. Research. Research.
Get advice.
Put the correct structure in place.
Refer Number 2.
THEN start looking.Investing in property, just like the property we invest in, needs a solid foundation.
Dr.Spock wrote:Phoned around and found out about structure eg trust, – was advised not to have my name anywhere near the trust. eg not even to be a trustee, So now I am even worse off than before. It looks like at this stage that I am not ready to get started. I am a believe that were there is a will there is a way, back I don't know my way.As far as I'm concerned they're right. You should not PERSONALLY be the trustee. Better to set up a pty ltd company, with you as sole director and make THAT the trustee.
A bit more paperwork involved – for the company, trust, and the loan once you go for it – but it means there's always another degree of separation between you and the property if the worst happens and someone wants to come after the owner of said property for cashish.
Working in the non conforming marketspace myself, I know that lending criteria have been tightened to a level resembling a fishes ar*e recently and that 106% is out of the question at the place I work for. No, I'm not going to tell who it is. I'd venture to say if there were any non conformings doing 106% you'd be paying low end credit card rates for it anyway. Why? Because no lender wants to be in a negative equity situation from the get-go right now. Do you really want to be paying 13 – 15% for your investment mortage? That's either the world's biggest negative gear or the property is returning 17 – 20%. I'd be keeping the name of that town secret if I were you, cos if word gets out the place will go off like a firecracker!
Do yourself a favour and save the deposit. If you have the cashflow to support a negative equity situation, you probably have the cashflow to put aside a deposit. Speak to your accountant before you do anything though, and make sure you research research research. Preparation is key to investing. Make sure you know what your objectives are and have a plan and structure to get there. And don't worry if you miss out on this opportunity. Prepare and when the next one comes along (which it will) you'll be ready.
Terryw wrote:Hi ImugliANZ and their mortgage insurers can be fussy about this sort of thing. I think if you went to another lender such as St George, there wouldn't have been a problem. Surely a spouse will gain a benefit – from being the spouse as well as being a beneficiary of the trust.
You would think so, wouldn't you? ANZ themselves were fine with it but the insurers didn't want a bar of it…
We have our PPoR mortgage with St George so perhaps it would have been easier to go through them directly, but I've called them a couple of times and said I'm taking my business elsewhere and they have been completely unwilling to budge on anything, so I refuse to show them loyalty for nothing… Let's see how quickly they call me when I refinance my PPoR with ANZ as well…
Fiji you can as a non resident, but you need a permit from their foreign investment board if you want to rent it out I think…
In my (limited) experience, they will take a personal guarantee from the director/s of the trustee company and, if they are not satisfied with the servicing ability of said directors they’ll ask for a third party guarantor.
The problem we had was when I got to the LMI stage, the insurer wasn’t satisfied that the said guarantor was gaining enough benefit from the arrangement to accept them. So the bank would accept her for servicing reasons but the LMI wouldn’t.
Not an issue if no LMI is necessary…
I wouldn’t have my investments structured any other way.
This thread seems to have become the community trough from which people are drinking advice on this matter from… Perhaps one of the mods could make it a sticky?
The company need only have 1 * $1 fully paid share.
If you're mother is also investing capital in the trust, perhaps it would be best to set a hybrid trust. That is, a trust that is partly defined by units and partly discretionary. That way each persons share of any capital gain is clearly defined as a percentage based on how many units they own, yet any income from the property is still distributed at the trustees discretion.
The trust itself doesn't actually borrow the money. The trustee borrows the cash.
I've done pretty much this exact thing recently, set up a fully discretionary trust, controlled by a corporate (company) trustee of which I am the sole director. My experience in getting finance has been tedious, if not difficult…
This is with ANZ through a broker applying for a 90% LVR on a 3 bed property…
The loan is in the company name ATF the trust. It will be subject to the banks conditions on loans to companies.
As director of the company, I was required to sign personal guarantee, provide personal income details etc etc (fair enough).
Initially they wanted my wife's income and third party guarantor for servicing purposes (fair enough).
The application got to LMI stage and was knocked back because, even though my wife is a beneficiary to the trust, they didn't deem that she was gaining enough of a direct financial gain from the property for them to be able to accept her income and guarantee. If she was a director of the trustee company, this wouldn't have been a problem.
I had 4 choices in order to get the app through…
Apply elsewhere (the property is settling in 4 weeks)
Make my wife a director of the trustee company in order for them to accept a personal guarantee from her (not happening as I want her as far removed from liability as possible)
Make her a co-holder of the loan (refer above)
Stump up another 10% and negate the need for LMI. (Path Chosen)Bear this in mind when you make your app – the banks may make you go through hoops to get a loan with this structure. That's just my experience and of course you may be in a position that means you won't have to go through all of that.
Sounds to me like a trust will be the best structure but best you do lot's of reading first. The books you read will give a start on your accountant questions. Simply telling your accountant your objective should be enough for him to recommend something, but his time is your money so best to have an idea first. He can advise you the pro's and cons of any ideas you may have.
Welcome, aegcp – enjoy your stay!
Whilst I'm sure someone here will have a spreadhseet, perhaps it may be worth your while purchasing a property investment analisys program – I use one from Somersoft and love it but there are plenty around. Expect to pay for it but it'll be worth it in the long run.
LnM wrote:To get started, I'd like to know what type of entity should I do my property investing under. If I'm going to do it with some family members or friends and would like to register a business, what is our best option and why?
The same question applies if I do it with my wife.First of all, welcome!
Unfortunately, the question you ask is a bit like asking how long a piece of string is unless you can first define what your objective is (as opposed to who you are investing wth, though this will have SOME bearing on it).
Are you investing for cashflow? Tax minimisation? A Legacy? Do you value asset protection?
If you are looking at investing with friends / family and you are investing for cashflow and asset protection, perhaps look at a unit or hybrid trust, controlled by either a board of trustees (All of you + an independent if necessary) or a $1 shelf company controlled by all of you. Most importantly, this would give each of you a defined 'share' of the investment. It also covers you if one of you get sued for any reason, or if one of you claim bankruptcy etc, though bear in mind a bankrupt cannot be director of a company. It would also provide an avenue for any of you to sell your share should you wish too. That's probably a little complicated for you at this stage though…
Read, Read, Read.
Define your objective.
Define your structure.
Speak with an accountant to get more advice.
Create your structure.
THEN start looking.Good luck!
Richard, you misunderstand me… You have more eloquently written what I was thinking, however you have sold the ppor into the trust whereas I have placed a new IP in the trust – not really fulfilling the requirement of Anthony having a new ppor. Either way, the IP in the trust has little if any loan, making it CF+ and contributing cashflow, allocatable as they see fit, to any loan Anthony takes out for or from his current or future ppor
Please correct me if I’m wrong.AnthonyJF wrote:Correct me if i am wrong, for example if I currently have a mortgage of $170,000 and the value of the property is $550,000 and I decide to refinance the mortgage, before I purchase another property, so that the mortgage shall become ie $300,000. I'll still only have $170,000 to pay but with $130,000 sitting there draw upon.
So if our new residence that we buy costs $400,000, we have $50,000 deposit, can I draw the $130,000 to add to the deposit totally $180,000 and hence the mortgage on the residence will be $220,000.
The previous residence now becomes the IP with a mortgage debt of $300,000 rather than only $130,000.
The question, is this possible???
Ummm… Wrong, unfortunately….
You currently owe $130k on your PPoR (for example). If you top up your loan to purchase a NEW PPoR, your deductible interest will be… $130k. This is because the extra interest incurred is not done so as a result of making income i.e it's not for investment purposes. If you top the loan up to, lets say $400k, interest on the extra $270k is not deductible.
If you're after having *a* PPoR debt free and are open to another possible solution… Stay in your current PPoR, top your loan up to purchase a new IP almost outright, postively gear it and use the income to pay your PPoR off quicker. This will of course INCREASE your taxable income, but if you structure it in a trust you can allocate that income so that it goes to the person on the least income – minimising the effect that can have.
The interest on the topped up amount, whilst not deductible by yourselves, is deductible in the trust so the net effect is the same.
Make sure you clearly define your objectives and speak with an accountant about suitable structures for your situation – they are the building blocks for strong investment.
Good luck!
