Hi Pete

The company is set up and should only operate as trustee – no trading etc to limit risk.
The trust deed should be worded so that it has thousands of beneficiaries- eg all children, step children, adopted children – inlcuding those yet to be born.
– for lending purposes keep the named beneficairies limited as some lenders will want a guarantee from all named adult beneficiaries

having a company as trustee will not change the tax rate. Trusts don't pay tax, it is the beneficiaries of the income that pay tax. So the amount paid will depend on their other income and the trust income. Where all beneficiaries will pay more than 30% you can then distribute to a company.

Becareful with gifting and lending to a trust. There are asset protection issues and tax issues. Eg you borrow to lend the trust and then go bankrupt – that loan can be clawed back. If you borrow and gift to the trust this interest will not be deductible.

A brand new trust (or company) can easily borrow as the lender will take a guarantee from the trustee/directors 9and maybe others) and their incomes will be taken into account – as well as rents etc.

If you get it for $160,000
no stamp duty etc,
say $1000 for legals
$20,000 for reno
total cost base is about $181,000 – forgot LMI, that will be up to 3% (maybe less) = $4800
total cost base of $185,500

Add to this holding costs of interest on all loans, rates, insurance

Then sell for say $200,000.
You will have agents fees of about 2.5% = $5,000
Legals $600
discharge fee about $300
loan exit fee about $700
total Selling fees = $6,700

So profit is selling price less costs = $193,300
Less purchase price and costs of $185,500
= profit of $7800

this is before holding costs are taken into account and before FHOG.

So it may work for you, if you can sell quick. If you can't sell you can always keep and rent out after 6 months – so make sure you can afford this if you proceed

for NSW look at this
http://www.maddocks.com.au/download/property-june-2005.pdf

Lenders do not like wraps for a variety of reasons and are unlikely to lend if they know about it. Some larger wrappers have gotten around this by having relationships with branch managers of larger banks who may be able to bend policy.

Lease options would be easier to get finance for, but even then if you tell the lender that you will be selling an option on their security property they won't like it – technically you will need their permission.

Joseph

That sounds cheap. I remember at one stage Bluestone, another non-conforming lender (now gone) was charging up to 4% DEF in the first year.!!!

Hi Dom

Interesting question.

I don't know the answer, but would think it would be the same as the income received is rental income. It is just the security that is different – shares in a company basically.

Hi Kenzal

That would be messy! But i think many people are in this boat. I think what happens is the expenses should be worked out on a percentage. eg if the balance is $100,000 and you have used $30,000 for investment/business then only 30% of the interest is deductible.

But it gets even messier. If you were to deposit money into the account over and above the interest, then this has to be apportioned against the splits in the same percentages. You cannot just say all the money will go off the principle of the personal portion. eg. continuing with the above scenario, 30% investment/70% personal. Say you paid $10,000 into the loan. You cannot reduce your personal portion to $60,000 with this – you could have to attribute 70% of the deposit to the personal portion and 30% to the investment portion. Messy isn't it.

Imagine what would happen if you are doing monthly deposits like this.

This is a good reason why you should never use a conveyancer. They cannot provide legal advice, but just do the transfer. If some problem comes up they are useless.

Yes, having a company will not help servicing if you have problems getting loans in your own name. The lenders will be relying on the guarantor's income.

A possible way around it is to get a friend/family to be involved and get them to be director of the company – it is a big ask though.

hi Tom

One thing you may not have considered, is did you know that it is much more difficult to get finance for owner builders? Especially these days. Having your company build would still be classed as owner builder by many lenders too.
For the tax issues, have a look at http://www.bantacs.com.au for some useful pdf booklets.