A trust would work very well if there was a profit straight away.

If there is a loss then it could cost you a bit more than holding in your own name. But this doesn't mean you shouldn't use a trust. You must weight up the benefits.

If you were self employed you could easily direct income into the trust to offset the loss and therefore save personal income tax. If not self employed then it is not as easy.

Also stamp duty would be payable on the transfer to a trust as well as CGT and legals. You would also lose a large amount of asset protection than you would if you had purchased it in the trust initially (clawback provisions of the Bankruptcy Act).

Not really sure what you mean by the income and viability bit.

Firstly, you shouldn't be using cash as a deposit, especially if you have non deductible debt. Ideally you would borrow this deposit from a LOC secured on you rmain residence or other property.

If you are paying $160,000 for it and borrowing the lot plus stamp duty, then say $165,000 (split up of course)

repayments at 7% = $11,550 pa

If you get $170 pw = $8,840 pa

You costs will be:
Interest $11,500
Management, rates etc, say 25% of rent = $2210
Total cash costs = $13,710

So net income is $8,840 – $13,710 = -$4870 This is what it will cost you out of your pocket (approx) before tax.

Then you have the non cash deductions such as depreciation of fittings and building, loan costs etc

This is hard to estimate but could be around $5,000

This would mean your taxable income is -$4870 – $5,000 = Loss of $10,000 (rounded).

Now we can consider the different scenarios

A. Wife

Nil other income, so no tax payable. Her taxable income would – $10,000.
No tax saved

B. you

Assume you are on $50,000 pa, add the loss from the property = new income of $40,000
Tax saved, approx $3,000
Total property cost to you  = $4870 – save saved of $3,000 = $1,870 loss.

C. you and wife
Will vary depending on ownership split

D. Discretionary Trust

No land tax free threshold, so an additional expense of land tax.
Say land is worth $80,000, land tax would be 1.6% x $80,000 = $1280 pa

So new figures would be:
Net income of -$4870 plus – $1280 = $6,150 loss pre tax.

Add non cash deductions of $5,000 and the new total taxable income of hte trust is $11,150
Because the trust has no other income there is no tax saved.
The cost of hold it in a trust is $6,150 compared to $1,870 if in your own name. $4,280 difference pa.

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As rents rise the losses will diminish and it will be positive cashflow after all expenses and deductions are taken into account. But this could take something like 12 years.

But, then again values could double within a few years and then you would be in trouble if you had the property in your name and you were on a high rate of tax with the wife on nil.

there are also other factors to think of such as asset protection and succession. Trusts are extremely complex too

How could you refinance it to keep it negative???

Would it be neutrally geared before tax?

It depends. If you own it in your own name and have lived in it before renitng it out then it could be CGT exempt. What you do with the money has no bearing on whether CGT is payable.

If I was a motivated seller I would accept whoever signed an unconditional contract first with the price I wanted. I wouldn't care if they were a motivated investor or it would mean going with someone who had just made an offer.

Even if I wasn't motivated, I would still do the same. A sale is only a sale if the contract is exchanged without conditions (or when those conditions are fullfilled). Actually a sale is really only a sale when it settles and the cheques have cleared because some do not settle.

You would want to keep your cash for your non-deduction debt usually. Probably a good way to proceed would be to lend money to your trust by borrowing it from a LOC secured on your main residence at the same rate you are being charged. Any less would cause tax issues.

If the trust does go down then you as the lender will probably only lose the money lent and not your house. if you let the trust use the house as security then it would be more risky.

You can tell the lender to do anytihng, but they won't be contractually bound so they can sell to another even if they take it off the market. They may keep it for you or may not.

You cannot claim anything as you wonn't own the property. The trust can claim all the usual expenses though.

Slow down.

Just because you have found a cashflow positive property doesn't mean it is a good deal.

What do you need to know? You shouldn't be signing any contracts before talking to a solicitor (and not an annonymous caller). If you don't have a trust set up before you sign then you will be charged double stamp duty in WA if you sign and later put it in the name of a trustee.

Sounds like he may have suggested a LOC for the deposit and and another main loan with the offset?

But, if he suggested you borrow and place money into an offset then this is dangerous. You would likely lose deductibility of the interest.

If you do use a LOC for the deposit you should never deposit wages etc into this account or you would end up with a loan where none of the interest is deductible.