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.

Hi,

Normally when doing renos as a business, there is no capital gains as the entire profit is treated akin to business income (that is – like salary for businesses).

When doing renos as a private investor you could probably do one or two every few years, but after that you would have an argument with the ATO to say you were not in the business of renovating for profit.

That said, everyone has their own tax situation, so it is hard to know how much tax you will need to pay.

Nevertheless, tax should be a consideration and I will ask Dean and Elise to include it in Reno Toolbox II which is currently in production.

Gosh.

That's a complicated and tricky question.

Let me get this right… you want to buy a property off the plan using a deposit bond, and then you want to assign your right to purchase to a third party and then get them to take over your deposit bond, or get a new one?

Hmmm.

A couple of thoughts:

1. Make sure you can assign the right to purchase in the first place. You wouldn't want any recourse against you if the person you assign to doesn't settle.

2. The idea of a deposit bond is that the bank guarantees that you will be able to come up with a deposit on settlement. If you then assign your right, I can't see why you need the deposit bond anymore as the new purchaser takes over that obligation to give a deposit on settlement. That is, when you assign the person taking up the contract will need their own deposit which should then eliminate you.

3. Carefully read the terms of the deposit bond. I doubt they are able to be transferred.

4. Be careful about the stamp duty implications of what you are doing.

Coming back to the question again….

Who knows where the government is at with policy issues. I would have thought that Trading Emissions is a higher priority though, at least until interest rates rise further or we get closer to the next election.

I am in favour of tweaking the tx rules on NG. My suggestion would be that you can no longer offset the 'loss' from negative gearing against salary income. However, you can carry it forward to offset against future capital gains.

However, the danger of doing anything is that it will tip the housing market over and Aus will follow the US in a housing-led recession. Don't underestimate how much money people have tied up in their homes. If home prices fall then the consequences will be significant.

Hi,

It's good to ask questions and I always encourage it.

First up, with the start of the latest RESULTS program, a lot of my time is being spent writing materials and answering questions of late. You will notice though that I did a short 5 min video about my thoughts on the current property market.

I'm also making good on some long awaited promises in terms of writing the content for the Advanced MasterClass pack.

Aside from that, I have a number of property projects on the go and they are keeping me busy too. No point writing about investing if I am not doing it myself!

Finally, in terms of Dean's seminar – I understand concerns about value of 'paper as such' I mean the real cost of an A4 sheet is about 5 cents in paper and maybe 2 cents in ink. But if the knowledge on that paper can help you make $10,000, or save you from disaster then it is worth a lot more.

I see it as the cost of eductaion. $695 is pretty reasonable for a one day seminar, and the templates are free bonus items.

I'll be at the Melbourne seminar with a pen and notepad as I'll be keen to learn from Dean. His systems make a lot of money and those who come along will be in for a treat.

Thanks for the post and all the best.

Hi,

I recommend you read this site: http://www.propertyinvestment.net.au/tax-deduction.htm

Stamp duty is a capital cost and added to the value of your property. Lender's mortgage insurance is a borrowing expense and can be written off over the shorter of the life of the loan or 5 years.

Cheers,

Hey Jim,

Sounds like a golden goose deal. Well done.

You would be best to see an accountant here, but I think that provided you bought the property as an investment with a goal of making a profit then the fact that it has gone up so much in value provides a reasonable argument for claiming the interest on a loan used to buy that investment property.

As for reducing the CGT, well, provided you are structured properly then you should only have to pay tax at your marginal rate at 50% of the gain. Definitely go and see an accoutnant for some tax planning though to see if you can take advantage of any rural allowances (don't know if there are any, but worth a try).

Well done again on your deal!

Hey there Emily.

How did the conference go?

I'm actually attending an internet marketing conference in Canada right now!

I agree that reading books is the best place to start… that's what I did.

I'd also make a start with some tentative investing, and if it's related to the stockmarket, get your hands on Louise Bedford's books.

Property is more intense in that you have to deal with more people, but you can also make a lot of money if you know what you are doing. Perhaps take a look at API magazine as there are articles from time to time from people less than 25 who do well from property.

I would also like to commend you on your attitude. Well done and all the best.

Hi,

Thanks for your questions about RESULTS. I'll try to answer them.

1. About RESULTS

Some years ago I became aware that people desired more than just a seminar. After careful planning we released the RESULTS mentoring program where participants have access to an experienced property investor to coach/support and mentor them over 12 months.

We don't provide instant pills or magic solutions – but we do know property very well and have been able to now assist hundreds of people to get substantial financial outcomes from their property investing.

The RESULTS from the program do vary, and pretty much what you put in is what you get out. Some have outstanding experiences. For example, one participant presented her deal at the last get together that has an expected profit of $2.9millon. If only all deals were like that!

On the flip side, there are some that do the program who do not acquire any property. This is not a failure though as everyone goes at their own pace and our job is to help rather than act as a drill sergeant.

The outcomes you achieve depend largely on your vision, plan, strategy and how much action you take.

This is not a get rich program. It is structured and comprehensive training by professionals where we aim to transform your life by working with you 1-on-1. There is nothing like it on the market.

2. Pricing

I agree the pricing is confusing and I apologise for that. This year we allowed people to pre-register and this has caused additional complexity.

To cut to the chase though, the reduced price for those who pre-register before the deadline expires (at https://www.propertyinvesting.com/results2008prereg2) is $6,490 (if you pay upfront) or $6,690 if you pay over three instalments.

3. Instalments

You can either pay upfront (slightly cheaper) or over three instalments of $2,230. The first payment is due now, the second payment is due 15 June and the third payment is due on the 15th August.

4. Other Costs

The cost covers the following:

A. Direct 1-on-1 mentoring over 12 months
B. Access to structured training including over 400 pages of written material, CDs, DVDs, Webinars etc.
C. 5 One-day (10am to 4pm) Mini Seminars exclusive to RESULTS participants
D. And many other benefits and privileges.

Note: We are not accountants, solicitors, architects etc. We will help you to brainstorm solutions, but we are not replacements to professional advisers in specialist fields. Having said that, we know a lot and will help you as much as possible within our areas of expertise.

5. Mentor Contact

You can phone or email your mentor as you like or need. Some people also call in to the office from time to time and enjoy a coffee.

It is quite hectic in the first 60 days, but after then things really settle down. It would be highly unusual not to be able to get in contact with your coach (or the coaching panel) within 24 hours of asking for help.

6. Advantage If You Are Maxed Out

You are where you are as a result of your beliefs about money which translate into your money habits. Sadly, much of our society programs us to be poor.

Therefore, one of our goals in RESULTS is to help you acquire money habits that will allow you to create and retain large sums of money. Therefore, one of the first things we teach is how to get out of debt. This is what Tim talks about on the video which you can watch at https://www.propertyinvesting.com/results2008prereg2

To date, everyone I am aware of exited the program in a superior financial position than when they started.

7. Cost Free Introduction

If you would like to discuss your specific situation then call Simon Buckingham on 03 8892 3800 during office hours. He is the head coach and will be able to help you.

8. Allocation of Mentors

Shortly after joining we ask you to complete a survey and then based on your answers we will allocate you a mentor that best suits your needs. If there is a personality clash or other complication then we can reallocate you to another mentor.

Remember, even though you will be under the primary care of one mentor, the whole coaching team will be available to assist where needs be.

9. My Role

Most of my time in mentoring is spent either with the coaches discussing issues or else working with RESULTS graduates. That said, if you ever have a specific need to talk to me then I'm available.

I hope this has helped answer some of your questions. RESULTS really is a unique opportunity for those who want some hands-on help from people who have walked the path and know the way to use property to make money.

All the best,