Rob,

You don’t get around it. You have to work through the issue and disclose as needs be.

I feel there is only ambiguity in the contracts used by people who are not familar with the correct way to put a wrap deal together in a win-win way.

Cheers,

Steve McKnight

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Hi CrownOfGold,

Thanks for your post.

There are a few holes in your figures, but for the sake of discussion I’ve used some assumptions to flesh out my answer (see below).

First, let’s look from a cashflow perspective:

Rent: $42,000
Interest: $26,000
Body Corp etc.: $8,000
Management: $2,940
Other Expenses (10% of rent): $4,200
Overall: $860

That’s a good start.

From a capital gains perspective:

Bought: $172,500
Less FHOG: $14000
Net PP: $158,500
Sale Price: $203,000
Capital Gain: $44,500

Overall (pre-tax):

Cashflow + Cap Gain: $45,360
Purchase Price: $158,500
% Gain: 28.6%
Over 3.5 years: 8.2% per annum

Whether this is a good investment or not depends on your goal. If we adjust for inflation and then take away tax, it’s at least a good step in the right direction.

Cheers,

Steve McKnight

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Hi,

I think Duritz has copped enough… he asked a simple question and some replies come across (I presume unintentionally) as semi-hostile.

In respect to Caravan parks… I don’t have any experience in that niche, but I’d be interested to know more from someone who does. Let’s do it under a new thread though please.

Cheers,

Steve McKnight

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Hi,

My contribution is a little out of left field… I wouldn’t directly look for either, instead I’d look to build an investing system that identifies solutions to a range of problems.

Why limit yourself to one type when there are good opportunities in both?

The reason why I emphathise the need to have a system is, as Terry pointed out, securing finance in your own name will be difficult without a job. However, if you have a system then others (i.e. money partners) can co-invest in that system/process.

Finally, you don’t need a full time job, but it may be a short-term necessity to achiove a longer term outcome.

Regards,

Steve McKnight

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Hi,

I agree with the comments made by JackW.

In addition, some key issues I’d be thinking about generally fall under the rights and responsibilities of all concerned, namely:

* Contribution of time and money
* Sharing of profits / losses
* Who ‘runs’ the investment
* Ability to exit the deal
* Requirements to contribute more funds
* Tax implications of investment
* Agreement on time frame of deal
* Established criteria to sell / minimum required returns on investment
* Death etc. of parties
* Basis for determining value of asset at any one point in time
* Procedure for mediation of disputes

That should get you thinking.

Oh, and if you haven’t already read it… pages 60 and 61 of ‘$1,000,000 in Property in One Year’ provide some good tips about matching yourself with the right type of business partner.

Finally, the two biggest things needed in a successful business partnership are: TRUST and ACCOUNTABILITY.

Regards,

Steve McKnight

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Hi,

I strongly suggest you seek accounting advice on this matter, but to get the discussion started, and based on the info at the ATO Website

1. You can only have on PPoR at a time. As such, your PPoR for the 2 months you lived in the property would have been the unit. I expect that if you had of sold while you lived there then there would not have been any CGT.

2. If you have had another PPoR since that time then you will now be liable for CGT on the unit from the period that you started your PPoR elsewhere to now.

HOWEVER… (from ATO Website):

3. The tricky part is, and this is where you need an accoutant, how can you mount a reasonably arguable position that the unit remained your PPoR even though you didn’t live there.

This is because there is an exemption from paying CGT on a property that remains your main resience even though you don’t live their AND rent it out (max 6 years).

In the end it will come down to your intention at the time of moving out (i.e. did you plan to really treat it as your main residence).

As you can see, this is a complicated question that requires the skills of a trained and experienced tax accountant. This post is not advice, but rather an attempt to point you in the right direction.

Regards,

Steve McKnight

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Hi Zen,

Thanks for your post… interesting question.

I’d imagine that the less risky thing to do would be to put in an offer subject to selling your home by XX date for (at least) YY price. The problem with that is that it gives the vendor a reason for saying ‘no’.

If you choose Option 2, then I’d certainly have a Plan B worked out should you not be able to sell your home by the time you have to settle on your new PPoR.

Yes, paying a few months of interest may be acceptable in the short term… but quantify how much this might be and also be aware of longer term consequences too (i.e. such as a drop in price).

Best of luck with it, and Merry Christmas!

Regards,

Steve McKnight

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Hi Shackles Off,

Welcome to the forum and thanks for your post.

This forum offers a variety of opinions, which is good because it will help you consider your options from various angles.

For example, I do not share all of Jo’s general views on property. Historically, and statistically, property markets trend down and sideways for longer periods than they trend up. Having said that, they generally trend up over time, if nothing else becuase of the effect of inflation.

This being the case, investing for the long-term may seem to make money, but I question whether it is the most efficient way to maximise returns. For example, most sophisticated property investors I know generally do have a long-term horizon, however they regularly buy and sell to cash in and reinvest profits (to increase the rate at which their money compounds).

In your case, the help I offer is in an effort to understand the decision before you.

1. Holiday homes are a lifestyle decision. Whether you keep or sell depends on whether you want to maintain that lifestyle.

If you have a holiday home as an ‘investment’ then I think it’s easy to cloud the decision making process as emotion kicks in.

Ultimately, if you want a holiday home and can afford it, then what’s wrong with that? However, if you want a holiday home as an investment, then to evaluate the nature/performance of the asset you need to compare the financial outcome of renting (for the time you are away) vs. owning (i.e. the income and capital gains you are receiving).

The lesson: Be careful not to confuse investing and lifestyle decisions.

2. How much money could you earn elsewhere (also known as the opportunity cost). If holding this property is at the detriment of another investment, then you could be hurting yourself unnecessarily.

This said… what other opportunities do you have at the moment, and how much extra will you make by selling here and buying there?

3. Jo makes a good point about the tax, but in the same token, I don’t let the tax impact run my investment, I let my investment run the tax impact.

What this means is: don’t be afraid to take profits (or cut losses) if it is in your best interests to do so. That is, the tax consequences reflect your investment decision, not the other way around.

4. MA raises a good point too that not all properties will earn capital gains in all markets. What’s needed is a solid and workable plan for how you plan to make and take your profit.

Hope this has helped clarify the decision before you.

Regards,

Steve McKnight

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Hi,

Just to quickly answer a couple of questions:

1. John and Rondah sourced their first lot of finance to purchase real estate through a money partner… 20% through them and 80% through mainstream lending. The money partner was, in this case, a family member.

2. In respect to gross vs. net figures, I accept the argument and potential weakness in the quality of the data reported. In my mind, I thought it better to re-produce figures based on what was known (i.e. current rents) rather than building in assumptions about budgeted net figures.

For the sake of the argument, time permitting, I’ll go back and draft up some budgeted net figures and repost them in this thread next week. I’ll need to make some quite big assumptions, but it will be interesting to see how it works out.

Note: ‘$1,000,000 in Property in One Year’ does clearly outline what all the map financials mean. See page 218.

3. Yep, I probably am that nerdy… but I’m happily that way so. [8D]

Regards,

Steve McKnight

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Hi Lukebe2,

Thanks for your post and welcome to the forums.

It’s a little complicated to explain in one or two sentences, but such a structure allows you to control the asset (and the income from the asset) without actually having to own it in your own name.

As such, if you get sued as an individual, the asset cannot usually be taken as you don’t own it.

The idea behind having a corporate trustee is to minimise the liability of the trustee (i.e. it has no assets other than a small amount of cash on hand).

This is not necessarily an absolute must, but it does ‘bed down’ the idea of complete asset protection.

Hmmm – the FHOG only applies to property you intend living in as your home. In many cases the perceived benefit of FHOG is swallowed up but other aspects in the deal.

Ultimately, you need to crunch the numbers and weigh up lifestyle and personal decisions. As a general rule, I don’t let tax decisions run the investment, I run the investment for profit while also trying to pay the lowest tax legally possible.

You should expect to pay about $2,000 for a coy/tust set up, and then $1,000ish per annum to cover compliance and accounting fees. It’s not cheap, so be sure to weigh up the cost:benefit.

Have a very merry Christmas,

Bye,

Steve McKnight

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