Forum Replies Created
- Why must the income go to the guarantor of the loan ? If an individual has established a hybrid trust and they have purchased special income units then that individual is entitled to the deduction on the loan taken out to acquire the income producing units.
Coasty Mike, sorry poor wording. My point was that rental income could not be distributed to other beneficiaries (ie: other family members in a lower tax bracket) while a loan for the property in trust was just in the one name (the individual who has their name on the loan documents). (usually the highest income earner for servicability and interest tax deductibility), so therefore a highly geared I.P. (as they often are) would not have the benefit initially of income splitting…….. and you are correct guarantor has no relevance on deductibility of interest.
An analysis of trusts also needs to taken into account estate planning issues, the refinancing principle (which can result in significant benefits), income distributions to beneficiaries, capital distributions to beneficiaries (which can also significantly impact on the CGT result) and possible stamp duty savings on asset transfers. So as Michael states just looking at land tax is but one component of a thorough analysisTrue, these are benefits. But a lot of these will only happen (if they do) down the track. My point was that this increased land tax makes it a damn sight harder for an investor to grow a portfolio using a TRUST structure for the first million dollars+ of property they buy.
With respect to asset protection what cases suggest that a trust with a corporate trustee does not provide adequate asset protection. The recent Hanel v Oneil case and the recent amendments to the Corporations Act would seem to suggest to the contrary. What court rulings are you referring to that would indicate otherwise ?I am saying that if you had property portfolio with a land component of less than $900,000 then you would be paying a very pricey premium (the extra thousands of dollars in land tax that you would not have to pay if the property was in your own name) for the privilige of the assett protection provided by corporate trustee. I am betting that the investor starting out with a small portfolio wouldn’t easily afford the legal costs of fighting such a case to the death nail if the need arose.
With respect to land tax in Vic the current “aggregation” rules are going to be repealed. These are replaced by a rule stating that aggregation of trust land will only occur where multiple properties are held in the same trust. Where a taxpayer is trustee of several different trusts, separate assessment will apply in respect of land held in each trust.Have you found a reference that the vic. state government are NOT going to tax every dollar of land value in trusts at 1% if there is only one property in the trust? this would be great news. !!
Trust property held under different trustees will not be aggregated. This is irrespective that they have similar beneficiaries. Beneficiaries also will not be taxed at that level. Further, trustees will continue to be separately assessed for land which they own beneficially. These rules apply equally to special trusts and excluded trusts.Property investors would not fall under the exemption of special trusts and excluded trusts as the proposed law stands.
Coasty Mike, I hear what you are saying about the benefits of trusts. I agree. But for a property investor trying to build up a Vic. portfolio, these new changes are adding thousands of dollars of extra cost that you would not have to pay if you had them in your own name.
What price are you prepared to pay extra to get benefits of trusts?
Michael,
I already have some property in my name and made an offer today for a property which will go into trust. Thanks for reassurance. I will take the gamble that trusts will work out better in the long run.Bracksy sux.
Live, Learn and GrowLifexperience
Just Vic….. for now. Although NSW recently copped a vendor tax reaming recently which is similar.
Having property in different States seems to be one of the last ways left to minimise Land Tax as you get the threshold limits in both states.
Live, Learn and GrowLifexperience
I would suggest that the renovation approach would be more successful in capital growth areas (ie perth) BUT these would likely be negatively geared.
Try reading Peter Spann’s book 10 million in 10 years.
I have a job and do part time renovating at the moment to help grow my portfolio to a point where I can transition into full time renovating and development like you guys want. You increase the value of your properties (more equity = more deposits) and also bump up the rent.
It is a tried and true method the wealthy have used for a long time to leap-frog this way. It works best in capital growth areas as you can expect 5-10% capital growth averaged over 10 years. You don’t always get this in your cashflow positive areas which are usually remote areas.
I hear that the WA market is still strong, so you might be well placed to start.
You kind of need a good regular income (jobs) to get finance to keep buying property.
Or you could try finding an investor who is cashed up and offer to do renovations for them and take a percentage of the profit you make by adding value. Might be cheap rent too If you live in property while you renovate.
Good Luck!
Live, Learn and GrowLifexperience
Plain and simple as you seem not to have understood all of the above wise replies.
Choose Bankruptcy if that is what you want. But it will be a very very long time and much harder to ever become financially free or ever wealthy.
Choose Hard work and Determination now while you are still 30 young to claw back the $50,000 in debt (small in the scheme of things). All the investors here are advising you to do this as they know that credibility is a big key to financial success, a key that you seem so prepared to throw away.
Once you have a bit of credibility and show that you can repay debt and save, then you can easily make $50,000 from one property deal………But don’t choose this lightly. You have to commit to this with your heart and soul……It would be worth it in the end! Then you can start with the support and advice of the above people who have given you many smart options.Don’t make a foolish decision based on comparing 2 defaults to bankruptcy, YOU ARE MISSING THE BIGGER PICTURE.
Live, Learn and GrowLifexperience
Why move this assett into a trust when you are likely going to increase your land tax bill by thousands! Watch out for Bracksy new 2006 rules.
http://businessnetwork.smh.com.au/articles/2005/07/21/2672.html
Live, Learn and GrowLifexperience
Michael,
I know you are a reasonable person and have much experience with Real Estate over the years and would like to agree with you that Trusts are still go in Vic. As I have just set up a trust for purchasing property myself. I don’t have a total land component above $900,000 yet myself and I doubt many investors would.But are you telling me that you still recommend Trusts, even if these changes go through? [blink]
approx setup costs of Trust with corporate Trustee = $3000
Ongoing Yearly Accountant Fees for Trusts approx = $750 (surprise accountants still recommend them!)
Extra Yearly Stamp Duty Cost of (thanks Bracksy)= $3,200!!!You can still split incomes with Tenants In Common or Joint Ownership without Trusts.
And you know as well as I do that income from a trust must go to the guarantor of the Loan for that property anyway, so you don’t get this benefit to distribute to all family members until the property is neutrally geared and sits stand alone in the Trust.I didn’t think that Trust held Asset protection holds up in Family Courts or in Bankruptcy instances anyway?.
And I am pretty sure that you could get Liability Insurance cheaper than the new costs of holding property in a trust in Vic.
I love the trust idea too Michael, but the figures swing away from common sense. It’s not really an effective tax minimisation exercise for investors with smaller start-up portfolios less than $1.5 million or so.
I can’t see how to justify paying thousands of dollars more tax than I have to.Please, someone convince me otherwise.
Live, Learn and GrowLifexperience
caston,
don’t let a little thing like a change of employment dampen your enthusiasm.You seem focused, and this will help you through the hiccups of life.
Good luck.
Live, Learn and GrowLifexperience
Heck, with an extra $12,ooo from the government (vic), she could buy her own place. Just live in it for 6 months, then rent it out. Thats $27,000 as a deposit.
Nothing stopping her getting some friends in to rent the other rooms. Perfect time frame to do a part time reno.
All legit.
Good luck.
Live, Learn and GrowLifexperience
be careful of just jumping on the back of a couple of share companies. They could easily drop in value in the short term. This could send a negative reaction your daughters way. It would be a gamble.
I would suggest a 5% savings account too, and some self education via books to open her eyes to different strategies and the risks and rewards of investing.
Personally I like property as a starter. It has great leverage from the banks and helps investing confidence when you are able to say at a young age that you have property.
Maybe start researching an area. Look for a property that she could add value too, with a bit of paint and a clean-up. Might just make an easy 10 thousand or so in equity.
15 grand will just about get a $100,000 house. Spend another $10,000 on paint and new carpet and a general spruce up and the bank may just value it at $125,000.
Live, Learn and GrowLifexperience
I think a fundamental first lesson lies in learning how to save. Get a regular budget habit and know exactly where you are each week.
You must have some income, so then practise the basic wealth building principle of spending less than you earn. Saving 10% is a good start.
Avoid debt for junk that loses value (expensive cars, holidays, etc)
Then start educating yourself. I would highly recommend finding a strategy that has consistently worked for wealthy people in the past.
Maybe find a second job to bolster your income for a period until you get started.
Another simple rule is: Buy Things That Make Money.
Some on this site have had success with vending machines which can be passive (somewhat) assetts that are easy to get started with little money.
Another basic fundamental is to set out why you wan’t to be wealthy. This will be your underlying drive and motivation to weather the hiccups and setbacks you may have.
Good luck
Live, Learn and GrowLifexperience
I think the market opinion of the market is low in Vic, but the underlying market is actually strong.
Reasons: Melbourne has the highest immigration projections of all of Australia at present. These extra people need somewhere to live.
Melbourne is still way behind Sydney prices.
Commonwealth games next year will boost awareness of Melbs.
This will have some flow on effect to Geelong, I’m sure.
Still got a lot of baby boomers retiring soon, maybe these will move to cheaper regional areas…. more demand again for Geelong and other spots.
Just my thoughts.
Live, Learn and GrowLifexperience
Great points all.
Interesting time for such a topic (and a few similar topics to appear on PI.com). mmmmmmm.
Oh, it’s tax returns time. ……….Money to spend. Guilt free holiday or next I.P.????
Personally, I am swinging from “all work/investing and no play ” to a happier compromise with a bit of a life.
Which is again interesting, that a lot of forumites have to force themselves to indulge in lifes pleasures along the way. Whereas the vast mojority of the population would have to force themselves to invest at all.
Life is short, sometimes shorter than you might expect.
…..sorry to swing off topic caston. I think that your suggestion of baby-stepping financial freedom into acheivable bites, is wise. Rather than the alternative of putting your head down and going as hard as possible until………….blammo. Middle age retirement.
How much does it cost to get your twenties back???
Is it better to be happy in your 30’s and 40’s?
What is your personal compromise?
Has anyone pre-planned their life with actual hindsight?
What is life?
:0)………………yabber, yabber, yabber.
Live, Learn and GrowLifexperience
I have realised over the last year the importance of time management.
Throwing all spare time possible into investing (and money too), resulted in a seriously out of balance lifestyle. Health, socialisation, exercise, entertainment and family all being put on the back burner.
What resulted was an inefficient and depressing investment scenario that lacked balance in other areas of life.
A time budget seems brilliant.
Lumwood, how did you imagine you would structure yours. Would just allocate set hours to each part of your life, all would you write a schedule with fixed periods for each part of your life. Tuesdays 5-7pm = sport, tuesdays 8pm-10pm investing paperwork, etc???
How would you monitor and correct budget blowouts?
Live, Learn and GrowLifexperience
oshen,
welcome to capitalism………. :o)Join in with whatever ethics or ideals are important for you. This will identify you as a business person and others will react accordingly.
I personally stepped over the line of being too nice and too soft and got “taken advantage of”. (I AM NOT SUGGESTING THIS IS YOU, JUST STATING THAT I WAS)
I have readjusted my attitude to be firmer and am doing much better.
Fair and honest goes a long way.
Sheer money driven greed also works for some.
Beware, and good luck.
:o)
Live, Learn and GrowLifexperience
Even if the granny flat/ 1 br home is approved by council, I would doubt you could rent it out separately no matter whether you call it a spare room or a granny flat or an igloo.
I would seriously approach the council and plead ignorance or get a lawyer asap.
Live, Learn and GrowLifexperience
I’m not sure that you are legally allowed to rent out a granny flat separate to main residence. I’d double check on the consequences of being caught out if this is the case. There may be heavy legal penalties.
I would probably go to the council and talk personally with a town planner and explain what you have done. Explain that ideally you would like to keep both residences and tenants and what compromise is possible.
Or alternatively seek legal counsel from a property savvy solicitor.
Good luck.
Live, Learn and GrowLifexperience
Gatsby,
Thats a sad story. I hope it all works out for you in the end.
If lifes hiccups don’t kill you, they should make you stronger.I think it is worth spending a lot of effort talking to your partner about coming on board with investing. You should be able to at least get them to tolerate your investing.
Maybe Start a small portfolio and let results speak for themselves. Maybe a tough one as investing is a long term thing.
Maybe have a lawyer write up a contract that excludes your partner from access to any profits from investing?, this suggestion may make them think. No-one wants to miss out on windfalls of money.
It’s all part of the dynamics of compromise and negotiation in a relationship and not necessarily about who is right.
…..I’ll take my doctor phil hat off now.
p.s. my partner tolerates my investing as long as it doesn’t eat too much into quality time together.
Live, Learn and GrowLifexperience
If you feel 15% is fair rent increase all things considered. I would do it in one hit. I wouldn’t sugar coat it with anything.
I’m pretty sure rent assistance would be half. Any complaining would probably be due to the person in question simply being of that temperment.
Just do it.
As a tenant in the past, I would probably be indignant at any rent increase but would probably not do anything about it except complain.
Good on you for sharing your decisions.
Live, Learn and GrowLifexperience
It is one of the cheapest major regional areas within 2 hours to melbourne CBD (compare geelong, bendigo, ballarat). recently updated train line for express service is due to be completed soon. 2 lane highway in excellent condition. number of major shoppping centres. Huge industrial infrastructure and support for any manufacturing business that doesn’t like extortionate melb.factory rental rates. Many pubs and sporting activities. Many schools. Perfect option for retiring elderly who want somewhere cheap to live. RSL’s, bowling clubs, cheap food markets.
Very close to gippsland lakes and a stones throw to anywhere on the 90 mile beach.Like any area, it is hard to completely discredit an area with a vague post based on opinion.
Still has good rental yields 6-8%+, and very low entry price.
For about $90,000 you can get an old housing commission house and spend $10,000 and a month of weekends renovating and add $35,000 equity easy. (many with long sweeping views of the hills)
Or for $300,000 you could get a nice country mansion on between 10 – 70 acres.
[biggrin]I do have property in the area, and am going to continue to hold.
I believe the area has potential. The fallout in the area due to SEC being decommissioned has just about run it’s course. There is growth ahead.
Live, Learn and GrowLifexperience
Legally you can’t sell a property title on terms if you don’t have it. But you could possibly issue an option to buy the property subject to approval.
you could possibly ask for deposits as expression of interest from prospective buyers subject to subdivision approval. say 1%-5% of the price.
Or if the problem is servicing the loan, you could find a investor partner who takes on a share of the deal for cash.
We have a country block we are holding too, we put cows on it to keep grass down and make a few extra dollars. Or you could lease the land for horse/cattle agistment.
Good luck
Live, Learn and GrowLifexperience
