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  • Profile photo of Steve McKnightSteve McKnight
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    @stevemcknight
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    Yep – this old chestnut!

    I suggest you search though the forums as plenty has been written on it.

    Highlights:

    > If you have maxed out your borrowing in your own name then you won’t be able to leverage your borrowing ability elsewhere. Maxed is maxed.

    > As Terry has said, Trusts cannot borrow in their own right (they are not separate legal entities as such), but the Trustee usually can (see Trust deed permissions)

    > Trusts cannot distribute losses, so buying -vely geared property in a trust has limited benefit as the loss is ‘locked’

    > -vely geared property in a trust will require personal guarantees from the Trustees if individuals, or directors of corp Trustee (if company), so this will still hurt your personal borrowing ability

    > Only +vely geared property that has sufficient cashflow and credit standing meet the serviceability requirements of the loan will meet the requirements I mentioned in the book. And then only if you have someone from the lender / mortgage broker who knows what they are doing.

    Example: I am about to buy a $1m commercial property with $100k net income. if I buy this in a new trust, then the loan will either not need a guarantee as it can stand on it’s own, or if it does, there is no impact on my personal borrowing ability as the property is self-liquidating (i.e. loan repayments fully met from income).

    Need further help? Make an enquiry and speak to Chris Berry: http://www.propertyinvestingfinance.com

    Bye,

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Hey Jeremy,

    Thanks for making this post. Heck, you might just like staring at stats and spreadsheets more than me!

    I agree with your points, especially:

    a/ Real estate tends to not perform longer than it performs, but the growth period while performing are impressive.

    b/ Transaction costs make it unfeasible to enter and exit the market, so it is extremely difficult to profit from ‘flipping’ in Aus.

    c/ The goal should not just be to ‘buy for growth’, but rather ‘strategically buy for growth’ – and hence  avoid location boas if possible.

    d/ What makes good buying now is not necessarily consistent.

    To that end, I came up with a recent study that tracks ‘value’ and ‘timing’ pegging property to trend analysis. It appears to have quite a strong correlation, although I want to do some actual statistical analysis to confirm.

    Anyway, happy to have a chat about this if you’d like to meet up. Where are you based?

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    @stevemcknight
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    G’day Jaxon.

    Hmmmm. Seems like you are after a manufactured growth strategy.

    Well, there are lots of them on offer, but the question is how many of them make profit at today’s prices, rather than rely on continued growth?

    The best advice I could offer you is this: What will make you the most money, in the quickest time, for the least risk, and lowest aggravation… within your available time, money, skill and risk thresholds?

    The answer to this question will be different for everyone.

    Bye,

    – Steve

     

     

     

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    I guess I mean a lawer usually makes a good lawyer, but that is not necessarily the same as a good business person.

    And perhaps you and I see the use and role of an accountant differently. You seem to narrow the application to compliance. That would be the same as saying that a lawyer is really only a word processor, or a filing clerk.

    Naturally, you have a bias as a lawyer, and I have a bias as an accountant.

    Setting aside our personal and professional bents, my recommendation for someone seeking to decide on their right structure would be wise to seek advice that ties the desired end with that person’s affordable means.

    And that’s knock off time for the weekend for me, so allow me to finish with this:

    An accountant and a lawyer were laying on a beach in Tahiti sipping mai tai’s.

    The lawyer started telling the accountant how he came to be there.

    “I had this property in Pitt Street, Sydney that caught fire and after the insurance paid off, I came here.”

    The accountant said, “I had a city property, too, in Melbourne. It got flooded so here I am with the insurance proceeds.”

    The lawyer took another sip of his mai tai, and then asked in a puzzled voice, “How do you start a flood?”

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Well, let’s agree on what we agree on: that accountant’s cannot give legal advice.

    As for the rest: lawyers, in my opinion, usually run good legal practices (small businesses), but otherwise make poor accountants, business advisers, and financial planners.

    Just look at government: beset by ex-lawyers who argue for the sake of arguing, while the rest of us get on with the job.

    That said, accountants stare at numbers too much and often make decisions from ivory towers.

    People just need to find an adviser they feel they can trust, and go in with their eyes open. Hence, I think our discussion has been useful in achieving that goal. Thank you.

     

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Profile photo of Steve McKnightSteve McKnight
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    No. I wouldn’t, that’s true. I went to a lawyer and got good advice and a tailored document. But accountants don’t offer to do wills, as far as I know! Maybe that is an emerging opportunity for them.

    Here’s what I’ve found happens pratically though re: trusts: accountants tend to work with a good lawyer (or major law firm) to get access to their latest and greatest trust deed as, as you have mentioned, lawyers typically are experts at law, but not tax, or accounting, succession planning, or in many cases, practical business operational matters. This latter part is then ‘wrapped around’ the trust deed to provide the best of both worlds: a trust deed that works, and accounting assistance with tax and succession planning.

    Bye for now,

    – Steve

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    I think we’re just going to have to disagree on this one Terry.

    Regards,

    Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Profile photo of Steve McKnightSteve McKnight
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    This might be one of those professional demarcation issues.

    I’ve always used an accountant to arrange my new structures.

    Whomever you choose, make sure they’re experienced and knowledgeable.

    Regards,

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Amir,

    Thanks for clarifying. If you go into a project with the intention of ‘turning it’, say a renovation or subdivision, then it is unlikely to qualify for a CGT discount, as you may hold it for <12 months, and even if you don’t, your intention is not to hold it for long term gain, but to buy-improve-sell, and so the profit is likely to be an ‘income’ profit rather than a ‘capital’ profit.

    Just on a point, you can’t make a (real) profit and not pay tax on it!  Or, if you want to defer your income tax on your salary income via real estate losses, you have to make a real loss against an unrealised profit (i.e. the negative geating strategy).

    So, back to your situation… as I see it:

    1. You want to do value add projects for quick-turn profits

    2. You expect to make a profit from improving the property, as opposed to a long term hold

    3. You may lose money in the short term holding it, but your intention is for the improvement profit to exceed those holding costs

    4. You hope to use those near term losses to offset your other taxable income (i.e. salary income)

    5. You want to distribute the profits to your parents as part of an income splitting plan

    Give the above, if you buy in your own name you can do 1, 2, 3 and 4, but cannot do 5.

    If you buy in a trust you can do 1, 2, 3, and 5, but not 4.

    Therefore, it’s up to you to figure out what combo of options you want more.

    In respect to capital gains, as I said, it is more likely the profit is not capital, but rather income. Regardless, if you think it could qualify for a CGT discount then this would be available (subject to meeting the eligibility requirements) both as an individual, and distributing trust income in the form of capital gains to individuals (i.e. trust distribution).

    It can be hard finding an accountant to assist. First, get clear on your strategy, then seek an accountant to support. That is, make sure you ask the right person the right question.

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    G’day Justin,

    Biggest hurdles?

    If you want to own that many properties you’ll need to get your structuring and finance sorted, or else you will reach a glass ceiling pretty quickly and not be able to keep buying. Of course, you’ll need your own capital for deposits too.

    Here’s a conundrum: You’ll be unlikely to acquire that kind of property portfolio with a full time job, but you’ll most likely need a full time job to get finance.

    Bye,

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    @stevemcknight
    Join Date: 2001
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    Amir,

    They are right! You cannot distribute a loss from a trust, so to access the (so-called) benefits of negative gearing, namely to offset the income loss from the property against your other taxable income, you will need to buy in your own name.

    Are you wanting to negatively gear?

    Bye,

    – Steve

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Hi,

    Sorry to hear about this!

    It does sound like a structural failure of the external building, which is typically an Owner’s Corp matter.

    I recommend getting a copy of the governing document, ascertaining whether there is a sinking fund, and then heading off to a friendly lawyer to seek further help. Getting a builder to attest to the issue being a structural failure and not just a ‘wear and tear’ maintenance issue will be important.

    All the best,

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    @stevemcknight
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    It will be a revised edition of Wealth Guardian, so a product for sale on the website, rather than a book in bookstores.

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    G’day!

    A buyer’s agent who owns hundreds of properties? In their own names? Hmmmmm. That doesn’t pass the sniff test.

    I’m currently writing lots of new and updated products about due diligence and structuring. I recommend getting your hands on them once I have finished them (still some months away).

    Structuring though, as an overview, is the way you control and own your wealth. If you own everything in your own name, then you’ll pay the highest tax on your profits (assuming you are in the top marginal rate – or bumped there because of capital gains in the year you sell), and you have no asset protection between assets – if one fails, they are all at risk. That’s why individuals are usually poor entities to use to structure your investment empire.

    When borrowing, debt in your own name acts as a weight to being able to borrow more. Therefore, you would need a lot (LOT!) of income to support the debt on 100 houses owned by an individual (noting that equity would not usually be sufficient as you have to prove servicibility from income too).

    In respect to advice… it’s always sensible to find your own qualified adviser(s) who can tailor solutions specific to your needs and budget.

    Bye,

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Hi.

    Sorry to hear about what’s happening.

    This is a legal question, so advice might need to be sought. Some ideas though…

    1. I suspect the property title will nominate the lender on it, so if you get a copy of the title you will see any encumberances – name of lender and mortgage number. Title searches can usually be done online, for a fee.

    2. In my experience, mortgage defaults go to auction so the mortgagee in possession can demonstrate they achieved a market outcome.

    3. I’m not sure that your status as tenant is protected in respect to notification, but I’d do some further research about whether your lease can be summarily terminated. What does the lease say? Perhaps call up the government entity that oversees residential tenancies? Does the 60 days conincide with the end of your lease? If so, there may not be much you can do.

    Bye,

    – Steve

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    G’day,

    My contribution to the discussion is via some investing principles that I have seen work time and time again:

    1. The goal of getting into debt, is to get out of debt. That is, if you owned a portfolio of debt-free income producing assets then you would be somewhat inoculated against rises in interest rates, plus if you had to borrow in a hurry you would have borrowing ability based on serviceability generated from the assets. If you need to get into debt as a precursor to getting out of debt, then just make sure you have a plan for how you will service and repay the loan.

    2. Better to have it and not need it, than need it and not have it. For this reason, repaying a loan and not being able to borrow it back seems a ‘less good’ option than having an offset account that you can access at call and does the same thing as repaying it. That said, consider the cost and terms of such an offset facility, as they are rarely free.

    3. Money supply is more important than money cost. People are trying to save a penny here and there when being able to access finance is much more important. The borrowing rule is this: your asset’s net income return (NOI / cap rate) must be higher than the cost of finance (interest/rate of interest). If not, then you will be leaking cashflow that will need to be plugged from another source.

    4. You bank dollars, not percentages. Be more worried about your worth based on what’s in your bank account as opposed to what is on your net-worth spreadsheet (that includes unrealised gains). Beware being asset rich and cashflow poor, as this often leads to “poor wealthy”, which is people who seem to have wealth but no way of accessing it (as opposed to “wealthy poor”, who have the signs but not the substance of wealth).

    And a shout out to Terry & Benny… thanks for your good contributions.

    – Steve

     

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Well, I greatly respect Terry as a lawyer, but to be fair to me, 0 to 130 is not a text book on trusts.

    Instead, it explains the concept of how I have used (and continue to use) a multi trust structure to leverage my personal borrowing capacity.

    Everything written in the book is both factual, and accurate.

    Oh, and for the record, NOTHING that Terry has said is at odds with what was outlined in the book.

    – Steve
    BA Bus (Acc), CA, 30+ years accounting experience, 20+ years investing experience, 1000+ property transactions, borrowed millions using multi-entity structures.

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Profile photo of Steve McKnightSteve McKnight
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    Hi Jane,

    I’m sorry to hear about this.

    I am not a lawyer, and as this is a contractual matter, it is important to know your rights and obligations, especially if you are overseas.

    The contract you signed, together with consumer law, will determine the rights and responsibilities of all parties.

    Usually, if you sign a contract and fail to perform, you will lose any deposit and have to compensate the other party for losses incurred. As such, and this is not advice, I would expect you to lose your deposit, and you may be liable for any shortfall in sales price the builder / developer incurs selling the property to another party.

    The short answer is this: get legal advice, quickly. If the lawyers bring absence, you will need representation or you could find a judgement is made against you.

    – Steve

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
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    Profile photo of Steve McKnightSteve McKnight
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    Sorry for the delay in replying…

    Absolutely, positive or negative, the result is the result.

    The -22% means that for every dollar invested in the deal (your cash down), you will need to find an extra 22 cents per annum to feed the deal and keep it alive.

    Be aware that percentages are really for comparison, but as my friend Marty Ayles says, you bank dollars, not percentages.

    With that in mind, the bigger question in my mind is where will the $46k needed to plug the hole come from?

    Finally, be mindful that any deal with negative cashflow (that is not temproary, such as curing a vacancy), must be a growth deal. And to be effective, the investment’s unrealised growth must exceed realised cash outflow. And even if it is, it will be profitable on paper, and a cash crocodile in real life.

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

    Profile photo of Steve McKnightSteve McKnight
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    Good suggestions from Terry.

    Do your research on the parties mentioned. The truth is out there, if you go looking.

    And remember, the structure needs to suit the purpose, not the purpose for the structure. Often people spend a fortune building a fortress with nothing much to protect.

    Bye,

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

Viewing 20 posts - 41 through 60 (of 1,698 total)