Hi,

Stu is correct in that, under Australian tax law, any undistributed (ie. retained) income in a trust structure is taxed at the highest marginal income rate (currently 47% + 1.5% Medicare Levy). In this case the tax is paid by the Trustee out of trust funds.

Really then, there seems to be no benefit in holding funds back, except perhaps with any superannuation surcharge issues if individual beneficiaries are close to that particular threshold (see an accountant for more on this matter).

While you need to be very careful with anti-avoidance issues, provided there is a valid reason for establishing a company you can have that as a ‘corporate beneficiary’ and then limit the maximum amount of tax you pay to 30% (the company rate).

As always, it is critical that you seek tailored financial advice for your specific circumstance.

What I would strongly recommend is that people who want to know more about structuring seriously think about buying the WealthGuardian product that was recently released. To find out more visit: https://www.propertyinvesting.com/resources/11

Bye,

Steve McKnight

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Hi,

Thanks for your post and welcome to the forum.

There’s a few things to say…

1. Will you be owing the property as an investment and having your mother as a tenant? If so, I imagine that you aren’t too worried about the cashflow loss and will be hoping to make it up in terms of capital appreciation as values rise. To this extent my advice is to clarify your investing strategy so you isolate what investment performace criteria you are looking for.

2. An interest free loan? Hey – tell me where they are and I’ll be there in line with you!!! Do you mean interest-only? If so my advice would be to try and pay down the loan to reduce the risk should interest rates rise. It might be a little extra, but it will also eventually bring down your interest payments. Check the affordability of the repayments, and, if you can, go with P&I terms.

The last question you riasei s one about structuring. Perhaps the biggest benefit/issue to be considered here is the principal place of residence exemption. If you buy it in your name then it will be an investment property (unless you live in it) so you’ll have to pay CGT.

If it’s in your Mum’s name and she lives in it the it will be CGT free. Perhaps you could get some kind of undertaking that you mum leaves the property to you in her will in return for you helping now.

Hmmm – just remember though, if this turn sour it’s the sort of thing that A Current Affair will love to run a story on

Hope this has helped.

Bye,

Steve McKnight

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Hi,

Hmmm – seems like a bad story []

It might be worthwhile reporting this agent to the applicable State branch of the Real Estate Institute.

May not count for much, but you can at least voice your frustration.

Also, it would be wise to cc the licensed agent who owns the agency, and attach a quote for new lights asking them to make good the problem.

You never know…???…

Steve McKnight

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Hi,

Why not test out the theory for yourself? Go to:

http://www.mycreditfile.com.au/personal_information/free_credit_services.asp?CountryID=1&UserTypeID=11

It’s free, although it takes 10 wprking days.

Bye,

Steve McKnight

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Hi,

Interesting spin… I would want to appoint a manager though as from what I know, owners of B&Bs work pretty hard and have trouble taking an extended holdiay.

Another option is buying m/h-otels and converting them into blocks of units.

Good luck… be sure to due your due diligence.

Bye,

Steve McKnight

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[]

Market seems pretty hot here at the moment, although industry is still recovering from the drought.

And, at the risk of alienating my good fried AD [], banana benders seem to do things a little odd up here where 17 degrees is considered cool.

Furthermore, the latest fast train is called a ’tilt’ train. I don’t know about you, but in my mis-spent youth, when I tilted the local fish and chip pinball machine, I was chased out of the shop by the owner.

I don’t think that I’d want to be on a train going 160kms an hour where it’s normal for it to be ’tilting’.

Still, having said that, perhaps some of the smaller regions will benefit by having the increased infrastructure passing through… if you get my drift.

Well, I’m about to go and sit on an island for a few days (tough life this property investing []). I’ll see ya when I get back to civilisation.

Cheers,

Steve McKnight

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Hi,

Be happy if they fall, but be prepared when they rise.

This raises a bigger question of what is an appropriate loan mix of:

1. Interest only, and
2. P&I

and then:

A. Variable
B. Fixed

interest rates.

What do you think Stu?

Cheers,

Steve McKnight

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Hi Peter,

quote:

---

It’s been suggested that rather than passively scanning the net or looking at papers, it’s better to strike up relationships with RE agents and ask about properties in their ‘bottom drawer’ that may not be up on window. I might adopt this approach (as well as scanning ads) for the second IP.

---

Yep – I do this too, but at the end of the day, unless you are constantly calling agents then most agents pay more attention to the buyer walking in the door than the buyer on the phone.

That’s my experience.

Cheers,

Steve McKnight

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Hi,

Since I’m online and since I’m not doing anything better… let’s have more of a look at your reply.

quote:

---

I’m 32, earning a reasonable wage, married with 3 kids. I have had my first IP for just over 12 months now and built up about $30k in equity.

---

That sounds like an excellent start []

quote:

---

I would like to build up a reasonably sized property portfolio to use as a retirement nest egg and maybe retire early. (Don’t we all!)

---

Well – the difference b/w a dream and reality is a quantifiable plan. Eg. how much in passive incopme per week do you need to cut down from 5 days to 4 days and have more time with the family? By waht date do you plan to have this accomplished?

quote:

---

My plan? To do this I’m not sure how many properties I will need, just thought that each year I would look at the finances and if I found the right property, invest again.

---

Hmmm – sounds a bit wishy-washy to me! This is not the talk of a determined mind, but someone waiting for opportunity to find them. You need to work out how bad you want that early retirement.

quote:

---

Not much of a plan I know. I don’t know whether to build up a number of lower priced properties at around $100k range, (the first IP cost $110k) say 3 or 4, before moving into the higher priced properties. I’m hoping some of you good people might be able to give me some direction.

---

As a rule of thumb, it’s better to own 4 * $100k properties than 1 * $400k property.

That way you can spread your risk of vacancy wiping out your cashflow.

My advice would be to work harder at deciding what you want, for when you have a goal it’s just a matter of method (and effort) to get you there.

Bye,

Steve McKnight

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Hi Michael,

Wonderful idea.

Might I suggest that you simply sign a ‘normal’ listing agreement that has one additional clause, which is that the agreement is subject to an attached memorandum of understanding (MoA)

In the MoA simply flesh out what you have written in this post (sort of like a job description) and then have the agent sign it.

In other professional circles (such as lawyers and accountants), such a document is called an ‘engagement letter’.

IMHO, that would be the path of least resistence to get the outcome you desire.

Don’t revent the wheel… work with the system rather than fight it.

On a different note, I’d like to personally thank you for all your wonderful contributions. You are a fountain of knowledge and a real asset to this community.

Warm regards,

Steve McKnight

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