You need to weigh up the transaction costs & CGT (& time/headache) of selling, then rebuying a new IP at a later date versus the interest savings of your PPOR loan. There is also the lost opportunity for capital growth of your IP. This is the same answer as Derek’s in essence – it has to make a big difference to your PPOR loan interest savings and payback time to be worth doing. Are there any more liquid assets (eg shares, fancy set of wheels) which could be sold & applied against the loan? Also, don’t forget your rental income from the IPs plus your work-related income should go up over time which will accelerate your repayments.

Also, have a read of this thread: https://www.propertyinvesting.com/forums/getting-technical/finance/4327007
It may give you some ideas on accelerating your home loan paydown by capitalising some of your IP loan interest. I’m not an expert – contact the guys on the thread (Richard Taylor &/or TerryW) if you want to pursue something like this.

Hi maternic,

Good to see you getting going. A couple of things:

1) Talk to an accountant who is experienced with property investment before you start. I think you will lose a 50% CGT discount if you sell within a year, so yes – bigger tax bill.
2) Don’t listen to a real estate agent when it comes to anything which could cost you money. As a generalisation, their primary (and often only) motivation is to sell the property and make their commission and will tell you what you want to hear to close the deal. Talk to a builder or similar to get a cost.
3) Read posts on forums about mixing friendship & business. It can kill a good friendship if you don’t get good advice up front (and sometimes even if you do). For example, if you go 50/50 on all costs, but one of you does all the running around to get renos done you will have friction.
4) Make sure you know what your selling price is likely to be and all your costs in between – it is pretty hard to make money on buy/renovate/sell as your transaction costs (stamp duty, bank fees, legals, agent fees, capital gains tax etc) chew away at the profit margins. Even it it all looks good on paper, a cost blowout on a small part of the reno (eg changing electric oven, electrician says wiring not up to it and refuses to certify until circuit is rewired and boards upgraded) can kill any profits.

Hope this gives you a few pointers.

Cheers

Matt,

Welcome to the forums.

Have a look at previous posts on this – there is a lot of information already out there. Search box is at https://www.propertyinvesting.com/search, try entering “setting up a trust” in the keyword box (no quotes). Here’s a couple I found pretty quickly which I think provides info on the first steps:
https://www.propertyinvesting.com/forums/property-investing/help-needed/4332965
https://www.propertyinvesting.com/forums/getting-technical/legal-accounting/4333559

trustmagic.com has some really good info. The ebook costs the same as 6-7minutes from a good lawyer.

I haven’t done this yet myself, but I spoke to my bank contact earlier today and there is no problem using equity in one property held in your own name to secure a loan held in a trust’s name.

I can’t answer your second question definitively, but I’m pretty sure the answer is, yes you can transfer assets into a trust but you are almost certainly going to get hit with CGT and stamp duty on the transfer as it is effectively change of ownership from one legal entity (you) to another legal entity (the trust). In fact, if your offer & acceptance (or equivalent depending on state) has your own name and you try to change it before settlement to the name of the trust you can end up paying double stamp duty – see https://www.propertyinvesting.com/forums/property-investing/help-needed/4332359

Good luck

Nightelves,

I only bought it recently and I am now confident about the questions to ask my accountant in a couple of weeks’ time, and also have a good idea of what structures make sense for me. I will re-read 3-4 chapters just before going in to talk to my accountant because some of it is quite technical (eg the different roles involved, essential items to cover in the trust deed), but more than just how to structure it talks a lot about the day-to-day mechanics of operating the structure – eg how to go about borrowing, what minutes you need to write when to support certain expenditures, trust tax returns, tax deductions.

It may or may not make you totally comfortable with what structure to go with but it will give you the language and concepts you need to have a cost effective discussion with an accountant and/or lawyer, and also give you most of the tools you need to do cost/return comparisons against different holding entities. It isn’t specifically about property investing and doesn’t get into land tax issues etc, but does also talk about running other businesses within a trust structure. There are plenty of pictures which show the relationships between the entities and the typical money flow.

HTH

Hi Nightelves,

If you want to get educated before seeing a lawyer or talking to an accountant I have found this to be very useful: http://www.trustmagic.com.au/ – $55 for the ebook – so that’s 6 minutes and and 36 seconds of lawyer time! He also has some links to practitioners in this area.

Cheers,

A google search on, for example, “NSW land tax calculator” will give you what you need. The office of state revenue typically has a calculator online to help – eg NSW has one at http://www.apps05.osr.nsw.gov.au/erevenue/calculators/landtax.php, but you have to read the fine print as the meaning of taxable value and exemptions vary from state to state.

If you are looking for CF+ property and are developing a land tax problem in a particular state you can also look at optimising “cash flow density” – ie rent received per unit of taxable value – land tax is generally applied on the value of unimproved (ie vacant) land so if you have a bunch of units on a small block, rent will be high but land tax will be low.

Simon,

Good luck with getting going!

Do you have much in the way of savings yet? If you go into a JV with a mate you will need to get some good legal advice to structure the JV agreement properly so that you stay best mates and this advice will cost money. Same goes for trust structures. (“Trust Magic” – search for it online – will give you some insight on how trusts work). Depending on your financial interest in the deal (ie if you are contributing money as well as time) you are going to have to borrow too and without a deposit and working casual that is going to get difficult. Sounds like you are talking to a mortgage broker first – a good plan I think. If you need to build up savings this may have a long lead time but you will only find out how much once you have spoken to them. Living with your mother will help!

I have used buyers advocates but I am employed full time in a job that has a lot of international travel so I am happy to pay for someone to do the research. If I wasn’t travelling so much I would do the work myself as the fees do eat into returns, but not acting eats into the returns even more! Also, if you look at hours required to source a property and multiply by your earning rate it may pay to use one (ie if you are a doctor or lawyer or electrician ). Whether you use a buyers advocate or not, you still need to do the numbers on a deal yourself so you should have a go at running numbers on a few properties that interest you. There are good books out there which show you how – Steve McKnight has an accounting background so his books are probably stronger than most on the financial analysis of deals. If you use the forums search function you can find contacts for most of the key roles – either as contributors to the forums or other recommendations.

I would also recommend learning about the negotiation process. It’s easy to blow a _lot_ of dough in a short space of time through lack of negotiating skills. Rob Balanda has done a good CD on this – his techniques made me an extra $15K last week over where I would normally have stopped a negotiation. You can probably get the same info from the library if you have time on your hands and you want to save $150.

Hope this helps!

JJ

Hi Pootie (again),

Sorry – I meant to also say that I can’t comment on the trust structure that you are proposing – I’ll need to leave that to someone more expert – I’m just saying be careful around the personal services income.

JJ

Congratulations on wanting to get going on property investing so early!

You should read up, ask questions etc to learn, but the best education is getting your hands dirty with your first property. Nothing beats having $200-400K on the line to focus your learning. As they say, “Experience is the best teacher, but it unfortunately sometimes kills the student” so the trick is to start with something that won’t sink you financially if it goes bad. The best way to avoid being sunk is not to borrow beyond your capacity – there are plenty of mortgage brokers on the forums who can help you with that. The main thing is to start – the biggest impediment, in my opinion, to any form of success is over-planning and not enough action. (You should still plan though ). Find someone who has done it before and buy them a coffee every now and then and run through what you are thinking of doing – that can save some pain too. Again, there are plenty of people on the forums who are happy to chew over ideas and help people be successful.

We started 10 years ago and our first IP was pretty uninteresting – slightly negative geared until around year 5 when it hit breakeven – but safe and we’ve made $200K on it. $200K we wouldn’t have made if we didn’t start. We like to think we’re a little more sophisticated now and will be starting some developments in the next couple of months but we wouldn’t be able to do that if we hadn’t made the boring, safe start 10 years back and started understanding the process in a way that you can’t from reading a book or talking to people.

ABS just released this: http://www.ausstats.abs.gov.au/ausstats/nrpmaps.nsf/NEW+GmapPages/national+regional+profile
May be handy for zoning in on areas – it has population estimates, income estimates etc for 2004-2008 so can help with some trending but obviously misses 2 critical years. It doesn’t unfortunately, go into individual towns either – for example, Blackwater gets lumped in with a few other small towns. An excellent resource all the same.