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January 9, 2014 - 1:21 am

Terryw wrote:

If your friend is sole director is can be good asset protection for you is the business goes under, but risky for you as you won't have control of the company. He could transfer money or have the company enter into contracts etc

Ok so once again I will need to weigh up the risks vs benefits. Unless there is a another way to protect my assets?

Terryw wrote:

A hyrbid trust is one in which there are discretionary aspects and units. The deed could specify capital to the unit holders and income to the discretion of the trustee, for example. However this wouldn't provide any additional asset protection, but probably weaken it. Units are property.

I don't know what you mean by:

And to make matters even more interesting, we would like to eventually have all future businesses inject profits/losses back to the same Pty Ltd for tax offsetting purposes.

Trust can distribute income into a company, but not losses. If the company is trading it could retain income and be taxed on it.

Doh, I think I have read  in the past that trusts couldn't distribute losses. There are so many rules to remember!

I think having a parent company as a Pty Ltd with the different businesses operating as trading names would be the way to go to offset tax?

Terryw wrote:

Purchasing a PPOR in a trust is not generally done as you would lose the CGT exemption and be subject to land tax possibly – 2 taxes where there otherwise would be none. There are other ways to structure with some asset protection. And don't assume trust = asset protection because there are a number of ways this could be attacked, especially in the early years.

Can I coax you into sharing some of these magical ways of asset protect which you speak of?

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January 8, 2014 - 1:28 pm

Hi Terry,

Thanks for the information. I would love to have someone with your knowledge and experience to talk to here in Perth. But i'm getting the feeling you may seriously be the most qualified guy in Australia Unless you know someone over here?

I agree that having my business partner as the director might be the way to go – he owns no property!

Do you see any benefits in creating the business in a Hybrid Trust which in turn has a Pty Ltd trustee?

According to some sources, this may provide greater asset and income protection. But i don't quite see why!

And to make matters even more interesting, we would like to eventually have all future businesses inject profits/losses back to the same Pty Ltd for tax offsetting purposes.

For my own personal situation, I'm thinking about purchasing a PPOR in a trust and funelling all of my equity and cash into that.

This will provide some protection for my PPOR because it's in a trust. Does this sound right to you?

My IP can remain in my name, but highly geared and can be used as a tax deduction.

Any advice is appreciated, thanks buddy!

minds

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January 5, 2014 - 10:04 am

Terryw wrote:

Short answer = nope.

If you are sued you could lose all your assets.

But to reduce the chances of you getting sued, you could set up the business in a limited liability company.

There may be a few things you could do to further encumber your property so that you have little equity. Would need careful planning and would be costly to set up, so you need to weigh up the costs v risks.

Hi Terry, Once again thanks for your input.

If I setup the business and I am one of the directors, am I not still liable in the case that we are sued?

From the ATO website: A company provides some asset protection but directors can be legally liable for their actions and, in some cases, the debts of a company.

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November 11, 2013 - 11:27 am

fredo, my colleague just went through this exact situation. He avoided paying stamp duty because if you separate through the family court it is not applicable.

"By recording the agreement or outcome in an Order or Agreement, then stamp duty is usually waived on real properties being transferred as between partners/spouses."

He also avoided paying LMI again because he refinanced through the same bank (bankwest).

Hope it helps.

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October 10, 2013 - 8:40 am

Hi Brmiau,

I like your attitude my friend, if you can write down your plan and run a cash flow analysis and the numbers add up – why not!

You should probably budget for interest rate rises when doing your calculations. It looks like rates were up to 8% just 5 years ago.

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October 10, 2013 - 5:28 am

I look forward to sinking my teeth into the new book. I have just finished "0 to 260" and am interested to see how your strategy has changed since then.

I felt like most of that book had the tone of "things aren't going so well, interest rates are high, be conservative with debt"

Look forward to the market update in Perth!

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September 23, 2013 - 12:19 am

Hi Jamie,

Much thanks for the detailed explanation.

I have heard people saying to avoid "cross collatorisation" of your loans/properties.

Does your strategy use cross collatorisation because you are securing the finance of one property against another?

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September 20, 2013 - 2:36 pm

Thanks for the replies guys. 

100% borrowing could be an option. I imagine it attracts quite a high LMI. Where would you find a property for $120K, I would certainly like to know!

The other suggestion – Tapping into equity. Can anyone give me a simple explanation of how I could do this? 

if I borrowed more money against the property, I could not exceed the original LVR of 90? I would also imagine there would be many hoops to jump through to get the funds.

I have only had my loan for 1 month! its also fixed for 1 year.

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September 6, 2013 - 12:32 am

The only way your going to find an exact figure is to create a cash flow analysis spreadsheet. There's a few free ones out there on the net you could try using.

You might be able to do this in a quick formula, although some of the values might simply be a guess.

e.g. assuming $450K loan, $520 per week rent, 5% interest rate, $3000 average per year expenses, 30% taxable income rate, $10000 QS depreciation on a <5yr old house.

(Rental yield minus 10% for vacancy & management) – (interest repayments) – (expenses) + (tax benefits from depreciation)

= (24336) – (22500) – (3000) + (3000)

= 1836 per year

You might want to assume a higher interest rate to build some contingency into your investment strategy.

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August 30, 2013 - 6:57 am

Go visit as many home opens as you can. I attended 3-4 home opens on each Saturday and Sunday in my target area.

It really gives you a good idea about the demand in the suburb and who your competing against. And it will help you identify a good deal when you fine one. If you like a property, go visit the next home open to see turn-out and ask if any offers have been made.

Go in and ask the real-estate agent what the expected rent return would be – and take with a grain of salt

Ask them how long its been on the market. Why the owners are selling? gather lots of info

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August 13, 2013 - 6:11 am

I don't really understand what you mean by "get the interest earnt on your initial 10% deposit"

As far as I know, you cannot claim interest on your deposit.. unless you BORROW your deposit!

I wish this were true, because I am just dropping 50K of my hard earned savings on a deposit for my first house.

I imagine if you have other investment properties you could use the equity or LOC in those loans to fund your next deposit, and therefore you can claim that interest as tax deduction.

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August 5, 2013 - 12:42 pm

Hi Jenny,

I believe the 20K was included in the LVR calculation in this occasion.

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August 5, 2013 - 6:42 am

Thanks Shahin, Tom and Grant for your responses. It is extremely helpful to have input straight from the professionals. I could not have survived without this forum.

Based on your responses and my careful consideration, I have decided to drop the credit card feature (which co-incidently came with a $20K LOC loan). My reasoning for this is because as a first home buyer, my buying costs are already extremely low. I already have a good level of savings, budget and the ability to cover my expenses without the need for a credit card. And BTW, you guys were right in that the rate for this is 0.1 – 0.2 points higher than the regular rate.

@grant:

Thanks for clarifying the extent of the Fixed period break fees. I cannot see myself selling before 1.5 years, so I think 1 year Fixed should be fine for me.

I also readily agree with you regarding mixing personal and investment debt. I would much rather keep things as simple as possible by using my Offset savings to fund my next property purchase in 1-2 years time. 

The problem with my Mortgage broker is that he doesn't feel the need to include me on much of the process, and his level of communication is very poor. In the end he presented me with what he believed was the best loan (without any evidence or comparisons). Only when I receive the documents to sign, I notice he has signed me up with these features which I do not necessarily need. I think I will get what I desire in the end, however due to these issues I am not very happy with the service and I will not be using him again.

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August 4, 2013 - 4:30 am

Hi Shahin,

Thanks for the feedback. I didnt think it was the best rate out there.

Perhaps it was due to the contract nature of my work (mining company making $130K, I move around a bit but I have been here for around 1.5 years now). Other lenders perhaps didnt want to take the risk on me?

Fixing for 1or2 years was the suggestion of the mortgage broker due to the low rates on offer at the moment. To be honest I dont NEED fixed.

Do you know of any lenders who offer a similar product? I really would like to compare.

Otherwise, if anyone wants to take this offline and can get me finance before 28 August, I'd probably consider switching brokers!

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July 17, 2013 - 6:25 am

I am new to this, but if I had that situation, I would try looking at developing triplex and renting them out. Here are approximate numbers if you built in an area near me:

land 900sqm – $500K

building costs $600K

Deposit: $220K

Rental yield for each: $450p/w

Total yearly rental income for 3: $67,500

Holding cost: $44,000p/a

Net cash flow after completion: $23,500p/a

Total value of each property after completion $450K

I would also diversity.

– high yielding commercial property 8%+ returns

– try my hand at a renovating an older house in a nice area and then renting it out

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July 5, 2013 - 5:49 am

Hi Tom,

I had a feeling that might be the case.

Oh well. Thought I better ask just in case!!

Thanks.

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July 5, 2013 - 5:46 am

Thank you Nathan. Can you please explain why this is relevant to my situation?

You cannot make this choice for the period before a dwelling first becomes your main residence.

To me, it sound like this would apply If you wanted to sell the property and claim CGT exemption before you ever move into it

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July 5, 2013 - 3:36 am

Hi Nathan. Thanks for your input!

Technically an IP can be treated as your PPOR for up to 6 years after you move out.

http://www.ato.gov.au/General/Capital-gains-tax/In-detail/Real-estate/Treating-a-dwelling-as-your-main-residence-after-you-move-out/

My problem is that I'm not sure if I can treat this as my PPOR in the first place.

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July 5, 2013 - 1:44 am

Hi Richard.

I am quite sure that I am able to claim FHOG benefits. Sorry, I should rephrase my question:

Can I treat this home as my PPOR for CGT purposes?

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July 4, 2013 - 11:00 am

The property is located in Perth, WA.

Thanks