FHB and IP strategy

Hi guys,

I was wondering if I can get some expert advise on my future IP strategy in Melbourne.

I recently bought my first home last month and settlement is next Tuesday.

Here are my numbers:

Purchase Price - $245,373 (inc Closing cost + Stamp Duty)

I am going to pay about $40,373 as a deposit.

1. Set up a company or trust with my business partner
2. Sell my new property to the company or trust for half the deposit that I paid. My business partner will pay me the half of the deposit I paid. I will use that half and he will come out with the other half to put as a deposit for our second property.
3. We will use our properties equity to acquire future investment properties.
4. We are looking at negative gearing for now as our deposits will not be sufficient.
5. Our long term goal is to turn the properties to positive gear and sell for profit. 

Since I will be paying the mortgage for this existing property. Do you think I can benefit in terms of taxes with this method?

• What sort of structure would you recommend me? company or trust?
• Do you think this will be a good strategy?

Please let me know. thank you

Mervin

Why sell your existing property? You will only have to pay stamp duty, legals, loan fees (and exit fees?) again, and your equity will probably decrease.

Firstly you should consider that most of these partnerships fail. You will need to discuss what will you do if he wants out or you want out?

I think using a discretionary trust with a corporate trustee may be helpful in this case. If he wants out you can just sell the shares in the company without having to change the ownership. It can be good for decreasing tax too, but the trustee has discretion on the distribution, so this needs to be considered. You can both be directors and shareholders of the trustee and therefore control this.

You will need some advice too, about setup, lending money to the trust for the deposit, loan agreements for this etc.

Terryw
Finance Broker
Solicitor

Away from Terry's comments which i totally agree with i think you may have a potential security issue.

I assume from your original post these properties will tend to be smaller style units as they are aimed at the single person / student. Just make sure the internal floor area is not too small and that they are not in a high rise where the mortgage insurers may want to limit their risk and not provide cover over 80%.

Also most lenders will want to see a separate bedroom, bathroom and kitchen and although some lenders will lend against studio units might want to see a separate laundry.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

Thanks for the reply Terry, Richard.

If I decide to go for the discretionary trust. Does that mean I have to set up a pty ltd as the corporate trustee? Sorry for asking this as I am really green when it comes to matters of business.

IP(s) ----$Rent-----> Trust -------> Company ----------> Share holders (Me and my business partner)

Is this structure correct?

1. How do i transfer my existing property to the trust? Is it as simple as changing the title from my name to the trust name?
2. If we go with this method, will both of us own my current property?
3. How do we go about organising the finance?

Please let me know if you have know any accountants in Melbourne that specialises in this area.

Thanks guys, I look forward to hearing from you soon.

Cheers,

Mervin

Yes if you wish to utilise that structure.

You cannot simply transfer your existing property into Trust without incuring additional Stamp Duty and other related costs.
In addition you would loose the FHOG benefit i assume you obtained and also the concessional Stamp duty which you have paid.

Maybe start again for the next one.

Your Mortgage Broker should have advised you of the options available on the first deal.

Richard Taylor - richard@tayloredfinancialsolutions.com.au Tel: 07 3720 1888
Residential Mortgage Broker providing structured home loan advice for investors and owner occupiers all over Australia.
Thinking of buying your next investment property using a SMSF. Email me for a copy of my SMSF EBook.

A trust needs a trustee. This can be one person, two or more people OR a company or 2 or more companies OR 1 company and  one person etc etc.

Having a company as trustee is safer as it distances yourself from the trust assets. The company will only act as the owner of the property on behalf of the trust. So all the rent will go to the trust. The trust can then distribute any profit (if any) to the beneficiaries - who are not necessarily the shareholders of the company.

Keep in mind that, if there is a loss then this loss cannot be distributed. ie you cannot use the loss to reduce personal tax.

If you wish to transfer your property to the trust, then you must 'sell' it. Which means stamp duty will be payable on the purchase by the trust. New loan will be needed too - and probably exit fees as well as legals on the transfer.

Terryw
Finance Broker
Solicitor

Hi guys,

Thanks again for the advise. I will continue to research more on the options.
Do you have any good property accountants that you can refer me to in Melbourne?

Looking forward to hearing from you soon.

Cheers,

Mervin