Advice in structuring and starting my property portfolio

Hi Johny

Good to hear that your health problems are all sorted out.

You will want to be very careful in going forward as if you look to redraw the $180K from the PPOR loan then the interest will not be Tax deductible.

Also you not having an income will limit your progress in expanding your portfolio as you will be limited to your partners income and rent for serviceability.

The structure you would probably is a separate investment Line of Credit or similar secured against your partners PPOR from which you will draw the deposits, acqusition costs and renovations amounts from and then a standalone interest only loan secured against the individual investment property.

The entity you use will be dependant on a few things. If you are looking to buy in a Trust then you need to bear in mind that if the property is negatively geared any losses will stay within the Trust and cannot be claimed. Of course the upside if the property is positively geared is that the Trust can distribute 100% of the income to you and you will be assessed at your marginal Tax rate. 

Whichever way you go your partner will need to be a party to any loan irrespective of the structure or entity as her income is the only income apart from potential rent that can be used to assess serviceability.

Your Broker should be able to guide you through what could be a complicated maize.

Cheers

Yours in Finance

Under the new Credit Act making an application for a loan and not declaring you are likely to be leaving this shortly would fail the Responsible Lending guidelines so that course of action is out the window.

A Property based  Accountant would be able to set up a Trust for you and costs will depend on whether you have a personal or Corporate Trustee. Allow between $800 – $1800.

Cheers

Yours in Finance

Well the loan on your partners PPOR will need to be set up first and then maybe a pre-approval on the first IP (once you have decided which entity you will using)

As long as the Trust is set up prior to the Contracts being signed / exchanged you will be ok.

If you are wanting to set up a Discretionary Family Trust with you / you and your partner as Trustees most Accountants should be able to assist. I guess the difference between Accountants is a combination of cost, experience and expertise in purchasing property.

Like asking some mortgage brokers to set up an investment loan when they havent even paid of their own PPOR.

Cheers

Yours in Finance

Hi Josh

If Johhny buys the property in Trust he cannot claim the Depreciation anyway so buying an older property and renovating is not going to make any difference to his strategy as the idea is to generate income not Tax deductions.

Cheers

Yours in Finance

This is all very interesting reading. I learn sooo much from you guys here.
I would suggest that Johnny sit down with an accountant who knows about property – and run through the scenarios. You might consider one of the guys posting here. You need to make decisions on your own position and desired outcomes.
This forum is GREAT for learning and finding out where to begin.
I agree on the reno strategy- e very careful in this- it can turn into a night mare . Get advice- or a coach.

Just some quick maths from my first look,

after reno income $300 * 52 = 15,600
15,600 / 240,000  = 0.065 or 6.5% yield.  this may be an okay yield for most investers set on negative gearing, but the extra money that you spend to perform your renovation will reduce your yield.  If you quit your job what will you use the negative gearing for. 
It might be worth looking at the maths with what it is currently rented for and possibly reduce the amount you are willing to pay to increase your yield.
Another idea is to buy the property in both names so that your girlfriend can claim the negative gearing. 

Just my two cents,  I am only new to investing and have already made my own problems.

Hi Josh

Would slightly disagree as if Johny buys them in his own name with next to nothing by way of income he wont have anything to claim anyway. If he buys them in his partners name then this could be different.

Remember any Capital Allowance that is claimed reduced the Cost Base down the track should the Asset be sold. 

Cheers

Yours in Finance

Hi johnycitizen,

Look like the guys in this thread are giving you heaps of good technical comments, so I will concentrate on some practical advice on the topic of being a renovator from my experience. We’ve done around 30 renovations over the past 10 years amongst other property transactions that were done.

1. The key principle that I live and breathe by “Is That You Make Money When You Buy”, I find a lot of people say that and very few people actually do it, especially in the renovation game. Therefore as the statement says you need to buy extremely well from the outset. The average person finds it difficult to put offers on properties at 20% to 40% below the market. If you buy extremely well at the start that covers any learning experiences on the way, any renovation blowouts or a drop in market value to name a few.

2. You need to have a thorough understanding of the market/suburb you renovating in. An example of this is where I saw a person overcapitalise on a property in an extremely high rental area and the funniest thing I saw was that they had installed water tanks on the property. If they had done their research they would have realised that no house in a 2 km radius had water tanks. Because they had overcapitalise their $290,000 house, it was on the market for $360,000 to recoup their costs and had priced themselves out of the market.

3. Understand the true costs of doing renovation.

I hope this helps you and your investing endeavours.

Cheers … Jason Moore