Hi All,
I am new to this forum and would appreciate all feedback to help me broaden my knowledge base and help me in my decision process. I am looking at buying my first investment property in the 2nd quarter of 2011.
My situation is as follows:
– Equity in PPOR = 700K
– Superannuation = 115K
– Income p/annum = 100K
– No loans or creditThe 2 strategies which I am considering is 'Buy and Hold' or 'Buy-Renovate-Sell'. I am very handy, so if I go down the 'Buy-renovate-sell' track I will be able to do the work myself. I would only be doing quick-turnaround cosmetic renovations to begin with.
One thing I would like to know is which strategy is better in regards to tax offsets. I know I will need to speak to an accountant who specialises property investing, but I would like to develop some knowledge prior.
I also would like to know if there are any financial strategies where you can limit the exposure to PPOR eqity when buying investment properties.
I look forward to all feedback.
Have a good day.
Congadulations on being in a great position. If you want to minimise tax and don't want to expose your PPOR too much you could also consider buy-reno-hold. Revalue your IP's after they have been renovated and draw equity for the next purchase. Given you have a strong income and no other debt, you should be able to acquire quite a few properties before you need to sell any.
Depending on your age and whether you are happy for your cash to be tied up, you could also consider sacrificing income into super and investing directly in property through a SMSF.
Regards
AlistairWith buy-renovate-sell, you'll miss out on the 50% CGT concession if you sell within the first year. Also, if you turn over a few properties per year it could be viewed as business like activity.
Also, the idea of buy-reno-sell sounds great – and it can be. But from experience, it's also a lot of hardwork. Especially when you're working full-time and trying to carry out the reno's on your own.
If you do go down this path, try and gain access to the property after exchange and before settlement to carry out the renos. That way, you might be able to avoid paying interest on the property while your carrying out the work.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Hi Alistair,
Thanks for the reply. As I am in a good position I am open to purchasing a number of properties to 'Reno-and-Hold' and then use the equity from the valuations post renovations. I have been reading about SMSF and trusts, but there seems to be a number of different trusts (family, property, unit) etc, etc. I don't know if these are the same thing and people give them differnent names, or if they are all different. As I said in my original post, I am aware that I need to go and see an accountant, but I would like to have some knowledge prior to speaking to the accountant. Do you know of any links or books which explain it thoroughly rather than just basic explanations?
Regards
CraigTrust Magic is a good book for explaining trust structures.
Ed Chan has a good book on SMSFs.
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Jamie M wrote:With buy-renovate-sell, you'll miss out on the 50% CGT concession if you sell within the first year. Also, if you turn over a few properties per year it could be viewed as business like activity.
Also, the idea of buy-reno-sell sounds great – and it can be. But from experience, it's also a lot of hardwork. Especially when you're working full-time and trying to carry out the reno's on your own.
If you do go down this path, try and gain access to the property after exchange and before settlement to carry out the renos. That way, you might be able to avoid paying interest on the property while your carrying out the work.
Cheers
Jamie
Hi Jamie,
Thanks for the advice in your reply. I agree with you in regards to not missing out on the 50% GST concession. If I 'Buy-Reno-Hold' for at least a year I will be better off. I could still have the IP re-valued after reno and borrow for another property using equity. What is the amount of properties in a year which would be deemed as business activity, and what are the consequences ie: tax.
It is a good idea re: trying to access the property immediately to do renos and avoid additional interest, but is this a common purchasing strategy when acquiring investment properties to renovate?
Regards
Craig
Don't forget you cannot access the equity in a smsf owned property.
For trusts there are basically 2 types units and discretionary. Trust Magic is a nice general intro, but it doesn't go into the topic in any depth. For that you will need the trust structure guide which costs a few hundred.
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
Hi Terry,
I wonder how long it will take for the rules to change and we'll be able to access equity in smsf owned property. Your thoughts? Also I'm unclear on whether the equity cannot be accessed while there remains a debt on the property, or whether the equity cannot be accessed at all.
jac
Jacqui Middleton | Middleton Buyers Advocates
http://www.middletonbuyersadvocates.com.au
Email Me | Phone MeVIC Buyers' Agents for investors, home buyers & SMSFs.
JacM wrote:Also I'm unclear on whether the equity cannot be accessed while there remains a debt on the property, or whether the equity cannot be accessed at all.jac
You can certainly access the equity in a property where there is an existing debt, so long as there is sufficient equity to meet your needs and it falls with in the maximum LVR your financier is prepared to lend.
I purchased my first property, did some renovations, had the property revalued, over $70K in equity and borrowed $52K of this to ensure it fell below the bank's max 95% LVR.wwc_1980 wrote:JacM wrote:Also I'm unclear on whether the equity cannot be accessed while there remains a debt on the property, or whether the equity cannot be accessed at all.jac
You can certainly access the equity in a property where there is an existing debt, so long as there is sufficient equity to meet your needs and it falls with in the maximum LVR your financier is prepared to lend.
I purchased my first property, did some renovations, had the property revalued, over $70K in equity and borrowed $52K of this to ensure it fell below the bank's max 95% LVR.I think Jac was talking about property owned in a SMSF.
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
Terryw wrote:Don't forget you cannot access the equity in a smsf owned property.For trusts there are basically 2 types units and discretionary. Trust Magic is a nice general intro, but it doesn't go into the topic in any depth. For that you will need the trust structure guide which costs a few hundred.
Hi Terryw,
Thanks for your reply to an earlier post. It seems that all members of this forum really value your advice, so I was hoping you could give me some further advice.
In the next 12 months I am considering buying 3 IP's to buy-reno-hold (for at least 12 months) and then sell.For an example if I was to make 60K profit on the 3 properties after re-sale what would be my best structure:
1. Set-up a discretionary trust with the following:
– Myself (high income earner on top tax bracket)
– Wife, Son (both low income earners)
– Daughter (Uni student)
Distribute the funds to the beneficiaries and then get the money back and repeat the process.2. Set-up SMSF and use my super to purchase properties to renovate and when re-sold put the money back into my super.
If I use this option am I able to repeat the process and take money out of super for IP's
hi Nadaimee
I think you may find SMSF can't do this sort of thing. Property held by a SMSF is unable to be developed or substantially renovated. Any profit would also be locked in the fund until you are able to retire or take a pension etc.
The DT should be a good option and any land tax or negative cashflow initially shouldn't matter too much if you are selling and making a profit.
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
Hi Nadaimee,
How old are you? The reason i ask is that the nearer you get to 55 the more useful super becomes as part of an investment strategy.
Regards
AlistairTerryw wrote:hi NadaimeeI think you may find SMSF can't do this sort of thing. Property held by a SMSF is unable to be developed or substantially renovated. Any profit would also be locked in the fund until you are able to retire or take a pension etc.
The DT should be a good option and any land tax or negative cashflow initially shouldn't matter too much if you are selling and making a profit.
Thanks Terryw,
Looks as though Discretionary Trust is the go! Time to do some reading. I look forward to communicating with you further on this forum.
Regards
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