Forum Replies Created
No, my fault
Often things that sound so good in my head don't translate all that well to the written word!
Hi trakka
I guess that comment was a bit more subtle than it was meant to be. What I meant by that was that I have gone with these mortgage brokers who, when it comes to the crunch, all say, sorry we can't help you out. There is ALWAYS a "technical hitch" somewhere along the way or "something peculiar about my situation" which means that I can't get the finance.
Cheers
K
Hi Wezwaz
This exact issue is a continual problem for me – how to increase wealth without having an "income" as such. I have found that getting finance for deals is the single biggest impediment to me increasing my net worth.
My husband and I started out 4 years ago buying cashflow positive properties in Darwin. We then set up a company so that we could do developments. All our buy and holds are in our family trust and all our short term projects are in the company. We have both quit our jobs. The company pays us an income, the most we can be paid and still stay in the 30% tax bracket. We have over 5 mill in property and a net worth of about 1.5 mill. But the banks still knock us back on the servicibility issue.
We could sell everything and retire (in fact my husband wants me to sell everything and retire!) but the banks don't seem to care. They are not interested that our portfolio could, returning 5%pa, give us an annual increase in equity of $250,000. They just want to know how we are going to service the debt.
I know that some banks won't take into account as income, capital gains. Even with cashflow positive properties most banks only take into account a certain percentage (70 – 80%) of the rent so a portfolio would have to be substantially positive to lend using rental income only for servicibility.
I know that there are many organisations to subscribe to the theory of living off your equity but I have yet to come across a bank who will facilitate that for me. Whenever I say this I get inundated with offers from mortgage brokers who assure me that they can help me out but, as I have just said, no bank has ever said to me that they will do it.
I think that the only way to do it is to have such a huge net worth (in the several millions) and relatively little debt as well as income from somewhere, whether that be rentals, developments etc.
But me, I have a headache from just banging my head against that servicibility brick wall.
Cheers
K
I have found getting finance the single biggest impediment to
Hi cu@thetop
The solicitors who drew up the contracts were the vendors solicitors
They are a medium-large developer. That is, they are not an individual or just a couple of people. They are a company with substantial developing experience. They are one of the largest developers in this particular city.
As to the price the blocks range between $65 – $75,000 with the difference in price about $12,000 on one block and $6,000 on another.
Hi Kiz. I haven't said on the forum what I will be doing. I have just been putting out both sides of my ethical dilemma.
I will let you know what I will be doing in due course. I just wanted to get everyone else's thoughts on the situation.
Cheers
K
Hi Ian and trakka
A developer buys and sells property as a business. It is something that he would have done thousands of times before. The fact that he didn't check the contracts before he signed them (but instead relied upon the fact that his solicitor would have looked over them) is a business mistake. He should have known to check the contracts over himself. When a business makes a mistake it costs that business.
On the other hand when an individual sells a property for the only time in his or her life, it is understandable that he or she would trust that the solicitor engaged would have looked over and approved the contract.
I have differentiated between developers and individuals before. A couple of years ago I onsold two blocks of land, one to a developer and another to a first home buyer. I added a clause to the effect that if the purchaser was not able to settle on the specified day of settlement (which was a concurrent settlement) then I would reserve the right to rescind the contract. The developer was not able to settle on the day. I exercised my right to rescind the contract because the value of the land had gone up by about $20,000 in the meantime. I was of the opinion that the developer, who did this for a living, should have been organised enough to get his finance sorted out in time. Had the first home buyer been late, I would not have rescinded because, to my mind, it would be understandable for there to be glitches with someone who had never done this before.
So my differentiation is not based on the fact that the developer is "large scale" but because they have done this often enough to know to look at the contracts and if they don't, then pay the price.Which brings me to Marg's comment. Marg, you are exactly right. I should have looked over the contracts myself when I signed them. The contracts were about 20cm high. I just signed them and trusted that my solicitor had looked them over. If the error had been in the vendor's favour it would have been ABSOLUTELY my fault and I would have just taken it on the chin as a very expensive lesson. I am one of those people who should have enough experience to look over things myself and not just rely on someone's sayso. I would expect no sympathy had the error been in the vendor's favour.
And finally, Duane, the vendor's solicitor is not liable. They have been negligent, but it is certainly up to the person signing the contract to look over everything themselves. The only consequence the solicitor will suffer will be losing the client.
I have found it interesting how the responses in this post have been so polarised – people either firmly believe one way or the other.
Cheers
K
Hi again
I have just had a look at the legislation, "The First Home Owner Grant Act 2000" of NSW. Section 8 states very plainly that the applicant must be a natural person.
A trust is not a natural person.
Cheers
K
Hi ume
I have just had a look on the NSW FHOG website and looked at the application form. It states quite clearly that applicants must "be a natural person (ie not applying as a company or trust), at least 18 years of age and whose interest in the property is not held subject to a trust".
To my mind, that makes it quite clear that you cannot use the FHOG if you are buying in a trust, despite the fact that you are the beneficiary.
I haven't looked at the legislation behind the application form but given that it is the second criteria, I would think that the legislation would also state the same quite clearly.
Cheers
K
What state do you want to buy in?
Hi Ian and trakka
You make very valid points and I am inclined to agree with you. However, I do think there is a difference between a small property investor and a large scale developer. One is clearly a business dealing by an experienced person who knows the world of business and the other (elderly parents) are just people who don't have the experience that a developer would be expected to have.
If I were the vendor I would just suck it up and accept that it was my lack of diligence that cost me the money. I would be gobsmacked if a purchaser pointed out the error to me and offered to rectify it. I don't know whether I would take them up on it, to be honest. And I would also fire my solicitor quick smart!
I already know what I am going to do about it. I just thought it would be interesting to see what other people thought.
Cheers
K
Hi MadProperty
My family discretionary trust owns a property that we live in and pay rent for. We have no PPOR. We are, however, in a unique situation and this arrangement benefits us for the following reasons:
1. The property is on 46 acres. The CGT exemption for PPOR applies to the house and surrounding 2 hectares (or acres, I'm not sure which) only. Any capital growth in the property will be mainly in the land. So if we ever sold it we wouldn't get any real CGT exemption anyway.
2. We don't ever intend to sell the property. It is an estate and will hopefully be passed down to our children when we die. If they want to sell it when we are gone, they can pay the tax on it!
3. It is a reasonably expensive property and the monthly repayments are substantial. Our trust declares our rent as income and interest payments and other expenses as negative costs. The property is negatively geared to the tune of about $30,000 pa. However, the trust has its fingers in lots of pies and by staggering the sales of assets over the years we are able to offset income from these assets against the losses incurred in this property.
4. We are able to buy lots of stuff for the house (lawnmower, livestock etc) and claim it all as a tax deduction.
We did our sums very carefully and spoke to our accountant about it and we were far better off buying it through the trust. Unless you are in a particularly unique situation, I can't see how you could be better off renting a property off your family trust. The CGT exemption is a really good reason to buy a property in your own name. The main reason we didn't buy in our name is because we will not get the exemption anyway.
Hope that helps
Cheers
K
It all depends on what state you are in. Terms of rescission are written into the contract. In South Australia the purchaser has to issue a notice to remedy the breach (failure to settle) and the vendor then has 3 days AFTER RECEIPT OF THE NOTICE to settle. If the vendor can't settle within that time the purchaser can terminate the contract.
Interestingly enough, in SA the purchaser is entitled to claim default interest from the vendor if the vendor can't settle within 3 days after receipt of the notice. Alternatively the purchaser can claim the amount of money actually lost because of failure to settle. In your case Trakka, you would have been entitled to claim from the vendor all your out of pocket expenses.
However, this is only in SA. I know in other states the vendor has 14 days after the notice to settle. Also, in most other states, the purchaser can't claim default interest or other losses incurred.
Cheers
K
My thoughts wrt to The Investors Club are that they are not bad if you are new to investing and you don't really know what you are doing. They have researchers who look for areas with potential capital growth potential that also have a reasonable yield. Their research is pretty good.
However (and this is a big however) always get independent advice. I wouldn't use their mortgage brokers or accountants and I would always get one of their recommendations independently valued. I had friends who tried to go through them recently and the mortgage broker was useless and they missed several properties because the broker couldn't get finance together in time. They also got the property independently valued at my recommendation and the valuation came in $60,000 under the price.
If you are careful there shouldn't be hidden costs.
Good luck
K
Hi Tammy
I can't answer for the bank's about face but you are correct in that the Mortgage Broker has suggested a fraudulent method of getting a pre-sale.
Having said that, I know that it is a pretty common practice amongst developers. If the bank only wants a signed contract as evidence of a pre-sale then you, for example could sign a contract to buy. Once your Dad has finished the units and you "decide" you don't want to proceed with the purchase you would then terminate the contract and your Dad, being a generous soul, doesn't charge you anything or keep your deposit for terminating. In 12 months time he could probably get a higher price than he sold it to you anyway.
Signing a contract with the intention to buy the property and then later terminating it because of unforeseen events (and the vendor not keeping your deposit) is not fraudulent. What is fraudulent is the vendor (your Dad) getting someone to sign a contract who has no intention of buying the unit.
Cheers
K
Hi Nat
I would claim it on the insurance. The insurance company will send an assessor around and will then tell you whether it was from a leak or from the window being left open. If the assessor says it is not from a leak then get the tenants to pay for it.
Easy done!
Cheers
K
Hi Michael
PM me the details. I might be interested.
Cheers
K
Hi Soloinvestor
If you sell it full stop you will have to pay CGT. It doesn't matter whether you sell it to your trust or to your mother or to a stranger. Even if you sell it for less than it is worth the ATO will make you pay CGT on the market value.
Just buy future properties in your trust so that when you sell them you can distribute the profits.
Cheers
K
Unfortunately, investment properties incur CGT when you sell them. There's nothing you can do about that. A capital gains bill of $120,000 suggests to me that you had a very healthy gain that wasn't subject to tax.
However, given the size of the tax bill and your unhappiness with your accountant I suggest that you should go and see another accountant promptly! I'm sure you will get some recommendations on this forum.
I don't mean to sound glib but it really is something you should get professional advice on. You never know, your accountants may have gotten it all wrong, which doesn't sound unlikely given their history.
Cheers
K
If you sell your PPOR to a trust, depending on the sort of trust you will get the 50% CGT discount provided you own the property for more than 12 months. If you sell your PPOR to a company then there is no 50% discount on the eventual sale. As others have said, you will also have to pay stamp duty on the transfer to your chosen entity.
A company can certainly pay your salary. I'm unsure whether a trust can, other than via distributions. You would have to get financial advice on that one.
We have a discretionary trust and a company as trustee for a separate trust. The company does property development and our salary is paid from the profits. Our discretionary family trust is for buy and hold property. The only property we have left in the family trust is the place we live in. Legally it is not our PPOR. We rent it from the trust at market rent. Normally I wouldn't recommend this, mainly because of the CGT issue.
We, however did this for a number of reasons:
1. Being able to claim the interest on the loan as an expense. The "losses" are carried over by the trust until the trust makes a profit. We also sharetrade in the trust and have sold off a few properties which we have been able to offset against the losses.
2. The place we live in is on 50 acres. On a PPOR you only get the CGT discount on the house and surrounding 2 acres (or hectares, I'm not sure which). That means that on the eventual sale we will have to pay some CGT anyway.
3. Asset protection.
You will need to get proper financial advice to see if what you propose will benefit you. We incur substantial "losses" by renting this property and we are far more financially better off than if we owned this place as our PPOR.
Cheers
K
Yep. Real problems with naming RE Agents who are "down right hopeless, unprofessional and unethical". In fact, not only can you not name them, you can't even only provide enough information to identify them, eg, mining town, north Queensland, approx 20,000 people, pink and red colour scheme on their brand name (the town is Mt Isa but the rest is made up by me to provide an example). If you give enough information away on the forum for people to work out who you are talking about, it is potentially defamatory.
Words like "hopeless, unprofessional and unethical" are all opinions, not necessarily fact. While I'm sure some forum posters would carefully word what was said, it would be too easy for most posters to cross that arbitrary line and for the owners of the site to be sued.
BIt of a shame really because there are some shockers out there.
Cheers
K
That is true, but if you aren't any good at budgeting (and we weren't) then it was by far the best way to save. We would have missed out on claiming a very small amount of interest as a tax deduction (had it been an IP and not a PPOR) but when it came time to have the place revalued and refinanced, we had a lot more equity to use. Mind you, that was in the days before we knew anything about property investing and the equity was used to buy a 1974 MGB Convertible .. which is another post entirely.
Cheers
K
