Forum Replies Created
Hi Jason.
I am a property investor and have attended, and learnt(!), from Steve’s Property Investing Seminar. Also a member of the Vendor Finance Association.
Call me on 0414 356 912Terry
FinanceHi Jumbo.
The interest portion of P & I loans is very high for the first several years, and your principal repayments will be very small. By the time principal repayments become significant you will probably be involved with other investments, thus solving your cash flow problem! For example,after 5 years you should have enough equity in the property (from capital gains) to redraw for other investments.Below are approx figures for a $200K P & I loan over 30 yr @ 7%(if I’ve pressed the right buttons!). Repayments would be about $1331.
Year: Balance: Interest:
1 $197,968.38 $1155.84
2 $195,789.89 $1143.20
3 $193,453.93 $1129.65
4 $190,949.09 $1115.13
5 $188,263.18 $1099.55
6 $185,383.10 $1082.85
7 $182,294.83 $1064.94
8 $178,983.30 $1045.73
9 $175,432.38 $1025.14
10 $171,624.77 $1003.06
etc.Terry
FinanceHi.
Since you have a trust, the trustee should buy a copy of ‘Trust Magic’, by Dale Gatherum-Goss; available from http://www.gatherumgoss.com. This book has been recommended by a number of property investors.
You can definitely rent your PPOR from the trust, and thus should have a number of legitimate tax claims, e.g. depreciation of furniture etcTerry
FinanceHi JStPerth,
can’t help thinking that Chartered Accountants were helping to run HIH
Terry
FinanceHi Quasimodo.
Can’t answer your question – I’m not sure of the legalities. The strategy may not work with a wrap – who is entitled to the Capital Gain? – but may work with a lease/option. The ATO may interpret this as a scheme to avoid tax, rather than something necessary for personal reasons such as travel or employment! Check with a good accountant…Terry
FinanceHi Keesha,
I believe that in your case the CGT exemption will apply only from when you move into the IP and make it your PPOR. You are liable for tax on any CG that has already occurred, and any CG after the exemption period expires, e.g. when you nominate a new PPOR. Remember, depending on your investing strategy, if you don’t sell there is no CGT!Terry
FinanceHi bigboy.
Both Kevman and TerryW make good points. A company is almost certainly the worst structure in which to put appreciating assets. There is no CGT discount and the company is taxed at 30% on profits, and you are then taxed again at your own tax rate when the co. profits are distributed.
Research using a trust if you think you will be buying multiple IP’s. Remember, your solicitor may not be a tax accountant as well!
I suggest that most members of the Govt use trusts themselves and won’t introduce changes that adversely affect themselves or their families…Terry
FinanceHi AllanFC.
How about the following:
Buy a property which you could regard as ‘home’.
Move in and qualify for FHOG if you are eligible.
After a period move out and rent somewhere, thus the ‘home’ – your PPOR – becomes an IP, but because you have lived in it you are entitled to claim it as your PPOR for up to 6 yrs. This means it will be exempt from CGT for that time. This does not preclude you from nominating any other property as your PPOR, but you, of course, can only have one PPOR at any time.Terry
FinanceHi Roofarmer.
Rick Otton has a joint venture programme which you may like to research. Try http://www.creativerealestate.com.au/ and look through the site.Terry
FinanceQuentin is basically right. However, the structure depends on whether you have a non-deductible home loan or not.
With a loan on your PPOR, use interest only for IP’s and put extra payments into an offset a/c against the home loan. This has the same effect as paying off the principal, but the money is immediately available for further investments.
If you don’t have a non-deductible loan, then you could pay off the principal of deductible loans and then redraw for further investments, but with redraw charges this may be more expensive than using a Line of Credit.
I/O loans can be fixed or a LOC, depending on where you think interest rates are heading.
See also this thread: http://www.somersoft.com/forums/showthread.php?s=&threadid=7655 from another forum.Terry
FinanceHi Ziz.
Sorry all. The link is http://www.gatherumgoss.com.
Peter, your approach is very conservative and safe.
Note that banks, who are also conservative, allow a debt to equity limit (LVR) of 80%. There is 30% more borrowing ability which is not being utilised in your suggestion. Regarding kids & money, if the assets are in a trust then they have no likelihood of inheritance if they are not worthy
CheersTerry
FinanceHi Glenda.
The strategy that most wealthy people use is to hold their assets in discretionary or unit trusts. When your time comes it doesn’t affect the investments, if set up correctly. Take a look at http://www.gatherumgoss.com.au.Terry
FinanceHi Susiemac,
you may find lease documents etc on your State Govt website. In SA, for example, the forms are available from the Consumer Affairs site, or from their offices. The rules for residential tenancies, bonds, etc may be quite strict if you have formal leases, as protection for both landlord and tenant. As landlord you need all the legal protection you can get, so have everything in writing, preferably on Govt forms if available. (see recent tenants from hell post!).
TerryTerry
FinanceHi Infosquid.
In answer to the first part: I been advised that a company is probably the worst structure to use for purchasing capital growth assets. Seems that a trust of some kind is better. Take a look at http://www.gatherumgoss.com or http://www.chrisbatten.com.au.
Second part: I have no accurate info, but I think that only Aust residents or Aust registered companies can own R/E in Aust. Anyone else?Terry
FinanceHi Steve.
in regard to Steve McKnight’s suggestion: the PIA software is excellent, but is for comparing different strategies – a ‘what if’ technique.
Try http://www.otter-software.com.au/ for property tracking software. DuncanM, the author, is an investor himself, and it’s written for Aust. conditions.
TerryTerry
Finance
Hi Soma.
I also am from Adelaide. My conveyancer didn’t bat an eyelid when I mentioned lease/options to her. Options to buy are common in commercial property. There are already forms for this purpose. Perhaps try a good conveyancer first. We bought our PPOR on an option about 5 years ago(without a lease), and the R/E agent had a REISA form for the purpose, as I recall.
You can also look at the Vendor Finance Association website for information.Terry
Terry
FinanceHi, Grizzly and tomjones.
I found Nigel Renton’s book ‘Family Trusts’ a very good resource. Gives the pros and cons of different types of trusts. Can be borrowed from libraries or is good value if you want to buy it. Certainly cheaper than a visit to accountants.
tomjones: in answer to your concern, you always set up a trust so that you control it! A trust may not be as useful if you are a solo act, as this is not its purpose.Terry
FinanceHi Essykay,
A second mortgage increases your payments. It is a second loan against the property at a higher rate of interest.
Of the options shown by Nathan, the cheapest is to increase (up-stamp) your existing mortgage to access any incresed equity. There should only be State stamp duty to pay.
To re-finance means to create a new loan to pay out the old. There are exit costs from your existing mortgage; application fees and new stamp duty to pay on the full amount of the new loan. You refinance if the total package works out cheaper than other alternatives (e.g. if you can obtain lower interest rates).Terry
FinanceQuote:Hey,I posted this days ago and only one reply.
This Q is core to L/O dealing in QLD and nobody only one person has commented.Just a passing thought anyhow.
Hi TC
I suspect that the only reason there are few replies is that no-one knows the answer!
In Qld most people use instalment contracts; in SA we HAVE to use L/O since instalment contracts are illegal for R/E.
Surely an option can be written that is separate from the regular lease – if there are no qualifying clauses in the lease the option would stand as a separate transaction?
Time for legal opinion?
You could also look at http://www.creativerealestateinvesting.com.au for info.Terry
FinanceHi Wellyboot.
AD offered excellent ideas.
I must add, from experience, to be VERY cautious of partnerships. A saying from the 19th C:’the only ship that’s certain to sink is a partnership’. Have your solicitor explain all the pros & cons of each of the structures.
Regards.
TerryTerry
Finance
