Hi,

Thanks for your post and welcome to the community.

To answer your questions:

Option One

1. we buy a 2bd unit for my parents and rent it out to them (they are all for the idea) and we move into their 3bd unit in bentleigh.

This assumes that your parents will go for this and either gift you or lend you their equity. Is this a realistic financial situation? That is, do you rent their unit and they rent yours? I'd like to see the numbers fleshed out or more clarification on the terms.

Option Two

2. we buy a house with a large block and empty the land/build and sell the block (this is obviously a good idea but the problem here is that I don't want to live in a house with a tiny backyard as we have 2 little kids and I want them to have lots of space to play in). Also I don't like the idea of moving from house to house as I want stability for my kids/family.

It's good that you are clear on what you want. Are you able to achieve the space / yard with option 1 in your parents 3Br unit? Also, do you have the financial capacity to buy and fund this option? I think this option will take better shape when you have a potential deal to work through – both land size, potential dwellings and also money,

I would encourage you to also look at a 5 year plan, so that you do the deal and live in the property for five years and then trade up. It is unusual for people to live in the one property for life thesedays.

Option Three

3. we buy a house for ourselves to live in (not necessarily with a large block at the back)… but one that we like and will set up as our family home… and at the same time we buy another place that we can rent and possibly subdivide and sell in the end to make a profit.

This is a possibility, although it will be cash and debt intensive. Only you know what you can afford.

Overall, I like the idea of being proactive of investing, but at the same time it seems like a family home is a large priority. I suggest you work out which one you want more – a home or investment property – and then build a strategy around that.

Be careful trying to turn a home into an investment property as there is a lot of emotion in homes, whereas investment properties should be simply a matter of:

a. how much down
b. how much back
c. how much time
d. how much risk

Merry Christmas.

– Steve

G'day Dave,

Sounds like an interesting project.

I'm not the reno guru by any means, but a couple of tips I have come to find true.

1. Make sure you target your end reno product to the demographic who will buy it. For instance, a spraygun approach works if you want the walls and ceilings the same colour, but this is a basic finish for a budget project.

2. Carpet should be slightly cheaper than polished boards, and a lot cheaper than new flooring. Again though, cheap and nasty may impact your end sales price. That said, I think the new carpet smell is even more important than the new carpet!

3. Bunnings have pretty cheep chrome lighting on banisters. Two and three way lights that can be self-installed. These look modern and do the job. I'm using them for the kitchen, bathroom and loungeroom on my current project.

4. Rehabing the shower / bath will be cheaper if you can get away with it. Go for new tap fittings though.

5. You are on the right idea here. New cupboard handles, perhaps even kitchen benchtops. I'm not sure about the powerpoints. Call a local electrician and find out.

Go with mulch for landscaping and a few flowering annuals for colour.

Hope this has helped. When it becomes available see if you can grab a copy of Renovation Toolbox, it will really help you. It's currently out of print but there are moves to do a reprint soon.

Cheers,

Hi,

I think I'd budget in $1,400 (GST inc) per square meter.

I would have thought you'd get change out of that if it was an M class slab and a basic finish.

Building cost is working out to be about $12,000 per square at the moment for basic construction.

You may do a little better now as construction work starts to dry up at the sub contractor level.

Builders seem happy to quote at the moment, so price it around and see how you go.

All the best,

See an experienced lawyer. People go into these things with the best of intentions, yet this soon falls apart when the deal changes or peoples circumstances shift.

That's why it is important to consider the liquidity of the deal. For instance, what happens if someone gets divorced half way through the venture? Sounds extreme but it is the unknown in real estate that costs you the most!

All the best,

Yes, this used to be a problem.
 
Some time ago when I did the research either the entity had to be set up, or there had to be the intention that the entity would be set up.

I have a feeling now, that at least in Vic, so long as there is no financial gain in the nomination, it is not too much of an issue.  Not sure about other states though.

In any event, legal advice is worthwhile.

Further reading:
https://www.propertyinvesting.com/weeklywords

Cheers,

There are definitely benefits of further education, and both the CA and CPA programs offer the opportunity to sharpen your accounting skills.

I'm a CA, and even though I don't work in the industry as such any more, the ability to think through a financial issue in a logical and probelm solving manner is of great help.

Gaining a professional qualification is not a walk in the park though. It requires a lot of hard work, especially if you want to learn and benefit as opposed to simply trying to pass.

Perhaps I'm bias, but if you plan to work in a large accounting firm, or work in big business, then I think CA is the better qualification. Afterall, the ICAA claims to be #1 in numbers

Cheers,

Great tip, thanks Luigi.

Have you considered carpet? Or perhaps putting a floating foor on top of the old boards?

Cheers,

Good points.
 
In regards to nomination, if you don't specify 'and/or nominee' at the time of purchase then to transfer later may result in double stamp duty.

Regards,

Hi James,
Thanks for your post, and thanks Terry for replying.
I receive a lot of requests for help and further information about trusts, so with this in mind I've drafted up a reasonably comprehensive answer that I hope helps members.
==========BUYING PROPERTY==========
Most people who buy property use a portion of their cash reserves to fund the deposit and also closing costs.
The balance needed to pay out the vendor is then normally financed via a loan secured by a first mortgage over the property (e.g. a home loan).
A typical situation is to pay 20% of the purchase price as deposit in cash (+ closing costs) and then finance the remaining 80% of the purchase price via some sort of loan or finance.
==========ENTITY==========
A property can only be purchased by a separate legal entity, which means that only people or companies can be property owners. What about trusts then?
Well, a trust needs a Trustee (who can only be a person and/or a company) to act on it's behalf, since a trust does not have separate legal entity status in its own right.
Therefore, a trust cannot buy property or borrow money in its own right… however the Trust Deed, which is the rules the Trust must operate under, will typically give the Trustee the power to buy assets and borrow money on behalf of the Trust.
This is why banks require a copy of Trust Deeds before lending – to make sure the Trustee has the power to borrow on behalf of the trust.
When buying property using a trust the correct legal way to note the purchaser is <Trustee Name> As Trustee For <Trust Name>.
For example:
If the Trustee is an Individual:
Fred Smith As Trustee For The Fred Smith Family Trust
If the Trustee is a Company:
Fred Smith Pty Ltd As Trustee For The Fred Smith Family Trust
==========BORROWING IN A TRUST==========
Earlier I mentioned that typically 80% of a property's purchase price is financed through a loan and 20% (plus closing costs) is paid in cash.
But what about when the Trust has just been created and doesn't have any cash reserves? This is the situation you describe James.
In this case, instead of there being one loan, there will be two (or more) loans.
Loan 1: To a financier for the (presumably) majority portion being borrowed of the purchase price (e.g. 80%)
Loan 2: To the person or entity lending the remaining money needed to settle the purchase (e.g. 20% + closing costs).
For example:
Let's say you are setting up the James Family Trust, and have set up James Pty Ltd to act as Trustee and you want to purchase 123 Red Street for $200,000.
XYZ Bank has agreed to lend you $160,000 (80%), however you still need $40,000 (20%) plus another (say) $10,000 to cover closing costs such as legals, stamp duty etc.
If you were buying the property in your own name then you would simply use your cash reserves, or else tap into other finance options if appropriate and available (e.g. line of credit against a home).
However, the assets of the trust and the assets of the Trustee / Beneficiaries are not accumulated – they are owned separately.
Therefore, a second loan is needed from James to the Trust to cover the 20% plus closing costs needed to settle.
The journal entries in the books of the various entities involved in the transaction would be:
A. The Lender
Dr: Loan – James Pty Ltd ATF James Family Trust $160,000Cr: Cash $160,000
B. James
Dr: Loan – James Pty Ltd ATF James Family Trust $50,000Cr: Cash $50,000
C. James Pty Ltd ATF James Family Trust
DR: Property 123 Red Street $210,000CR: Loan – XYZ Bank $160,000CR: Loan – James $50,000
==========LOAN IN A TRUST==========
Once upon a time loans to/from Trusts were notional only, however the ATO has cramped down on this and now loans need to be more genuine, which includes having a formal loan agreement and charging interest (even if that interest is capitalised).
In the above situation, because James is lending and gaining interest on his 'investment loan', the interest on that loan is tax deductible.
Furthermore, because 123 Red Street is an investment property, the interest paid by the Trust to the financier and James will be tax deductible too.
==========DEBT FORGIVENESS==========
Finally, a debt forgiven may trigger a capital gain. For more information on this complex topic, see an accountant or check out what's written on the ATO's website:
http://www.ato.gov.au/individuals/content.asp?doc=/Content/36559.htm
Warm regards,

Hi,

You should be able to buy the game from http://www.powwowevents.com.au

The -ve cashflow cards are there for those who want to speculate on growth. In the US, it is much easier to buy +ve cashflow properties, so why would you -ve gear? Things are different here as property prices are a lot higher relative to rents.

That said, I made my fortune on the back of +ve cashflow houses in regional areas. I read an article recently that if values drop and rents rise then the days of +ve cashflow may return. Until then, you have to try and make your +ve cashflow rather than seeking to buy it.