Relocating – PPOR to Investment, Suggestions on Restructuring?

Hi everyone!

I’d like to get some tips or opinions on my current situation. (Before you start reading please be aware this is a long post!)

I am 21 years old and have been keen to get into the property game for quite a while. In mid 2008 I bought a house with my partner to live in. We are now moving to Melbourne (where we are renting) and will be renting out our property in NE Vic.
Currently, both the property and P&I loan is in both of our names. We are looking to hold and rent the property with the option of developing units further down the track as the block is quite big.

Property Figures:
Purchase price 150k
Loan amount 130k @ 5.2% Variable (And looks like on the way up)

I have not had the property valued yet, but the real estate agent thinks she can put a tenant in for 180p/week no problem. The property was listed at 160k when we first bought it, but were able to negotiate it down to 150k. The area it is in does not have mind blowing growth, but there is strong industry and plenty of work so should be a great renter. I have looked at similar properties in the area that are for sale and others that have sold, and would estimate it to be worth around 170k.

My partner has finished studying in 2009 and we will now both be working full time in 2010 onwards. We have decided we can allow $40k each year (after tax) to go entirely towards our investment portfolio (And plan on increasing this figure each year as we can afford it). We do not have any other debts or credit cards at all. We want to buy more properties as we can afford them without over committing ourselves. We have no desire to stop at 2 or 3 properties, so we need to be structured as though we were buying 10+ properties. We plan on buying & holding our property, although we will be keeping our options open for any opportunities that may arise.

My question is this – What is the best possible way to structure ourselves to do this?

From all the research I have done these are my thoughts…please correct/critic freely! (I am yet to seek expert advice)

– Set up some sort of separate entity, something like a company and/or trust for asset protection and tax benefits.
– Change current P&I loan to I/O and set up offset account (This may be tricky, our loan is with a credit union that have pretty much zero loan products, so this would involve shifting lenders. There may also be exit fees that need to be considered)
– Transfer title to new entity. (I know this is possible but I am not sure if it would be viable. Even though the company would be owned by me I’d assume I would be up for stamp duty costs + solicitor fees etc.? Obviously new purchases would go under this entity but having this one property in our own name could tie us down?)
– Pay our investment money into our offset account, and when making another purchase, draw deposit/fees from offset account and finance the remaining balance.

As we do not carry any personal debt there is no need to max out our debts on investments to redirect cash to non-deductible loans. In saying that, because we are focusing on a long term buy & hold we are in no hurry to pay off our investment debts, so we do not need to tie up heaps of cash in our investments either. Ideally, we would like to make our portfolio cash flow neutral so we do not restrict our income for further purchases. I’m sure this is a lot easier said then done, and our tax situation will obviously play a big role in how we are geared too. Either way, this will see us chasing both good renters and property with strong growth.

All of this means I’m going to need a good accountant and finance broker so I’ll investigate any suggestions for those too!

Any thoughts/comments as to what I could/should be doing would be greatly appreciated.

Many thanks in advance.

Pavv