That's a lot of improvement for such a small unit. If I was the lender I would be asking what exactly are you going to do.

The private lender won't be cheap either. Rates maybe around 10% (+) and application fees of 2-3%, legals, valuations etc.

Trusts won't help borrowing capacity, so whether in your own name or a trust borrowing will be the same.

They may cost a bit more initially, but hopefully will save you tax in the long run – assuming you will make a profit. You have to weigh up the advantages and disadvantages.

Carrying forward losses means bring the loss forward to the next year.

eg. say you end up with a $1000 negative income. The next year you have a $10,000 income, but you can use the loss from the prior year to reduce your income which would then become $1000. You can do this with trusts, companies or individuals.

Ah… the good old days.

I also recall Wide Bay Capricorn were good. Probably no longer do small units too.

Yes, its a bit of a tricky situation.

Ideally you should save your money in a 100% offset account and have an IO loan. But your bank is your parents and they wouldn't offer too many products would they!

I am a bit worried about them protecting themselves. You should speak to a lawyer if you haven't already done so. Make sure there is a loan agreement (written in place) and a mortgage. If you don't do this then it is possible the ATO may disallow the interest and their money could be at risk down the track if you are sued or enter into a relationship with someone. I would suggest you remain celibate or see a lawyer asap.

Once you get a job and qualify for a loan etc it would probably be a good idea to pay them out (and having it properly documented now will help the new lender believing this is a real loan too). For future properties you could possibly borrow the 20% deposits from the parents again, or just use your own equity. Get IO loans, one at least with a 100% offset.

If you trust your mum you may just need a transfer, and probably a valuation.

Just watch out on the finance side as many banks will only lend on the transfer price. You would need to tell them it is a family sale and you are buying under value. Stamp duty would be chargeable on the value too (as would CGT), so it may even work out better if you transfer it at market value – this will help with finance and help your future valuations too. Your mum could then give you a gift.

Ben

Don't worry too much about the various definitions of postive cashflow/gearing. What you want is a property that does not cost you money. So do some spreadsheets and play around with the numbers:

eg. say you had an rental income of $10,000 pa, but expenses out of pocket of $9,000 pa. That would mean it is putting $1000 pa into your pocket – but then you add in the non cash deductions, such as depreciation and borrowing expenses (these are deductions that don't cost you anything any further – you paid on purchase). Say the non cash deductions add up to $2,000 pa. Your property would be running at a loss of $1,000 pa, but at the same time giving you $1,000 pa income. It may be classed as cashflow positive but negatively geared.

BTW if this property was held in your own name this loss could decrease your personal income, so you may get, say, $300 back on tax. If it was held in a trust you cannot offset your personal income and you would get nothing back, the loss will be carried forward to next year.

Also note too that in some states trust don't get the land tax tax free threshold, so buying in a trust may result in higher land tax. But after you get a few in your name you will be paying the same land tax whether in a trust or your own name.

Costs from $0 to $10,000 to set up, and running costs from $0 to thousands to run. It all depends on how complex it is. It is another tax return, so a bit extra there, but having 10 properties in your own name v 10 in a trust shouldn't cost much extra in tax agent fees.

I forgot to add above that you can only change ownership later at considerable cost and the loss of considerable asset protection. So it is best to do from the beginning.

You can have multiple houses per  trust, but ideally 1 for greater asset protection. Imagine if you had all your eggs in one basket and the tenant sues you as landlord = all your houses may be exposed. Having them in separate trusts also has added estate planning benefits – easier to pass control to different people down the track.

hi BB

Thanks for the informative post.

Do you know the situation there with foreigners borrowing money? Can they get loans and what LVRs are available etc – I also presume they must be working in China for qualifying, is this the case?

I agree that it is probably best to utilise the PPOR CGT exemption, but disagree on using a company to own property. I cannot see any benefit of a company over a discretionary trust – certainly have a company as trustee, but to buy in a company in its own right would result in no 50% CGT exemption and no tax flexibility. Even if you would be paying more than 30% in tax it is still better to use a DT over a company. If you use a DT you can still distribute to a company as cap your tax at 30% if need be, but you dont need to and you can change things around. With a company your shareholdings are fixed and so you dividends are too.

What is the wording of the finance clause?

They may insist on proof that your finance was rejected. If you hadn't listed the lender they may ask you to go elsewhere to try for finance. Or they may just accept a verbal communication from you saying you couldn't get finance. It all depends on the wording and how strict the other party is.

Also make sure if you tell the bank you want to can the loan – will they give you a rejection letter.