All Topics / Hotch Potch / When times get tough

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  • Profile photo of stargazerstargazer
    Participant
    @stargazer
    Join Date: 2002
    Post Count: 344

    Hi all

    Its interesting to read that there is some concern starting to creep in peoples minds that have put themselves in a highly geared situation.

    I had a thought and wonder if its possible to do this and if it is complicated and costly.

    Say you have a ip
    purchase price $400000 borrowed

    rental 300pw…..$15600pa
    mortgage i/o fixed 5.8%…$23200pa
    p/expenses20%…..$3120
    This property is neg geared at this stage.

    Say interest rates rise and you find yourself in hot water eg current 5.8% out of fixed time 9%
    So things are not looking good from 5.8 to 9%
    Payments gone from 23200to 36000pa

    Would it be possible to sell say a share of shares in that unit or house. eith 2/50%or 4/25%

    So then you have 4 owners or two owners and everything is split up.

    if its 3 +1(yourself) owners then $100000 each =300000+100000left in (yourself)400000

    if keep do the calcs pos. geared in the future

    cap gains if sold shared.

    Wouldnt this take the high interest rate pressure
    off.

    Hey im just thinking hear so if im way off really like your thoughts anyway.

    regards
    alf

    Profile photo of calroncalron
    Participant
    @calron
    Join Date: 2003
    Post Count: 78

    Wouldn’t this also mean extra stamp duty when you change the property title??

    And how about the valuation for the change of title??

    I don’t know???

    Calron the Alcamist
    Turning things into gold is fun.
    [email protected][;)]

    Profile photo of xtrla8xtrla8
    Member
    @xtrla8
    Join Date: 2003
    Post Count: 6

    You’re right Carlon, stamp duty would be payable on each share sold i.e if you ended up with 4 owners stamp duty on 75% of the value of the property would be payable (3 new owners at 25% each). A contract of sale would suffice for the portions or shares sold to calculate the stamp duty liability. But it’d be nice to have a valuation to back it up just in case you got challenged on it.

    Steve

    I’ve got good news and bad news. 1st the good news “Your Success is in your hands!” Now the bad news “Your Sucess is in your hands!”

    Profile photo of stargazerstargazer
    Participant
    @stargazer
    Join Date: 2002
    Post Count: 344

    Hi

    Thanks for the response so far lets look at it another way.

    the same house is for sale same price $400000 a group of four people decide to buy it. Like people that buy share in a racehorse.

    What are the difficulties is there a legal entity that can be used? So rents went to one area?

    just another thought.

    Someone might just have the knowledge for this sort of set up if its possible.

    New Zealand no stamp duty?

    regards
    alf

    Profile photo of xyzzyxyzzy
    Participant
    @xyzzy
    Join Date: 2003
    Post Count: 178

    Check the stamp duty carefully and make sure that you don’t have to pay the whole lot on each share as is the rule in NSW I am led to understand

    Profile photo of melbearmelbear
    Member
    @melbear
    Join Date: 2003
    Post Count: 2,429

    Hi alf

    In the past I have purchased as tenants in common. This makes it really hard if one wants to sell, but the other wants to keep the property etc. If one were to buy the other out, all mortgages, title deeds etc. would have to be redone, not to mention the stamp duty.

    In the future when I buy properties with others, I will set up a unit trust that will own the property. We can then have as many units as we like, and have flexibility in who gets the loan. Could be individuals, or the Company if that is the trustee etc. Then, if somebody wanted to sell their share in the property, they would just sell the share in the trust. I believe there is still stamp duty payable (check with accountant), but it saves all the other paperwork and hassles. Also, if there are two of you, you could maybe create even 50 or 100 shares in the place, and only sell off that which gives you the money you required.

    Cheers
    Mel

    Profile photo of spider_2spider_2
    Member
    @spider_2
    Join Date: 2003
    Post Count: 79

    [:)]
    Be aware that the banks tend to view all partners in a property responsible for the loans, so that if one falters, the other(s) will be called upon to service the debt. It also affects your borrowing capacity as banks will view the whole of the outstanding loan, not just your part, when considering a future loan for another IP. There is also every possibility the banks will want collateral from each partner, not necessarily the IP purchased.
    Good Luck
    [8D]

    Profile photo of B.DerosB.Deros
    Participant
    @b.deros
    Join Date: 2003
    Post Count: 34

    Just more on melbear’s ‘tenants in common’.
    If there are two names on a contract then this is the legal structure automatically used.

    According to the ATO both parties are deemed to own 50% of the property and receive 50% of the income whether they have some other arrangement or not.

    Profile photo of muppetmuppet
    Member
    @muppet
    Join Date: 2003
    Post Count: 900

    Hi Alf

    Yes you are correct, there is NO stamp duty in NZ.

    Also there is NO capital gains tax either.

    Refer to NZ Suburbs for more comment.

    Regards

    Profile photo of melbearmelbear
    Member
    @melbear
    Join Date: 2003
    Post Count: 2,429

    B. Deros, you might be confusing the joint tenants with tenants in common. Joint tenants is where each party has an equal share. ie if there are two it’s 50/50. If there are three, its 33.3/33.3/33.3 etc.
    Tenants in common can say one party 1%, the other party 99% if that’s the way you want to do it. I do not believe that banks care about the percentages though – they want as many people and as much security as they can – it’s all about minimising their risk.

    Alf
    I did not notice your second posting earlier where you asked about multiple owners and only one of them getting the rent. Check with your accountant/solicitor, but I believe there is a way of doing this. It involves a trust (I think a ‘hybrid trust’), where you can say the income goes to this person/s, or this class of ownership, and the capital goes to this person/s, or class of ownership.

    Hope this helps.

    Cheers
    Mel

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