Suggestions

To raise capital to get into an established business opportunity.

Gee… Thanks for your input Dazzling, it surely was dazzling and I think you need to ease-up on the sarcasm, the lowest form of wit, but that is my opinion and I guess you are entitled to yours too!!!.

Often though, I enjoy different viewpoints even if they maybe incorrect, so I will present how I see this opportunity with some facts, particularly taking into consideration the rental income component and some tax advantages that may apply in buying investment properties. I am not an Accountant by the way, but my source of reference queries and answers have come from a qualified Accountant. I can`t be sure whether he is totally correct, but I am assuming he is.
This could be a very likely situation and outcome. Please note this is an example only to highlight some of what has been presented so far in knocking this potential investment and I use this as an EXAMPLE ONLY, considering figures have been thrown around inadvertantly already in reply to my last post. The true picture would be dependant on the investors personal situation of course, and therfore I can only use generalities qualifying my examples as often it would certainly depend on taxable income brackets and real life situations etc..
Yes, there would be stamp duty payable and this is the case on all property investments and loans, the higher the value the higher the stamp duty, but also higher the tax deduction, although stamp duties can be less and more in some states. On the advice given by an Accountant the stamp duty is most likely tax deductible in most cases. So that taken out of the base equation although certainly into consideration the real equation follows; Purely as an example only!!!
Say an investor borrows the $420k at a 100% lend interest only loan at 7%pa. He or she may pay the S/D upfront for an immediate tax benefit.
His gross outlay of $565 per week is to service the loan. The rent at say $400 to$425 per week, remembering the figure previously quoted was negotiable, so taking the liberty of using the latter in this example, this would be offsetting the servicing outlay. The investment becomes quickly a loss of $140 per week to service the debt, or outlay by the investor. This considered or commonly known as negative gearing, is a tax write off on their income in most cases.
Assume the investors tax bracket is only 30%(noting this is for illstration purposes only), the net weekly outlay becomes $98 per week. If the bracket is 47% the net outlay becomes less.
In return in this example if the property were sold by the investor at or just after 2 years, the 50% ruling would apply on capital gains tax(CGT). The return on capital value @ just over 9%pa compound would be the sale price quoted of $500k.
To break this down first year growth in rounded figures is approx $38,000 and second year growth the same of $42,000 providing $80k profit before CGT. i.e.just over 9%pa Compund interest. If the investor can achieve 15% to 20%pa elsewhere, that is possibly where he or she should go, but they will be passing up certain guarantees, like the buyback price quoted, should the market fall out or go down in that time-frame. Although this probably is unlikely, it is worth consdering.
At 30% tax bracket assumed, the total CGT liability would be (advised from an Accountant), with the 50% ruling applied to CGT equates to $12k in this example. This obviously comes from the profit of of $80k up front on capital growth over the 2 years and deducting the CGT liability, leaving a profit before any other expenses including outlays, of $68k in two years.
With the outlay taken into account this profit is reduced by deducting the $140 per week outlay over 2 years which is $14,560 and then the 30% tax write off on that portion, of -$4,368.00 the total outlay before other expenses becomes $10,192 over the 2 years. For a return of $68k. This is the basis of the example and does not obviously allow for any other expenditure like stamp duty, maintenance and any other outgoings associated with investment properties that by the way are also tax deductible on the advice received by the Accountant most of the time if not all the time. So the bottom line in this possible scenario is a capital growth in dollar value after CGT of $68k in 2 years for a net outlay of $10,192 with the tax write off benefits applied. Is that not 6 times the outlay?
Exposing the $420k on a property I would have thought the best security over 2 years.
By the way, as this is to be a private sale, there would be no selling fees so there is also savings there. Other savings are the facts that the current vendor is prepared to negotiate, pay half maintenance costs which would be minimul assuming the gas hot water system was only replaced less than a year ago, and the home is relatively newer than a 77 toyota Corona and not valued at only $400.00. I do not see many investors sharing rates etc.. with there tenants on investment properties.
I expect there could possibly be further negative replies to the examples I have used for illustration purposes only, but I won’t waste any more time on those. I trust though there maybe some interest shown from this viewpoint.
Sorry this was so long, but hope any potential intersted parties have time to read.

Hi Harpeau, Yes I am still finding my feet with this forum so I apologise for not responding immediately as I sent another post in between yours and my last.
In answer to your questions, I expect the new purchaser can execise the buy-back option when he or she wishes beyond the 2 year point, but the outline I received was somewhere between 2 to 5 years. As part of their offer to purchase they can set the conditions they wish to make on that offer. They would either be accepted, negotiated or declined as every seller has a right to do.
Thanks for your interest and very good question.
Regards,
Exec.