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All of our properties are held within family trusts and are cash flow neutral – slightly positive, so we don't have to sell. I was thinking of paying down the smallest and using the rent to help pay down our PPOR or fund other expenses while I'm off work. As my income will be reduced the tax shouldn't be too bad 0 -15% as this years tax rates have changed, I believe the first $18000 is tax free? If the trust makes the distributions to me this should be the tax rate.. When I return to work and my income increases again I could set up another trust and purchase a couple more properties and use the excess cashflow from the loan I paid down to fund the shortfall. The way our trusts are written we can pass money between them to fund shortfalls before tax is applied.
Can someone please let me know if this will work? Thanks for your responses.
Hi,
We renovate houses and rent them out as our investment strategy and we've had problems with fibro cement. Fibro cement pre 1985 is classed as asbestos and the company who hire us our skips ( large bins) will not allow us to place it in the bins. A lot of tradies won't go near it either. You'll also need to be very careful if it gets damaged as the fibres in it may be harmful. If the fibro cement is in good condition it may be safely painted over but avoid sanding it as this will release the fibres. It is expensive to dispose of. Try to find out when the home was built, if it was prior to 1985 there's a pretty good chance that it's asbestos. A building inspector should be able to advise you on what you can safely do to make the home more inviting without harm to yourself or family. Good luck, hope all goes well for you.We use a trust with a corporate trustee for our business and separate trusts with myself and my husband as trustees for our properties. If you are investing in Vic please be aware that if your trust has gross income of 75,000 or more the trustee will need to be registered for GST. This is why we keep 2 – 3 properties per trust. We intend to keep the properties long term so we have allowed for rental increases not exceeding the threshold ( hopefully over more than a decade).
You should always have your structures set up prior to purchase – if you need to change the entity after contracts have been exchanged, you may trigger a second lot of stamp duty. If you are in the process of setting up your structure when you find a suitable property, you can write on the contract of sale purchaser : (your name) and or nominee. Make sure your solicitor knows what's happening though.Forgot to mention, Mark has been our accountant for our Business ( Bakery) for the past 6 years. He maximises your deductions and does everything he can for the benefit of his clients.
Hi,
If you happen to come to Bendigo, our accountant Mark Hernan is fantastic. He will set up your structures in the most cost effective way, suitable to your circumstances.
ex. We were going to do what Chan & Naylor said and have separate trusts for each property with a corporate trustee in each, at a cost of thousands of dollars in set up fees and also ongoing accounting fees and ASIC fees.
When I spoke to Mark ( our accountant) he looked at what we were doing and said that we could be the trustees – no need to set up separate companies for each!! Also provided that the gross yearly income for each trust was under 75K we can have more than one property in each trust without having to register for GST..
We've been using his discretionary trust for 2 years and have had no worries. Hope you find someone who can help you too.
Good Luck.Hi,
Thankyou for the info. I found the lease forms on consumer affairs web site. They look the same as our agent uses for the leases through them. We got a rent estimate from an agent and he said $180p/w as the house is a bit run down. We intend to renovate while we live there, do we need to adjust the rent on completion of the reno or would we do small increases each year? I know you can't increase the rent during the 12 months of a fixed tenancy, and on a periodic tenancy only once every 6 months.are the rules the same in this situation? Do we need to use the rent increase notice?
Thanks.I have robert's books:
Rich Dad Poor Dad, CASHFLOW QUADRANT, Rich Dad's Guide to investing, Rich Dad's Prophecy, Retire Young Retire rich, Who Took My Money?, Increase Your Financial IQ, Rich Dad's Conspiracy Of Th Rich, and Donald Trump & Robert Kiyosaki Why We Want Yu To Be Rich.I have found them to be very informative and very easy to read, the type of books you don't want to put down. They are repetative though. A lot of them show his quadrant – where people make their money – the employee and self employed in one side of the quadrant and the big business and investor on the other side. What he says is correct though, you make more if you own the big business and invest as opposed to being an employee of self employed.
number 8 wrote:Amsaini is correct, you could have effectively done the same thing with minimum deposit and put the rest in a offset account. Where possible, Never ever place your own funds in an IP or you PPOR for that mattter.
The negative cashflow as mentioned above is not a big issue as it will become positive in due course (rent today is not the same as yesterday)….
Overule: you are right in saying we all have our own strategy. It is just that some strategies will provide a quicker path to retirement or whatever it is you are trying to achieve: they call this opportunity cost.
I have to agree, provided that you can service the negative cash flow, if you had used a minimum deposit you may have been able to purchase 2 properties with the deposit you put into one.
Hi,
If I was in your situation I'd consider opening a self managed super fund and rolling over all of your superanuation into it. You can purchase properties in a self managed super fud, either outright – if you have enough cash, or by setting up a unit trust and taking out a loan with a bank. The benefit to doing this, considering your age, would be that all profits in your super are currently taxed at 15% as apposed to your marginal tax rate which may be 30% – 46.5% depending on your income.
At 65 you can then sell and I think the capital gains tax in a super fund are also only 15% and then draw down the proceeds as an income stream tax free. Or you can collect the rent as an income stream – tax free. The beauty of this strategy is that the tenant and your super fund pay off the loan.
The down side is, you can never move into the property, and any profits cannot be accessed until retirement, but it looks like you are doing this for your retirement so that should not be an issue. Have a chat to your accountant to see if this is an option for you.
As for your investing strategy, I agree with JACM. We don't invest in cities due to the price tag and negative gearing. We invest in country areas with a higher yield and we still get good capital growth.
I like to invest in old properties at a cheaper price and fix them up. Some people do sub divisions. Have a think about what can be done with property and find a strategy that appeals to you. (One bedders with rental guarantees may not be good – what happens when the guarantee runs out?)
If you need to get a loan, banks like it to be 80% LVR, although they will go as high as 90% if you pay lender's mortgage insurance – which protects the bank, not you. We like to keep our LVR below 80% the higher the loan, the more interest you pay.
A good way to get an idea of what a property might rent for is to have a look on realestate.com.au type in the suburb in the rent section and browse. Then you can also see what properties are selling for in the same suburb. It's a good place to start your research. Hope this helps.jlia wrote:Hi,I am new to this forum and hoping all you experienced investors can help me. I recently converted my PPOR (a unit in Adelaide) into an investment property and am renting elsewhere. I am keen to purchase my next investment property and was presuming this wouldn't be too difficult as I bought the unit 2 years ago and thought I would have enough equity to cover purchase costs etc. However, the valuation of my unit has come back lower than I was expecting (still an increase since I bought it but only $15,000 more). Given the balance of this loan I have been told I don't have enough equity to purchase again. I know that my serviceability is good as my income is over 70K a year (no dependants or other personal loans) but I dont have enough in the way of savings to cover purchase costs. Are there any other options for me to purchase my next place? Or do I just have to wait and save…?
Thanks for your advice.
Hi,
Do you have a lot of superranuation? You could set up a self managed super fund and set up a unit trust. The super fund could then supply the deposit and closing costs and any negative gearing could be paid by the super fund. The income would be split between yourself and the super fund. The super fund purchases units from the unit trust and eventually buys the property from the unit trust. The only down sides are that re-financing to access equity is not allowed, and once the super fund pays it off, you can't access the money until retirement. Tax breaks are really good tho. 15%
Have a chat to your accountant or solicitor about this strategy. We're setting up ours when we do our tax.Banks will always give you a conservative valuation if you are wishing to re-finance. They have to do this, I guess it's so that the bank will get their money back if you can't make the payments and they have to sell the property. If they give a low valuation then the bank isn't exposed to much risk. They look at where the property is in relation to transport and services as well as the condition of the property and comparative sales data.
Even if the valuation does come in low, if you were to sell you'd probably get more for the property than what the valuation says.
We've noticed that all of our valuations have come in aprox $20,000 more than the value on our rates notices. I don't know if this is coincidence or something to do with the way it's done?
The only way to get a true valuation is to sell. ( I don't recommend this tho)jacqui_03 wrote:Hi littleaussie,What are some of the areas you have purchased in regional centres? If your buying properties for $150k are these ex-housing commission properties? As you are buying in the lower end of the market do you have issues with attracting good tenants?
Jacqui
Hi Jacquie,
We have properties in Maryborough and Maldon. ( Maldon is not this cheap anymore)
None of our properties are x-commission but they are old houses. Both of these towns have seen considerable price rises over the last 2 – 3 years, but Maryborough in particular is still cheap in comparison to other towns.
Ex. One of the houses was purchased in Feb 2007 for 127,000. In Sep 2008 it was valued by the Bendigo Bank at $150,000. It is rented at $200 p/w.
Our most expensive property was 145,000. Which will be up for rent soon for $220 ( we have been living in this one)
As for tenants, my fist tenant was a disaster. She nearly destroyed the house and it did cost a lot to repair, both in time and money. I put the property with a different agent and have had wonderful tenants ever since.
If you are considering purchasing investment properties here, do your best to avoid the commission areas as they are rough and tenants won't stay there long.
Renovating is a good strategy here.devo76 wrote:One 10 cm scratch. That sounds like heaven to me. Have a read of my thread on the other forum. Polished floors scratched scuffed and stained painted walls scuffed scratched etc kitchen so dirty had to use oven cleaner on everything shower black BLACK approved for 4 people but had 11 in their. Smoke smell is crazy. Windows filthy all fully renovated when they moved in a year ago. Like I said a scratch sounds fine to meMine was similar, I wasn't going to go into a lot of detail but this will give an indication of why I was upset that RACV would not cover anything. ( Except the rent)
The house was renovated prior to the tenant moving in.
Gouges out of the boards, and the boards were scratched right through the house. The paint was stained yellow and there were dirty marks all over walls and sugar soap would not remove them. Poo all up the walls, cardboard covering shit and vomit which was dry on the floorboards. Smashed kitchen window. 3 skips of old stinky clothing and other garbage including syringes. 10 mattresses. Kitchen and bathroom green and black from the filth and mould. The children pulled down the fence and nailed the planks high up in a tree in the back yard. The curtains were ruined, but because they were not ripped my insurance did not cover them. There were no light globes in the sockets when I finally got posession back through a VCAT Possession order. The police had to attend to evict. It took over 3 months to get her out. The first notice was served in April and she was out in September.
The smell was so bad in the house that I dry reached every time I went inside. It took me 3 months to clean up her mess including replacing the fence and window and re- paint the whole house, and do the other repairs. ( A little bit each night after work)
The woman was a single mum with 5 children. On her application she had 2.
Where is your other thread? I'd like more info on how we protect ourselves from these people as I could not pass this off as "fair wear and tear"
Thanks.Hi,
I spoke to Terri Scheer customer service when I was arranging the insurance. I explained my situation at the time and they said that foorboards are covered in their policy as part of the building. (In my situation, the floorboards had gouges taken out of them, as well as scratches)
Thanks for your comments though as I'll double check that what I was told is still current.I can relate to what you're saying. So many times people say to me that what I'm doing is risky, or that's not going to work, or " don't do that you'll end up bankrupt" etc….
But at the end of the day, it's my life, investing is exciting and I love it and I'm gonna keep doing it!!
I sound like a 16 year old rebelling against my parents… hmmmmm…
Keep your chin up and smile because it is only their jealousy and their own insecurities showing when they put us down. It is not a reflection of our capabilities.Hi,
Go to http://www.firsthome.gov.auI'm not sure what State you're in but in Vic it appears that it would be ok as long a the purchases were completed before you marry and moved in together, and you kept your principal places of residence separate. They class spouses as Married or defacto couples which currently you are neither.
I couldn't find any info on your circumstances so have a look at the web site. Also, I'd recommend asking a solicitor just to be safe.If your loans are cross col. and you want to refinance to draw out any equity, the bank will need to do a valuation on all of the properties securing the loan. They charge you for all of the valuations.
If you have separate loans you can choose which one you want to refinance, only paying for one valuation.You can use the same bank but make sure you insist on separate loans over each property. Trying to uncross loans is very expensive.
There are good and bad points to consider when using a trust and when the property is held in your name.
I. Your land tax threshold is lower when using a trust. In Victoria the landtax threshould is only $25,000 in a trust but it is $275,000 when in your own name. This will vary from state to state.
2. When using a trust there is no capital gains tax exemption, however you do get a 50% deduction if the property is held for more than 1 year. A property held in your name as your PPOR is not liable for CGT. You can rent the house out for up to 6 years and still claim the PPOR CGT exemption.
3. When using a trust you can split the income between the beneficiarys, to lower the tax paid. You can also split the CGT. If the property is held in your name you cannot do this.
4. If you purchase the property in your name you will be entitled to the FHOG.I was in your position 4 1/2 years ago. I bought my first property in my name and got the grant and I still own that property. My husband and I now own 5 properties. One in his name, one in mine and 3 in trusts.
It is good that you are thinking about your structures now. If I had to do it again I'd do it exactly the same way. Take advantage of the FHOG while it's available. And then go on to invest.
If you intend to only stay in the house for 6 months I'd be inclined to get an interest only loan with redraw or a LOC. That way when you come to rent it out your loan is already set up for investment. You can still make additional payments to bring down the interest and to help to get some equity.
Find yourself a good mortgage broker. They have access to all of the banks and can find you the best deal. They will work with you to find solutions for you. Their services should be free as the banks pay their commissions.
As for your second purchase, don't stress too much about it at this stage. Get our there and get number one done, then worry about the second one.Positive geared properties are still around. Have a look in larger regional areas with a population of at least 7000. Make sure that the town has more than one industry. Check that there are schools and hospitals in the area and good public transport to and from major regional centers and capital cities. Prices are lower in regional areas in comparison to capital cities, so whatever you have saved for a deposit will go further to reducing your borrowings, which means your interest will be a lot lower.
Combining that with strategies mentioned earlier such as purchasing a house on a large block and subdividing,
or renovating the house to achieve a higher rent will work. It works for us!
Property prices in regional areas do go up in value, just not as quickly as capital cities.
But I prefer to have 5 x $150,000 properties tenanted at $200 each per week going up in value at 8% per year than
1 x $600,000 property rented at $650per week going up 10% per year.
By using our strategy we reduce our overall risk. If one tenant misses rent for a week, we can cover it. If I had one big loan and one tenant and they missed their rent, I'd be in a bit of trouble.
