I AM VERY INTERESTED IN BEGINING A PROPERTY PORTFOLIO. I CURRANTLY HAVE A DEPOSIT OF 300000, WHICH I INHERITED FROM MY FATHER. IT IS CURRANTLY IN MY MOTHERS ACCOUNTS, AND SHE WILL PAY THIS ONTO PROPERTY, TO AVOID GIFT TAX.
I LIVE IN DARWIN, AND HAVE FOUND A 2 BED ROOM UNIT FOR SALE, IN STUART PARK FOR $485000. THIS PROPERTY CURRANTLY GETS A RENT OF $595 PER WEEK.
THERE IS ALSO AN OFFICE BLOCK FOR SALE WHICH IS $280000 AND TAKES IN JUST OVER $500 PER WEEK.
MY PLAN IS TO BUY THE OFFICE BLOCK OUTRIGHT, THEN PUT THE REMAINING $20000 AND EQUITY OF MY HOME DOWN AS DEPOSIT, AND GET A LOAN FOR THE REMAINING $465000 FOR THE UNIT. EFFECTIVELY I WILL HAVE A LOAN FOR $460000 AND AN INCOME OF AROUND 1100 DOLLERS FROM BOTH PROPERTIES RENT.
THE INTEREST ON THE LOAN WOULD BE $465000 X 8% = 37200 THE GROSS INCOME OF THE PROPERTY WOULD BE 1100 * 52 = $57200 THIS IS A NET PROFIT OF 20000. I REALISE SOME OF THIS WOULD BE EATEN UP IN BODY CORPORATE FEES AND RATES ETC, BUT IT STILL SEEMS LIKE A VERY HIGHLY POSITIVELY GEARED INVESTMENT. MY MOTHER IS SKEPTICAL AND THINKS I MUST BE MISSING SOMETHING. BUT I CANT FIGURE OUT WHAT. CAN ANYONE SEE HOLES IN MY PLAN? AS MY I CAN'T SECURE A LOAN ON MY OWN INCOME DUE TO BEING ONLY A CASUAL EMPLOYEE FOR 2 MONTHS AT MY CURRANT JOB, SHE WOULD HAVE TO HELP ME GET THE LOAN. SHE FEARS ILL BE TOO FAR IN DEBT AND IT WILL COME BACK TO BITE HER. CAN ANY BODY SHOW ME THE HOLES IN THIS PLAN, AND OR ANY OTHER RELEVANT FEED BACK. AM I JUST YOUNG N DUMB OR CAN I MAKE THIS WORK?caps is considered shouting….. its also hard to read…
if you want some decent responses i'd suggest editing your post and removing the caps.Stamp duty & legal fees?
There is no such thing as gift tax in Australia???
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
i find it very hard to read capitals, so i only skimmed it.
Did you say you are casual? then how do you plan on getting finance for this?
I would suggest you also look at using a discretionary trust for asset protection and tax flexibility. This will also help with the getting of finance by allowing you to easily add people to guarantee loans if need be,
Maybe buy a PPOR out right, or as high LVR as you can and then reborrow it to invest.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Ditto about the caps lock.
What sort of lease does the office building have? For how long?
As Terry said, getting finance will be an issue as a casual.
Office blocks sometimes sit empty for long periods, which is why commercial property is regarded as riskier by banks.
With what you have said you could be very vulnerable if you borrow that much and it does have a vacant period in the context of your casual employment only.
Firstly i would like to thank everyone for there speedy response to my query. I am very glad i have signed up, and see that this forum is great access to a think tank of collective minds.
i would also like to apologise for posting in capitals. Wasnt intended to be offensive and am a little embrassed that i have kind of got off on the wrong foot here.
The office block is currantly leased until january 2011, with a 1 year option.
House call you are spot on, i would be very vulnerable were i to spend a long period without vacancy. Also if i needed to sell it quickly i would probably end up getting less than i paid, and i would be out of pocket stamp duties and other associated costs.
Back to the drawing board.
Terry, are you sure there would be no tax payable if my mother simply moved $300000 from her account into mine?
Terry, where can i find detailed infomation about discretionary trusts?
I would have a hard time finding a place in darwin that i could buy outright for $300000. I could probably find an older unit, for 400000 or so. which is why i was excited about the office block, as i could buy it outright and it paid a very good return. But i understand that i may have underestimated the risks involved with commercial propperty.
When you suggested i buy a ppor, do you mean in the name of a trust and then rent it back to myself? if that is possible / legal? wouldnt it be unwise to be paying for interest that is not tax deductable?
i was under the impression that if i had a a large deposit such as 300000, i wouldnt have much trouble getting a loan from the bank, especially if i was buying something under 600000 as the bank could easily recoup there money by selling the property were i to default is this incorrect?
I guess i do really need to do some hard homework, can any body advise what i should read, and or the basic things i need to consider when buying an investment propperty? Sorry, i think i should have kept in the shadows a bit longer as it is dawning on me how little i know about all this
.thanks again for everybodys time, in providing me with quick responses.
Young n, don't give up!! I'm not sure how young n you are but young is good to be starting/thinking about all this. A lot of people on this forum, me included, wish we knew then what we know now.
You have a great deposit-no question the envy of many. Investing in prooperty great plan. But your servicability (ability to pay back the loan/factor in interest rises etc) sounds borderline.
Can I suggest, keep finding out more on the forum, ask away whatever you like and read read read.
My other suggestion is AIM LOW AND GO SLOW!! Why aim for $1 million in property from the outset and potentially bugger it up and lose all your $300000 plus more? Why not borrow $150000 to add to your deposit and get something affordable and serviceable to start with then as time goes on and your job is more stable and income more predictable then go in again. Or do just your idea of buying something outright with your $300K and then wait awhile as rent comes in and forms part of your regular income.
Don't give up-you're defintiely on the right track in your thinking.
My suggestion is that you talk with a mortgage broker or a lending officer at the bank as they will let you know how much you can borrow before buying.
If you mum is on a pension or centrelink benefits then gifting the money to you may affect her payments not 100% sure on this as centrelink law often changes the rules.
http://www.centrelink.gov.au/internet/internet.nsf/publications/fis012.htmYou may want to buy one investment property outright and save the rental income for a year. This way you build up a working capital to help cover any non rented periods or unexpected repair costs that might occur. I am agreeing with house call that you need to go slow and tread carefully.
young n wrote:Terry, are you sure there would be no tax payable if my mother simply moved $300000 from her account into mine?
Terry, where can i find detailed infomation about discretionary trusts?
I would have a hard time finding a place in darwin that i could buy outright for $300000. I could probably find an older unit, for 400000 or so. which is why i was excited about the office block, as i could buy it outright and it paid a very good return. But i understand that i may have underestimated the risks involved with commercial propperty.
When you suggested i buy a ppor, do you mean in the name of a trust and then rent it back to myself? if that is possible / legal? wouldnt it be unwise to be paying for interest that is not tax deductable?
i was under the impression that if i had a a large deposit such as 300000, i wouldnt have much trouble getting a loan from the bank, especially if i was buying something under 600000 as the bank could easily recoup there money by selling the property were i to default is this incorrect?
I guess i do really need to do some hard homework, can any body advise what i should read, and or the basic things i need to consider when buying an investment propperty? Sorry, i think i should have kept in the shadows a bit longer as it is dawning on me how little i know about all this
.thanks again for everybodys time, in providing me with quick responses.
in Australia there is no gift tax. So if your mother gifted you $300,000 there would be no tax on this. But there may be other issues such as centrelink benefits, asset protection and there may be better ways to do it from a tax point of view, so you should see a tax advisor.
Also you said the money was your inheritance, and your mum was just holding it – this means your mum is holding it as trustee for you and you are the real owner.
I meant to get a PPOR in your own name. This is the only asset you can get which is virtually GCT free. so you would be giving up a lot of profit to not have one. You can even rent the PPOR and have it CGT. This is why I think everyone should have at least one PPOR.
You could use all of your cash to get this and then to reborrow it. So the interest would be deductible if it is subsequently borrowed and used for investment purposes. You would also have a low loan balance which would mean the repayments would be much cheaper than renting.
It is legal and possible to rent a house from your own trust – but this would not be CGT exempt, nor possibly Land Tax exempt. Itis ok to do in the short term, but over time the rents would increase and your trust may end up paying tax on the rent you pay it – where if it was in your own name there would be none. Interest paid on the loan would be deductible to the trust – and the rent would be income. Also trusts cannot distribute losses.
The bigger the deposit you have the easier it would be to get a loan, but the banks must still make sure you can afford to repay it. They have a legal obligation to. So you will still need to show employment and income. Maybe you could go fulltime just before getting the loan and then change back again.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
ok, i can get a small re, i only need a cently renovated two bedroom unit in coconut grove. It is very simplistic, but is only 325000. i need a loan then of 25000. which i would assume would be easy enough to get from the bank. i could rent the property for between 280 and 300. 25000*8%= 2000 + 3500 body corp n rates = 5500 in expenses 280*52= 14560 i can also spare 250 a fortnight, which is what i currantly put away in savings. 2500*26= 6500 so effectively 21060 income – 7500. 15560 off principal of loan in the first year.
after 2 years , the loan would be fully paid off with an excess of $1864.8 (hmm thats just me doing maths, not important)
ok so now im 2 years along, and i own it out right, and have $280 extra income, im paying tax on. i then borrow against my unit, for something else, and use the 280 income to help pay off the loan for the second investment property.
the thing is, the coconut grove place isnt really anything fantastic. Im not too sure how it would go with capital gains. althought 325000 is incredibly cheap for a unit in darwin and coconut grove is a very centralised position. close to both the city and suburbs and the beach. not far to schools, shops markets etc.
should i just go for this, get one purchase under my belt. learn how it works, and then i have extra income for next ip and alot of equity?
or do you think it would be more desirable to get a loan for 185000 and get the newer unit from my first post, that pays a better yield? and just just try and pay that off?
teo me it just seems less profitable than the office block? i mean even if the office block only rented for 6months of the year it would pay 500*26 = 13000. i have no loan to pay back, and all income is profit instantly. and one would would expect it to rent at least 6 months per year? or is that unreasonable?
There is no use in just buying something for the sake of it. Especially if it doesn't perform. Also not tax effective to put down such a large deposit and pay off the loan so quick. What about if you want to buy a place to live in later on? You will have no cash left so will need a large loan – which won't be deductible and you will be paying tax on the rent you receive with little deductions.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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