Forum Replies Created
In the circumstance you describe the benefit of the tax shield from depreciation does seem marginal, especially if the extra income could justify higher borrowings.
Not everyone has a tax-free beneficiary to distribute to, and hence the depreciation tax shield is more beneficial.
Some time ago I wrote an article on the deception of depreciation. Have a read of it here:
Any vendor finance sale will need legal advice and careful structuring to consider stamp duty (will vary by state) and income tax implications.
I haven’t seen a loan in Aus that is assumable, but they may be out there. Typically larger commercial property deals are financed by commercial paper (such as rolling commercial bills), rather than a loan like a home loan. These are unlikely to be assumable.
Buying the company will still likely trigger income tax and stamp duty implications, but again, legal advice is warranted.
If you don’t proceed, you are welcome to flick the details of the deals to me to see if it is of interest in the new fund I have established.
You have identified an issue in your due diligence, and you are right to want to try to manage and mitigate it.
However, it appears you cannot do as the vendor will not wait.
If it were me, I would go under contract with a general 45 or 60 day due diligence clause and seek to do my own investigations. Perhaps you want to point to some other need for the clause though, perhaps to get your finance sorted? Once under contract I would approach a town planner for assistance.
Assuming you cannot cover the risk, you have to assess your risk appetite to proceed (or not) with the known risk. Does the upside outweigh the downside by enough of a margin for the risk. You also want to be paid extra for the risk.
Howdy Stargazer. Member since 2002 eh? Thanks for sticking with me :-)
The problem here is that you are letting the asset lead the outcome. That is, you don’t know what to do because you don’t seem to have a clear picture in your head about what you want your assets to achieve.
Here’s what I wrote in prep for a Money Magnet podcast yesterday:
- If you don’t have a then, you won’t have a why
- If you don’t have a why, when becomes based on urgency and you become reactive rather than proactive.
- Without a why and when, what or how is unclear, and so you will gravitate back to your parental and societal programming
- When it comes to investing, that is likely to be good assets, in good locations, in the hope of a good profit.
- Set a ‘Then’
- Identify ‘Why’
- Clarify ‘When’
- Let the Then, When and Why determine the What and How
In summary, the right thing for you to do depends on what you want to achieve.
Final comment – make sure you come to my upcoming 1-day seminar. I will explain more about this at the event in the context of ‘making your money count’.
This is an interesting question and I would have thought something would be legally possible, I just don’t know how. As it is a legal matter, it is best to seek legal advice. You may also like to look into reverse mortgages (do your due diligence) as a way of unlocking equity.
I imagine there will be taxation consequences of co-owning, and stamp duty issues. Again, best to talk with a lawyer.
Thanks for the post.
I’m sad to learn your professional network is telling you something can’t be done when mine time and time again says it can be (and I continue to use and apply it).
I’m not sure how you reconcile that, and I’m over repeating myself over and over and over again on this issue.
If you can’t, you can’t. If you can, you can. Find a way or make a way.
That’s interesting as I am in the final stages of winding up my USA affairs after investing there since 2009.
The best tip I can give you is to remember that money follows management. Deals might stack up on paper, but unless you have strong, reliable and trustworthy management, you will struggle to put bucks in the bank.
The taxation consequences are complex and expensive, and insurance is getting very expensive and difficult to source in some areas (like wind in Florida).
Think about what you are hoping to achieve, and then consider whether the opportunities closer to home might be less risk and aggravation.
G’day there. This is a question of whether the improved value exceeds the cost of acquisiton and improvement (rezoning) by enough of a margin to justify the risk and aggravation. You’ll need to do your numbers to find out.
One thing I would be trying to figure out is whether there is demand for such land, and if so, at what price. Pre-sales would be important to de-risk the deal, so chatting to an agent would help. Start with end sale proceeds, deduct costs, and see how much profit is left over.
This has not been my experience, nor the experience of all other’s I know.
I will do an update on the matter via a webinar soon.
Remember that the structure only works for +ve cashflow property and you will need to use business bankers. Contact Chris Berry from http://www.PropertyInvestingFinance.com for more assistance.
Thanks for your post and sorry to read about your situation.
I am confused about the insurance policy. Whose name is it in – yours or the bordy corporate (BC)?
I would expect the BC would ensure for public liability and for structural matters for common areas, but that each owner is responsible for their portion of the building (strata title), and public liability of the same.
As for what is and isn’t covered, you should read the relevant policy carefully and even seek legal advice in order to get an expert opinion. Given the dollars involved, (up to) a few thousand in legals seems to be well worth it.
Sometimes insurers will disclaim out of the gate and need some further ‘encouragement’ to reassess and pay out. Hence a good lawyer is where I would turn to for help.
It can be hard to get loans based on business income Charlie. Let me explain…
First of all, the business is its own entity, and if it already has debt then that will count against further borrowings. The business will likely need several years of financial statements and tax returns to support profitable operations, or else will require a director’s guarantee to support the debt. Furthermore, most borrowers will only take a portion of the net income, and possibly a conservative portion!
What happens in practice is that business profits usually flow through to the owner, who then has that profit reflected on their income tax return, and who will then use that income as evidence to support borrowing capacity – either in their own name, or as a guarantor. Again, a lender may discount this income to some (or all) extent depending on their assessment of its reliability.
Re: the specifics… get in touch with Chris Berry and ask for his assessment. He can be contacted at http://www.PropertyInvestingFinance.com
Perhaps your lawyer has a view I haven’t heard before, but my understanding of trusts, companies and corporate law is that trusts separate ownership and control. Can your accountant contact your lawyer to confirm their opinion and perhaps provide you with a summary?
All the best,
- This reply was modified 12 months ago by Steve McKnight.
What’s the address please? Let me do a little bit of searching.
Do you have any marketing from when you purchased that says the larger land size? Can you demonstrate that you relied on the real estate agent’s representations(perhaps by communication pointing to discussion about land size?)
Most advertising material does come with a disclaimer on it saying, essentially, all care and no responsibility. Indeed, checking land size ought to have been done during your due diligence. Sadly though, that’s now a bit like saying don’t eat that 10th course at the Chinese buffet.
That said, you may have something to discuss with a lawyer if you feel the agent engaged in false and misleading advertising, or if the Vendor falsified their Section 32.
Note – this is NOT legal advice as I am not a lawyer. Just thoughts on what I would do if I were in your shoes.
I wish I had better news, but the stamp duty laws are pretty tight, and I understand options to purchase are caught in many instances.
I suggest engaging the services of a good property development lawyer to guide you through what might be able to be done, just in case your current legal team haven’t thought of something.
It might just be what it is I am afraid, and if the SD kills the deal, then it won’t be the first time that tax has ruined a good idea.
Yes, the approach continues to work: for the right investor buying the right property.
You will need to go and get legal advice about the right trust and how to set it up. That will cost several thousand dollars.
I have a resource called ‘Buyer Beware’ that explains all the structures, but it is currently out of print and needs an update. If only I had more time…
This sounds like a question for a lawyer or consumer rights service.
The only help I can offer is that most tenancy laws require the premises to be safe and habitable. Perhaps one could argue this is not the case if the property has not been properly authorised?
Yes, there is and it is part of the STEPS program (excel spreadsheet).
We also released a Chrome extension (plug in), which is in development to turn it into a web app. All going well we will release it in late 2022, early 2023.
The answer is inflation Benny.
All the cheap money is enticing people to spend, which is causing prices to rise. So too though are supply chain issues that aren’t related to consumption though.
The argument is that by taking money out of people’s pockets by causing them to spend more on interest it leaves them less to spend on other things, and so that relieves pressure on prices, because demand is diminished.
It’s a big political statement though to increase by 25bp, higher than the 15bp expected. I was expecting no change this month, but a change next month, as wage price data is not released until later this week, and the RBA could have sat pat with good reason, and not dropped an anvil on SocMo’s head.
It’s not panic stations though, as we are coming off the lowest cash rate ever, but, it is also true to say that there has been a 250% increase off the base rate (.1 to .35). I think that will hurt some people who are already struggling.
- This reply was modified 1 year, 7 months ago by Steve McKnight.
Thanks for the post and it is an interesting topic.
We’re so lucky to live in a country where the government assists. Elsewhere you would need to have private insurance, or just pay the cost from your own pocket.
I understand the goverment usually ‘does a deal’ with drug companies to get them on the PBS, so no doubt there are some savings there, and I am sure there are some economics at play, as well as lobbying.
I don’t know how you put a price on a human life. I know economists try under some modelling called ‘value of statistical life’ (VSL).
You may find these links / articles interesting:
Taking max rent and max PP, $6k per month rent = $72k per annum, against a purchase price of $1.3m (and that’s before closing costs) gives a gross yield of 5.5%.
As an income return against commercial property, where returns are typically net, this is not particularly attractive.
Still, I have sent your details to a couple of my WA based clients to see if there is any interest in following up.
All the best,