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Should clarify that family trusts are if the scenario is you run your own business for profit distribution only.
Can’t do that if your drawing a PAYG salary and is only a general tax minimization suggestion on overall income.
Again as I dont have enough info to be specific just offering up ideas.All scenarios should be run through a proper tax accountant.
We targeted the western belt of Melbourne also as our investment spot from Newport –> Sunshine. That was approx 16 months ago, and back then you could still get decent property for $350-$600K. Today the prices have shot up somewhat. I think Sunshine might be your best bet.
For 340K you will find 1 bed apartments, real small 2 bed apartments, and you will be competing with a lot of folks looking in the same area.
If you go further out to Werribee, Hoppers Crossing & Tarneit. You can get 3 bedroom houses, although if your planning on renting this out, these areas have a lot of rental competition so do think hard.We got 2 IPs in Newport, 1 in West Footscray and 1 in Yarraville.
All have been performing nicely. Still think these area’s are undervalued compared to the same radius to the city in sister suburbs, so we will keep investing in these areas ourselves.
Hello there. You have not provided enough information to comment properly e.g. How much income does the household bring in, do you rent the investments and are they positive and do you accrue a healthy amount of savings interest?
This is not necessarily comments just for property. More so overall tax minimization.
Suggestions are still based on a heap of variables.Based on what you have said, and assuming your husband makes a good income & the company paying him is up for it.
– Get salarys paid gross into a family trust. At tax time distribute ALL family trust monies to all members of the family including the kids.This will assist in overall tax minimization if the income can be paid in this manner.
Thereafter any taxes owed between your Husband and You based on Distributed Funds can then be used by property expenses as deductions.
If the properties have Positive cashflow. Then the positive amounts accrued over the financial year is income your taxed on.
Therefore you can deduct against that.If you have money in term deposits of savings accounts. That is also deemed as income.
Once you structure your income properly, the expenses, depreciation, land tax etc on the properties become deductible.
Hope this helps.
We can tell you what we would do or specifically what we did in the same situation with roughly the same money.
– Buy a 1 Bedroom Unit, that is approx 10-15KM from a major city that is at least 50squares. = Buy this outright or as close to it as possible for $185K. The Unit you purchase should return a rental income of at least $180-220 per week.
– Once Settled, and you have a 1 bedroom unencombered unit. Use the unit as security to purchase new townhouses. Approx $550K. You should be able to squeeze 2 of these secured against an unecumbered property of that profile.Reasons for this structure.
– The unit is small enough and cheap enough to always be rentable.
– The value of the unit is the security for new properties. If we work on 20% LVR. You could squeeze 2 Townhouses or several smaller units in there.
– The Rent from the unit should cover most of the shortfall of renting out new propertiesThis strategy is obviously not without risks, however we did this a year ago and it has worked out very well.
– Purchase 1 Bedroom Unit in West Footscray outright for $150K
– Used it to purchase 2 off the plan townhouses @ $500K ish each.End result –
– Spend of approx $150K spawned a portfolio of 1.2 Mill ish. In the space of about 3-4 months (to find property, 9+ months to fully settle)
– Minimal capital outlay beyond initial $150K (Approx 20-30K altogether for new contract deposits and processing costs)
– Minimal Stamp Duty Costs because we went for off the plan purchases.
– Maximum tax deductibility across all 3 properties.
– Consequently all 3 properties have gone up in value. 1 Year later, we are almost at the stage where we can get the townhouses re-valued, discharge the 1 bed unit as security, and start the cycle all over again.Anyways if he question is what would we do, then this answer is what we did and why we did it.
Hope it helps.
Hello there.
Sounds like we have a similar profile then. Same salary (yours is a little more) also in Melbourne.Anyways we invested in property for the same reasons that you are doing it now.
To cut a long story short we now have 5 properties and pay 1% tax (well for this year anyway)
We opted for the western belt of Melbourne as the best investment from Newport –> Sunshine.
To this day I still think these properties are undervalued compared to properties on the other side of town in the same radius.I did a reply here when I first joined. Read it if your interested in the details.
https://www.propertyinvesting.com/forums/property-investing/help-needed/4331557Hey guys.
Been away on leave.
email me if you want material. I have written up a bunch of notes to clarify property purchasing.
[email protected]I will email you what I have.
Hey There,
My Neighbor just restumped thier entire 3 bedroom house for a grand total of $6200
I have no idea if this good, but I would err on the side that this is an awesome price based on the fact that I hunted for a tradie to restump just my water damaged bathroom. Of 3 official quotes the lowest price I got wuz $6000 (seriously water damaged though)I ended up using my neighbors restumping chap and it cost $1000.
Very happy with the end result.
I would say keep getting quotes and negotiating until you get equal to or lower than that amount.
Totally agree. Banks cannot be trusted on any level to assist properly from giving answers to processing paperwork to sending packages on time. It doesn’t help that the banks usually don’t talk to the buyer during settlement, they only want to talk to solicitors which complicates the matter even further.
This time round I spoke to a dozen people.
1 lady went out of her way to help, because she stopped an listened to the consequence.
Had I not found her, I am certain that i would have lost the property and the $51K deposit.This experience has put another 2-4 checklist points on the property buying list of things to do. Getting really big now.
I bought PIA didn’t help. Never tried Posh
I ended up building my own property management system.
Would love to show you but have not worked out how to put images into this forum yet.Your math is too simplistic to make the judgement right now.
Things that I would do if I were you.
Check with a few agents in the area, and get feedback as to what your place will sell for.
Specifically nominate in your mind what you want for it if sold now and check if it is viable with the agents in your area based on todays market.Get an estimated sale value of X to work your numbers off.
– Deduct Agent Sell Fee
– Work out Capital Gains Tax Deduct that
– Work out what you want to buy as max spend
– Work out the upfront costs of the new buy with deposits and stamp duties
– Work out how much it costs you to move house between homes.I would love it if it was as simple as Value X if Sold = Cash Y, but it rarely works that way.
I think if you calculated this scenario based on what you want to sell it at, and what you want to buy, and fill the in-betweens
The outcome of this calculation will make it an easy decision for your original question.AndrewH wrote:What is better/cheaper and if cheaper how much more cheaper. If i search for a peace of land Obtain a construction loan allocate builders/brick layers etc. Once its all built Sell it, and pay off the bank and keep the profit for the next investment.Am i missing something here?
Whats the ups and downs I dont care about the running around headaches and bla bla if its goin to make me 60k profit in the end its worth it for 1 month worth of running around.Isnt it?
Or is it cheaper to go to Masterton homes or something and buy a house and land package, Do they sell it cheaper then you can build it because they are a huge corporation that buy in bulk?
We did the development on 1 of our properties last year.
Overall it is cheaper at the cost of running around as you have put it.However, running around is a gross understatement, and it can be for way more than a month.
– Getting the loan approved took almost a month of running around with useless paperwork.
– The Builder and tradies were a nightmare to work with. I don’t mind running around, I don’t mind having meetings. Its the never showing up, variations AFTER they have done half the job, and not coming back to finish it & generally all the lies on deadline that I have a gripe with.
– All in all the project was 6 months overdue (which costs you a small fortune when paying the mortgage on something you cannot use)
– The finished product was not worthy of sale, so there were a bunch of additional costs post handover.
– The sheer personal mental drain of feeling like the project will never end, whilst your bleeding money with monthly payments was the worst part of the whole game.(By the way this was a completely custom designed home because of the sloping block disallowed for pre-designed homes)
The original plan wuz to build it and sell it just as you are planning now.
At the end of the build, when costs were tallied up + CGT applicable to the quick sale.
It was profitably better to live it in as a PPOR and then sell it for CGT exemption.
On the flip side of that. We bought an Off the Plan Townhouse from another developer.
All was done wonderfully. No Budget concerns. On Time delivery.
The hardest part of that was inspecting the progress periodically and choosing colours for stuff.
End math. Both builds worked out roughly similiarly in costs. One without the emotional stress and uncertainty.If your lucky enough to pick a builder & trades that have integrity. Then most of the journey should be smooth.
Unfortunately many are not like this. Protection comes in the form of legal contracts, with dates and consequences.
If you are aiming to turn a profit. You will naturally err on the side of cheaper partners for the build as we did. This will expand the pool of poor suppliers incrementally and increase the headache associated to it.Don’t even get me started on needing to often pay for the mistakes they make. Thats just the icing on the cake.
Once upon a time, I also thought the developing process would be dog easy. Older and wiser now. So not the case.
If your objective is tax savings, then buy it in your name, as your name is where the salary lands and where the income tax occurs.
If your objective is to minimize your tax, then focusing on expenses will do little to dent the tax you pay.From what I understand, as long as the property is earning an income, the expenses are deductible on that property against the entity that owns it. The differentiator is just how troublesome those expenses are to claim.
For Tax Savings, I would recommend the following structure:
1) Setup a Family Trust – For this to be useful, your employer would need to agree to pay this entity your salary.
> This Entity’s sole purpose is to take in your income, and distribute to family members.
> Your wife and child can be recpients of income distribution and pay the tax on the tax bracket of what is distributed
> Even before property, this is helping with tax minimization2) Get the IP in your name, knowing you will distribute most of the income to your name.
> Strategize for purchasing not 1, but perhaps 3 Investment Properties.
> The Expenses again are relatively low, and barely worth the hassle if thats what you want to recover
> But the Depreciation claims on new IP will have a significant impact on your income tax
> Depreciation claims are the only portion of money in IP that you didn’t physically have to pay for to get back so it works well.We just did this recently and are paying next to nicks in income tax.
Catalyst wrote:PC_Melbourne wrote:Well we only started last year. Can give you our opinions on these topics: 1) Using Investment Companies – Not a big fan. Heard stories of companies going under and taking investor $$$ with them. Generally prefer to be in control my own money and decisions. 2) Big fan of off the plan purchases (Plenty of research and careful buying of course) – Have the term of the build without paying much outside of deposit. On all 3 occasions the finished product was worth more than we paid. – Max depreciation income tax benefits – Minmal Stamp Duty $$$ costs – Brand New House.Hi, mind if I ask where you bought the 3 off the plan places that were worth more than you paid. I only hear negative things about OTP. Like them being worth less and people not being able to get loans etc. Would love to hear some positive ones.
Hey There,
I had heard lots of negatives aswell, but just like everything else, there are differences depending on circumstance.Locations
1) 3 Bedroom Townhouse in Newport VIC = Purchased $520K Valuation on Settlement $580K. 8 months later. Valuation =$650K
2) 4 Bedroom House in Diamond Creek = Purchased $525K. Valuation on Settlement $600K
3) 4 Bedroom Townhouse in Newport VIC = Purchase Price $510K. Not settled yet, but I am expecting at least $600K if the 3 bedder already up to $650.These are my opinions on OTP =
Most horror stories are derived from OTP high rise units.
These bad boys are way expensive for what you get (size wise), that have real long settlement times.
The dip in valuation often comes from the sheer volume of units being built therefore valuation accuracy is all the more difficult.
One also runs the risk of the builder running out of money to complete the build and going under. More unnecessary headache.I would also buy units, but only the smaller boutique ones, where there is max 8-16 units on the same block.
We generally stick to OTP for Townhouses in known area’s.
Valuation Research on these finished products are a relatively easy Guestimate, because there are similiar places advertised in the area, and there is not usually a huge volume of them. Naturally we err on the side of low advertised prices.We meet the builder, see what other projects they do in the area (as a reference benchmark for quality), and then proceeded to make an offer.
3 out of 3 so far, and it hasn’t been so bad. (Worst part of the whole process is certain builders are extremely late, however we don’t pay anything until settlement so who cares)We just crossed the same bridge for our property in Melbourne.
We were originally looking a simple water feature, but then we figured why not make the water feature functional too.
We battled with Pool vs Spa, but pools just wound up too expensive. The cheapest we could find after some serious bargain hunting was approx 20-25K for a small plunge pool (which is what I wanted)
In the end we settled for a spa – Big enough for 4-6 people, small enough to be maintainable without killing finances.I also rang the agents (3 of them) and they all advised against it. In the end Agents are averse to anything that might make their jobs mildly harder.
Yes there are plenty of people that will be put off, but there are also a lot of people that would enjoy that, as we did.
Melbourne can have relatively extreme summers and winters. A spa fit that for entertainment.
Our house will be up for rental shortly, whereby I am at peace with the fact that only tenants that appreciate a body of water will rent it.
(Worst case scenario, we put a cover over it and don’t use, no big deal)As an investor, it is counter productive from a money aspect, as it is an unnecessary spend. But then most of the stuff we buy is not really necessary.
I have found it is about personal standards, and what you would want as a family in that house. If you want a pool for your family, chances are that other renters will too.
Well we only started last year.
Can give you our opinions on these topics:1) Using Investment Companies – Not a big fan. Heard stories of companies going under and taking investor $$$ with them. Generally prefer to be in control my own money and decisions.
2) Big fan of off the plan purchases (Plenty of research and careful buying of course)
– Have the term of the build without paying much outside of deposit. On all 3 occasions the finished product was worth more than we paid.
– Max depreciation income tax benefits
– Minmal Stamp Duty $$$ costs
– Brand New House.Technically if you moved out, and it has not earned a dollar since you moved out.
It has never been rented, and therefore never been an Investment Property.
As long as you have not purchased another PPOR then this one is still your PPOR? and therefore CGT exempt anyway.If you don’t mind me asking. What is the suburb? I find it incredible that 2 agents cannot rent it out after a drop in rent, and your skeptical about the sale.
domma55 wrote:Thanks for the comments,I have a basic plan in that i'm after a 3 to 4 bedroom house in Palmerston, NT. I have narrowed it down to a few suberbs which i have been monitoring for probably six months or so and know the areas well. I intend to make it my PPOR. I'm not interested in auctions at this stage. I will be getting pre-approval from my bank ASAP.
So if you find a place you want to make an offer on do you get your building and pest inspections done first???
Really depends on the place that you choose.
Structural issues could cost you a fortune in the future
Pests like Termites could cost you a fortune in the future.
If you go with a relatively new house, and you feel safe with these aspects, then you can skip it and save on the money.
Unfortunately these are just buying dollars necessary for your own security (If you think they are necessary of course)
If you suspect these kinds of damages and the agent is pushing you to sign the contract, then put a clause in “Subject to Building Pest Report”Pre Preparations
– Have Conveyancer
– Know that you can get finance.When you make the offer, and assuming vendor accepts.
You sign a contract of sale – On the contract of sale you need to nominate your conveyancer.Would be wise if you had pre-approval sorted in writing from the lender.
If you sign the contract on an established house, the settlement terms will be there.
You will then need to formalize the loan, get the info to the conveyancer and off you go.Circumstantial stuff that can impact this:
– Pest Reports
– Building Inspection Reports.
– ValuationsAll are optional and dependant on what you buy and what you want. These would occur before you sign the contract, and you would be wise to have the contract conditional to these items.
There is a wealth of to do’s once settled, but thats a different question.
Thanks guys. There are reasons to the madness.
The house is built on a new estate on a semi slope peak. Very muddy, and quite steep from the house to the boundary of the garden.I had the option of doing a cheap landscape, but that would really just entail a fence with back garden that had a way steep slope. Whilst the cost of the landscape would have been cheaper, I came to the conclusion that it would devalue the house by doing this.
Also the living area of the house is quite small compared to the rest of the house so I decided to build a whole living entertainment area outside instead.
There really isn’t enough info here, but starting numbers on a $250K property would be approx:
– Deposit – 20% = $50,000
– Stamp Duty – Varies by State – I’ll use Vics just for Jollies = $10,070.00 (Will also vary depending on whether you buy off plan or establshed)
– Conveyancing Fees – $400 – $600Starting numbers to aim for is probably $62K for a $250K IP.
Other Variables you should consider Post Settlement::
– Whether the place you buy needs fixup before renting $Variable
– Depreciation Reports = $400
– Agent Listing Fees = $Variable to the agent. Perhaps $100-200
