See an experienced lawyer. People go into these things with the best of intentions, yet this soon falls apart when the deal changes or peoples circumstances shift.

That's why it is important to consider the liquidity of the deal. For instance, what happens if someone gets divorced half way through the venture? Sounds extreme but it is the unknown in real estate that costs you the most!

All the best,

Yes, this used to be a problem.
 
Some time ago when I did the research either the entity had to be set up, or there had to be the intention that the entity would be set up.

I have a feeling now, that at least in Vic, so long as there is no financial gain in the nomination, it is not too much of an issue.  Not sure about other states though.

In any event, legal advice is worthwhile.

Further reading:
https://www.propertyinvesting.com/weeklywords

Cheers,

There are definitely benefits of further education, and both the CA and CPA programs offer the opportunity to sharpen your accounting skills.

I'm a CA, and even though I don't work in the industry as such any more, the ability to think through a financial issue in a logical and probelm solving manner is of great help.

Gaining a professional qualification is not a walk in the park though. It requires a lot of hard work, especially if you want to learn and benefit as opposed to simply trying to pass.

Perhaps I'm bias, but if you plan to work in a large accounting firm, or work in big business, then I think CA is the better qualification. Afterall, the ICAA claims to be #1 in numbers

Cheers,

Great tip, thanks Luigi.

Have you considered carpet? Or perhaps putting a floating foor on top of the old boards?

Cheers,

Good points.
 
In regards to nomination, if you don't specify 'and/or nominee' at the time of purchase then to transfer later may result in double stamp duty.

Regards,

Hi James,
Thanks for your post, and thanks Terry for replying.
I receive a lot of requests for help and further information about trusts, so with this in mind I've drafted up a reasonably comprehensive answer that I hope helps members.
==========BUYING PROPERTY==========
Most people who buy property use a portion of their cash reserves to fund the deposit and also closing costs.
The balance needed to pay out the vendor is then normally financed via a loan secured by a first mortgage over the property (e.g. a home loan).
A typical situation is to pay 20% of the purchase price as deposit in cash (+ closing costs) and then finance the remaining 80% of the purchase price via some sort of loan or finance.
==========ENTITY==========
A property can only be purchased by a separate legal entity, which means that only people or companies can be property owners. What about trusts then?
Well, a trust needs a Trustee (who can only be a person and/or a company) to act on it's behalf, since a trust does not have separate legal entity status in its own right.
Therefore, a trust cannot buy property or borrow money in its own right… however the Trust Deed, which is the rules the Trust must operate under, will typically give the Trustee the power to buy assets and borrow money on behalf of the Trust.
This is why banks require a copy of Trust Deeds before lending – to make sure the Trustee has the power to borrow on behalf of the trust.
When buying property using a trust the correct legal way to note the purchaser is <Trustee Name> As Trustee For <Trust Name>.
For example:
If the Trustee is an Individual:
Fred Smith As Trustee For The Fred Smith Family Trust
If the Trustee is a Company:
Fred Smith Pty Ltd As Trustee For The Fred Smith Family Trust
==========BORROWING IN A TRUST==========
Earlier I mentioned that typically 80% of a property's purchase price is financed through a loan and 20% (plus closing costs) is paid in cash.
But what about when the Trust has just been created and doesn't have any cash reserves? This is the situation you describe James.
In this case, instead of there being one loan, there will be two (or more) loans.
Loan 1: To a financier for the (presumably) majority portion being borrowed of the purchase price (e.g. 80%)
Loan 2: To the person or entity lending the remaining money needed to settle the purchase (e.g. 20% + closing costs).
For example:
Let's say you are setting up the James Family Trust, and have set up James Pty Ltd to act as Trustee and you want to purchase 123 Red Street for $200,000.
XYZ Bank has agreed to lend you $160,000 (80%), however you still need $40,000 (20%) plus another (say) $10,000 to cover closing costs such as legals, stamp duty etc.
If you were buying the property in your own name then you would simply use your cash reserves, or else tap into other finance options if appropriate and available (e.g. line of credit against a home).
However, the assets of the trust and the assets of the Trustee / Beneficiaries are not accumulated – they are owned separately.
Therefore, a second loan is needed from James to the Trust to cover the 20% plus closing costs needed to settle.
The journal entries in the books of the various entities involved in the transaction would be:
A. The Lender
Dr: Loan – James Pty Ltd ATF James Family Trust $160,000Cr: Cash $160,000
B. James
Dr: Loan – James Pty Ltd ATF James Family Trust $50,000Cr: Cash $50,000
C. James Pty Ltd ATF James Family Trust
DR: Property 123 Red Street $210,000CR: Loan – XYZ Bank $160,000CR: Loan – James $50,000
==========LOAN IN A TRUST==========
Once upon a time loans to/from Trusts were notional only, however the ATO has cramped down on this and now loans need to be more genuine, which includes having a formal loan agreement and charging interest (even if that interest is capitalised).
In the above situation, because James is lending and gaining interest on his 'investment loan', the interest on that loan is tax deductible.
Furthermore, because 123 Red Street is an investment property, the interest paid by the Trust to the financier and James will be tax deductible too.
==========DEBT FORGIVENESS==========
Finally, a debt forgiven may trigger a capital gain. For more information on this complex topic, see an accountant or check out what's written on the ATO's website:
http://www.ato.gov.au/individuals/content.asp?doc=/Content/36559.htm
Warm regards,

Hi,

You should be able to buy the game from http://www.powwowevents.com.au

The -ve cashflow cards are there for those who want to speculate on growth. In the US, it is much easier to buy +ve cashflow properties, so why would you -ve gear? Things are different here as property prices are a lot higher relative to rents.

That said, I made my fortune on the back of +ve cashflow houses in regional areas. I read an article recently that if values drop and rents rise then the days of +ve cashflow may return. Until then, you have to try and make your +ve cashflow rather than seeking to buy it.

Hi,

Normally when doing renos as a business, there is no capital gains as the entire profit is treated akin to business income (that is – like salary for businesses).

When doing renos as a private investor you could probably do one or two every few years, but after that you would have an argument with the ATO to say you were not in the business of renovating for profit.

That said, everyone has their own tax situation, so it is hard to know how much tax you will need to pay.

Nevertheless, tax should be a consideration and I will ask Dean and Elise to include it in Reno Toolbox II which is currently in production.

Gosh.

That's a complicated and tricky question.

Let me get this right… you want to buy a property off the plan using a deposit bond, and then you want to assign your right to purchase to a third party and then get them to take over your deposit bond, or get a new one?

Hmmm.

A couple of thoughts:

1. Make sure you can assign the right to purchase in the first place. You wouldn't want any recourse against you if the person you assign to doesn't settle.

2. The idea of a deposit bond is that the bank guarantees that you will be able to come up with a deposit on settlement. If you then assign your right, I can't see why you need the deposit bond anymore as the new purchaser takes over that obligation to give a deposit on settlement. That is, when you assign the person taking up the contract will need their own deposit which should then eliminate you.

3. Carefully read the terms of the deposit bond. I doubt they are able to be transferred.

4. Be careful about the stamp duty implications of what you are doing.

Coming back to the question again….

Who knows where the government is at with policy issues. I would have thought that Trading Emissions is a higher priority though, at least until interest rates rise further or we get closer to the next election.

I am in favour of tweaking the tx rules on NG. My suggestion would be that you can no longer offset the 'loss' from negative gearing against salary income. However, you can carry it forward to offset against future capital gains.

However, the danger of doing anything is that it will tip the housing market over and Aus will follow the US in a housing-led recession. Don't underestimate how much money people have tied up in their homes. If home prices fall then the consequences will be significant.