Hi. I’m a bit unsure about my strategy, so I thought I would bounce it off a few experienced investors. Here’s my attempt at describing my situation and goals:
Situation:
– I am 25 and currently earning 70k pa before tax with my day job
– Have an IP townhouse in my name valued at 260k, owe $180k, rent $240 p/w. Fixed interest for 3 years at 6.57%. Probably neutral when I take into account all outgoings.
– Have an IP 2 bedroom unit in my name valued at 250k, owe $170k, rent $300 p/w. CF +ve. Variable interest approx 6.8%?? Currently offset against my savings account where my pay goes.
– Savings of $20k in offset account
– Shares portfolio of $80k that I’ve accumulated over the years. Own outright.
– Have a 40k overdraft available, but haven’t used.
– Getting married in July. [
] Moving into the 2 bedrom unit (no more rent from it).
– Future husband currently rents. Has 25k in savings. Has a HECS debt. Earns 50k p/a.
– We have no other ‘bad’ debt (ie own our 2 cars)Goals:
– In 3-4 years, I would like to stop working permanently to start our family. (Live off husbands income).
– In 3-4 years, would like to own outright a ppor worth approx 450k (to accomodate our planned family) [exhappy]
– In 3-4 years, would like to have 3 or 4 CF +ve IPs.Does anyone have any ideas how we can best achieve our goals with our current situation? Is there anything we’re doing wrong and can improve on? Should I be looking into establishing a trust to buy any future investments? etc….
If you are going to move into your unit, you could sell the shares and put the money into an offset account attached to the unit. You could then buy them back (using a discretionary trust would be a good idea)by increasing one of your loans and maybe using a margin loan. This will help you convert non deductible debt.
Then when you move out of your unit, you can take the money from your offset and put it onto the loan of your new place.
You will probably have to pay CGT, but it may be worth it.
Once you have done that, you could then start buying more property.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi Terry
Thanks for your response. I thought it would be a good idea to move as much funds into my offset account when the time comes into moving into the unit.
Why would I have to pay CGT by moving the money from the offset account into paying off the new home loan?
Sorry, I meant that CGT may be payable on the sale of your shares.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Not my area of expertise but would it not be of great benefit to move into a property that is in a Trust or company name and pay rent so deductibility is not loat? This assumes that the property will be held long-term and CGT would not be an issue down the track. Submitting the appropriate tax form (always forget the number) would see the benefit obtained each week with income and increase cashflow.
Is this still possible?
Mark, are you out there???
Robert Bou-Hamdan
Mortgage AdviserThat would be fantastic if it were possible! We would purchase the new home in the name of a hybrid/discretionary trust, rent it from the trust, claim deductions against the higher income earner and give the rental earnings to the lower income earner.
Is this possible??
Maybe posting the question in the Accounting section might get you a more certain response.
Sorry I am not an expert in this area.
Robert Bou-Hamdan
Mortgage AdviserYou can use a trust to own your personal home, but it is complicated and you have to be careful. The ATO have a ruling out about renting from your own unit trust, and they don’t like it!
You could possibly make short term tax savings, but long term owning your home in a trust is not beneficial because:
– maybe up for land tax (not in QLD apparently)
– up for CGT if you sell
– you will eventually be making a profit on the rent and may have to apy extra tax.Benefits
– asset protection
– tax savings
– could claim depreciation, furniture, etc.
– if you only intend to live there for a few years, it could be a good idea.Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
You would never make a profit on the rent if you set the loan up as interest only and increase it for further investments as required.
Robert Bou-Hamdan
Mortgage AdviserI guess acquiring the 3-4 properties will be no trouble. In theory, you (or anyone) could borrow 100% of the funds needed for this purpose.
Another issue to consider is whether there will be any problems with cashflow?
For example, it is unlikely there will be much capital growth in the property market (generally speaking) over the next 3-4 years.
Also, $50K p.a. may not go very far, especially with the extra expenses of having a family.
I’m not sure you could achieve all your goals in the next 3-4 years but as suggested above, someone in the finance section may have some good ideas.
cheers,
Jason.Hi,
The new Wealth Guardian is now out and would be great resource to help you with setting up your trust. Have you considered buying that?
Dan Lewis
Hi Dan
could you elaborate on this resource – what does it contain?
thanksOriginally posted by The Mortgage Adviser:You would never make a profit on the rent if you set the loan up as interest only and increase it for further investments as required.
Robert Bou-Hamdan
Mortgage AdviserThe trust would have to charge you market rent. Even if you had an IO loan, the rents would gradually rise and it would become ‘positively geeared’. it may take 12 years or more to reach this level.
If you were to increase the loans, that would be fine, but the interest would be attributible to the purpose of the funds. You could keep on gearing tino buying shares or proeprties etc to offset the positve income.
I suppose even if you were making a postive income, with a trust you could distribute to low income earning beneficiary, so tax should be minimal.
Terryw
Discover Home Loans
Mortgage Broker
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Hi,
While structuring is important, it is really secondary to the investing purpose to start off with.
Personally, I think you have made a very good (perhaps great) start as it is as I had nothing like your asset situation at 27!!!
My comments come back to a few core issues:
1. The equity in your property may become lazy money if your do not continue to earn solid capital gains. As such, you may like to consider ways to recycle it so it works harder for you. In our business we do this by selling our properties and then buying more assets with the net proceeds. I talk about this concept in my second book and then go into more detail at the MasterClass.
2. I like to keep personal assets personal and business assets business. Mixing the two can create all sorts of mental and financial problems. In short… keep it simple whenever possible.
3. Crunch the numbers on your ROI with your savings. I’e found that many people find they earn a better after-tax return ploughing the money off their mortgage rather than keeping it in savings.
4. Finally, have you ever considered commercial property? There is a world of opportunity there too.
Cheers,
Steve McKnight
P.S. The link to WealthGuardian is: https://www.propertyinvesting.com/resources/11.html
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
You sound like you are in a similar position to mine about 20 years ago. Because we were fortunate enough to have a low interest housing loan through my employer, our solution was for me to increase my superannuation from 5% salary to 10% salary. I had several years of this because of different types of maternity leave and career break and even though I wasn’t earning, I kept up the super payments each fortnight. My superannuation account grew very quickly and it enabled me to accumulate a hefty superannuation (because my employer matched what I put in – from memory).
When I left work completely (actually resigned) I drew that portion of my super that was available (because I had been paying double back then). It reduced our housing loan which gave us a buffer and allowed me to stay home.
I realise this scenario may not suit your needs or may be very much changed with all the changes to super rules since then.
I only mention it because the money I directed to super was money we couldn’t “waste” and it made a huge difference to the amount I have sitting in my fund now, as well as giving me funds to reduce my housing loan on my resignation.
At the time this was better use of the money than reducing the staff rate housing loan or reducing the IP loan which would have meant we lost some of our negative gearing.
I haven’t worked in the paid workforce for more than 13 years and while my superannuation nest egg can’t buy my groceries, it is growing nicely.
This perhaps won’t help you but I thought I’d throw it into the mix. All the different ideas you get will eventually gell into something that works for you.
] Moving into the 2 bedrom unit (no more rent from it).
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