I am looking at doing a development in Adelaide, splitting a block and replacing existing house with two new residences. I had initially thought I would sell one, hold one at the conclusion of the development, however an adviser I spoke with asked why I would sell straight away given the rental return.
I have an existing loan of 255k on a property valued at 365k. I have 110k of my own savings, and access to an interest free loan of 150k from my mate (good mate eh?). I have earnt 75k in previous 2 tax returns (self employed and PAYG)
Property is 600k, and I would attempt to borrow 540k, using 60k of my own, plus additional 25k for buying costs.
Subdivision will be paid using 100k of my mate’s $, as well as the demolition. Final valuation with 2 empty blocks will be 750-800k.
I would then borrow the additional funds for the construction from the bank – another 710k, saving the remaining money from mate and my saving for contingency and holding costs.
Total expenditure is including all monies outlaid is approx 1.4million. With a final valuation of 1.65 million, I would be keen to refinance 80% of this, and pay mate back as much as possible as quickly as possible.Rental appraisal for the properties is 750pw and 700pw respectively.
Q1 – Should I purchase in a trust with corporate trustee for asset protection and future cash flow distribution?
Q2 – Will any bank lend on final valuation?
Q3 – based on basic overview of figures, can I do this solely or will I need JV, or guarantor to secure finance? What is the black hole of my capacity? (Cashed up mate not keen, but keen to lend me $$$…go figure). Can an individual be gurantee for a corporate trustee or would they need to be a co director?
Q4 – I heard banks tend to deal in Ex GST terms, however if I was to hold both properties in proposed trust structure, would GST become a factor in anyway?Are there any tips or tricks anyone has for me?
D
1. Asset protection from what? Usually income distribution as cashflow would be almost the same in a trust or out
2. yes, but higher rates
3. would need to be a director or shareholder usually to guarantee a trust loan
4. GST should be same in and out of a trustTerryw | 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 TerryW,
Thaparticular Hesponses.
Is it accurate that if a newly built property is held for 5 years, GST does not need to apply to sale of property? (Provided that GST is not claimed in the prior time – which may not be the best outcome anyway – just curious)Asset Protection is from a higher risk day job (more so than standard office job).
Can’t cash flow distribution from a trust vary based on beneficiaries of the trust, instead of solely being distributed to me as would occur as purchasing in my name?
Are there any particular banks that would look favourable on this project?
Yes, generally GST only applies to new residential property – up to 5 years old is classed as new.
So asset protection from bankruptcy. strenght will depend on how set up and operated.
Income can be distributed to beneficiaries of a trust who pay tax on the income.
Most major banks would consider this – probably not on end value though. YOu may need a smaller more private lender for that.
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
Couple of other financing considerations
1) End value is course net of GST so that may have am impact on your borrowing amount.
2) Even private lenders will want you to put your cash in first and they will come in afterwards.
3) When you demolish the house you will only have land value. I am assuming your valuation is based on land value and not current market value of the property with the house on the land.
Few others but it is late at night.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard and Terry,
Thanks for getting back to me.The valuation on property after demolition, with subdivision, would increase the land value so no issue there. Blocks of similar size are going for between 375 and 400k…
Any hints for strong set up of trust? I had intended on being the appointor and director of corporate trustee. That way, I have all the control and can alter the trustee if bankruptcy was ever declared as I could not remain director of the Pty Ltd. (I acknowledge that it is very unlikely that Bankruptcy will occur but it happens and I think it unwise to ignore the slim chance.)
Thanks for the feedback on the other points.
Have a Great Day!
Any hints for strong set up of trust? I had intended on being the appointor and director of corporate trustee. That way, I have all the control and can alter the trustee if bankruptcy was ever declared as I could not remain director of the Pty Ltd. (I acknowledge that it is very unlikely that Bankruptcy will occur but it happens and I think it unwise to ignore the slim chance.)
Get legal advice on this. It will all depend on the structure of the trust – and watch out for stamp duty implications.
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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