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February 2, 2009 - 3:50 am

WJ Hooker wrote:

Lachlan,
               Doesn't sound like a good idea to me. Why would your friend want your name on his half of the house? Are you going to marry your friend? And if you decide not to pay the bills then your friend will have to pay the lot !

Agreed. That's an awful lot of trust this friend has in you Lachlan

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February 2, 2009 - 3:46 am

I'd imagine it would be ok. The FHOG should only apply to whoever has their name on the title not who services or guarantors the loan.

It would be best to confirm with someone else though.

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January 31, 2009 - 12:08 am

kum yin lau wrote:

The cost of setting up a trust may be not much, mine was $1600 but thereafter, administering the trust means accounting / audit fees etc.

You need to ensure that any tax advantages are more than what it costs else you may end up losing money.

Hi Kum Yin Lau,

Yeah I was considering the costs involved a while back. But if I was to purchase entirely in my own name and then transfer to a trust later on I would lose a lot of money through stamp duty on the transfer of the title.

Setting the structure before hand and managing costs seems like the logical option for me.

Any opinions on this are welcome.

And thanks for the input Kevin(07)?

Cheers

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January 30, 2009 - 12:15 pm

Hi Richard,

Is this because of the current conditions in the market, or has this always been the case?

Having all adult beneficiaries guarantee the loan wouldn't sit well with me. Even though I'm confident in my ability, putting others at risk for the sake of my own benefit is a huge concern.

Is it possible to have all these matters sorted out, like a pre-approval through a trust (without all adult beneficiaries as guarantors) before making an offer on a property?

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January 30, 2009 - 3:26 am

Excellent, it seems like I've got all my questions covered. Thanks for taking the time to walk me through it!

You're an account right? I'll send you a PM if you can help me set up a trust in the near future. (I'm a Sydney resident by the way)

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January 30, 2009 - 3:02 am

Oh wait, I think I see where you're going.

You distribute enough income to your wife, kids and yourself to cover living/comfort expenses and then require all other beneficiaries to return their share as a gift to the trust. You then use the money placed back in the trust to invest further and much more efficiently since you haven't paid a large CG Tax.

The same would apply to the company. Which I believe (in your case) you distribute income to once the remaining beneficiaries have received a certain amount, thus keeping below 30% tax all up.

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January 30, 2009 - 2:55 am

Hi Dan,

You say I can enter an arrangement (not an agreement) to have the beneficiary gift back their distribution. In other words, this arrangement is not governed by law. Correct?

When the beneficiaries gift back to the trust, it will remain with the trust and not myself? If this is so, then I'd be going in circles wouldn't I? Or can I distribute to myself and my partner after this cycle without being affected by tax?

Does this apply to the 30% capped tax through a corporate trustee as well, since to receive income from the company I would need to be paid a salary?

So many questions, I hope I'm not becoming a pain here.

Thanks again.

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January 30, 2009 - 1:10 am

reno209 wrote:

Last year, I deducted over $4K back as depreciation on my 2 bedroom unit, which is 9 years old. If you have positive cashflow, I think you can still claim the depreciation as a loss, which may turn your positive cashflow into negative gearing for the tax man. (Check these facts, I'm still new at all of this).

Hi Reno & Barnseee,

You should look up two of Steve's articles on depreciation and negative gearing:

https://www.propertyinvesting.com/depreciation
https://www.propertyinvesting.com/strategies/negativegearing

Depreciation is not negative gearing, you are only writing off the value of the home (fittings and fixtures). Be mindful as Richard said above, that when you sell after depreciation you are claiming a bigger capital gain which in turn results in more tax.

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January 30, 2009 - 1:04 am

Hi Dan,

Thanks for clarifying. One more question though:

If I set a large number of beneficiaries and distribute income to unemployed or low income earners to reduce the amount of tax payable, how is this taxed income then distributed back to myself and my partner? Is it simply a matter of trusting my beneficiaries to transfer the money to me, or can this be controlled legally?

And when the after tax income is transferred to me, will this be considered a gift and therefore no longer taxable, or is it free from being taxed anyway as it can only be taxed once. i.e through the unemployed beneficiary?

Bare with me, I'm getting there

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January 30, 2009 - 12:25 am

Hi Dan,

Yes, that's what I was trying to say.

When you said:

Dan42 wrote:

The trust, in its deed sets who can receive distributions from the trust income, and 'benefit' from the trust. The deeds are usually set so that you can choose to distribute to yourself, your kids, your parents, nieces, nephews, and any other entities associated with you, like other companies etc.

The trustee is set at the time of commencing the trust, and can be changed later on if you wish. The trustee can either be yourself, yourself and a partner, or a company trustee, with you as a director.

You mean to say that the Trust, in it's Deed, will define the Beneficiaries. While there will only be one Trustee which can be defined as an individual, group, or company with the individual or group members acting as director(s)? Forgive my ignorance here, but I thought the Beneficiaries were the Trustees, but this seems incorrect. They are actually two separate things?

And I'm not entirely sure what you mean here:

Dan42 wrote:

The only other consideration for loss making trusts is the Family Trust Election rules. If you make a trust election, it limits who you can distribute income to in future years, to the family group of the nominated individual. (including parents, children, siblings etc)

If I make a loss through the Trust, I will be limited to distributing future gains to family members only? So the company is kicked out so to speak?

Maybe it would be best to begin the Trust with family Beneficiaries only, and once the investment portfolio grows and contains income producing assets, create a new trust with a corporate Trustee instead. So making use of multiple Trusts as Richard pointed out earlier.

Thanks for the help Dan

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January 29, 2009 - 11:29 pm

Richard,

In my case, I intend on building a portfolio large enough to support financial freedom for myself and my partner. So I like the idea of a Discretionary Trust protecting our IP's. Eventually I would like to obtain large income producing assets. i.e. Commercial Property.

So if I set up my Trust now I will be prepared for future activities. I don't mind starting out with a negative geared property as long as it has my long term interests at heart. These losses will remain with the Trust and will be offset by future gains, making the whole thing worth while for me.

It was my understanding that Discretionary Trusts can nominate multiple Trustee's, so that would include family members, my partner, myself and a company. As long as I have nominated properly I should be able to alternate between beneficiaries at my discretion.

Please correct me if I'm not 100% on this… I'm still trying to understand the Trust concept.

And sorry Barnseee for stealing the spot light on your post.

Thanks guys

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January 29, 2009 - 12:20 pm

Hi Richard,

Just to clarify… I understand the requirement of living in the PPOR for 6 months within the first 12 months of settlement. And that stamp duty is waived in NSW for first home buyers (sorry if I'm using the wrong vocabulary here).

What do you mean by rushing in with the setup of the Trust structure? In order to buy my first IP using the renovation method described above, I would need to purchase in my own name. Are you saying that setup costs for Trusts will increase with time? Even if this were to happen, what makes you say the benefit would deminish? Fair enough this will make a harder start, but in the long term it's well worth it in terms of asset protection (I'm not trying to sound rude here, I'm just excited about property).

Thanks

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January 29, 2009 - 11:36 am

Kiyosaki's always good… his good friend, Dolf de Roos, wrote his own book "Real Estate Riches" – It was part of the Rich Dad advisor series, not sure if it still is today though: http://www.dolfderoos.com/books/rer.php

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January 29, 2009 - 10:04 am

Hi Richard,

I didn't know you could fulfil the requirements of the FHOG without "living" in the property, as long as you're renovating it during that time. That could make things very beneficial for myself as I am yet to buy my first property.

At first I thought chasing this boost in the FHOG would be a waste if property prices continue to drop. i.e getting a $14K/$24K FHOG and losing $50K in the value of the property in the same year – there's practically no point.

But if what you say is feasable in NSW then that could allow me to enter the market a lot easier, complete a renovation during the first six months and then sell for a tidy profit.

Surely there must be certain conditions I'll need to check out before hand. Could you please point me in the right direction?

Oh and Barnseee, you should look further into depreciation, which is another tax advantage. And using trust structures to reduce amount of capital gains tax you pay, i.e. if the trustee of the trust is a company, tax will be capped at 30% on the dollar.

Check out this online article on trusts: http://www.propertyupdate.com.au/articles/149/1/Trusting-Trusts/Page1.html

Cheers

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January 29, 2009 - 1:58 am

Hi Barnseee,

First of all, if your first investment property has become positive cash flow, you should be happy – making money is a good thing (that's why you're investing, right?).

I think the best thing to do would to be buy cheap and add value through a renovation and sell quickly. As buying big and holding may turn out ugly in the current economic climate.

I'm sure others on the forum will have more ideas – just be weary of the growing number of pessimists on the site.

All the best,

Lance

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January 28, 2009 - 9:06 am

BUMP!

Time for some more good news I say

 

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January 28, 2009 - 12:21 am

Linar wrote:

Hi freelance2020

I read one comment this morning about how a bank should be sued for lending a young investor $400,000 to buy a property!!  This is not a helpful comment or strategy.  It is just offensive and I am sick of seeing every post turn into a self congratulatory rant.

K

Haha I just read that post too

I think the current market will show an investors true colours… are they able to stay calm and create innovative strategies, or will the doom sayers continue to breed fear into many young novice investors?

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January 27, 2009 - 10:45 pm

I thought the real sophisticated investors made more money in a depressed market as panic sets in for others.

I was expecting many on this forum to be excited about new strategies to tackle the current market and would happily share these views and opinions.

 
 

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January 20, 2009 - 11:55 pm

You make a good point Linar

Thanks!

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January 19, 2009 - 10:09 pm

Alliance,

Steve's book 0 to 260+ properties was published late 2006