Best way to setup this venture

[photo guy]

I am going to buy property with my 2 brothers and their wives and my father. We all earn decent money and pay too much tax, don't we all.

We want to buy 3 properties between us and contribute differing amounts to the loan. What is the best way to structure this considering we will contribute and "own" different percentage of the assets. With rent included we'll be repaying about $2300 per week on a 800K-900K loan.

Interest and exp would be around 85K

rental income about 48K

loss 37K

How would the tax benefits if any be worked out, My boss reckons a trust might be the go. But I got no idea on them. Does any one have any links to sites that would help or a suggestion on how to do this. We will all be on the titles.

 

[Aceyducey]

Photo guy,

Start by using that little search button at the top of this page. The forum has heaps of info about trusts.

Second, if you intend putting everyone's names on all the titles you can't use one. A trust, in your case probably a family trust, is a single entity which would own all the properties (trustees names on the title) & can distribute profits from them.

Frankly I think you're crazy to have so many people on a title, particularly family.

If one person becomes unable to service the loan, is declared bankrupt, has a falling out, gets divorced, dies or one of many other events which effectively means they don't want or can't afford the property then you are ALL in trouble. This is apart from the stress on the family.

This is further compounded by all of you paying differing amounts. A family nightmare to be!

And some of us aren't obsessed about tax savings. The only reason to negatively gear a property is because the government pays part of the loan in reinbursed tax and the capital gain on the property makes it a good deal. There continue to be deals out there which deliver the cap growth & and positively geared, so why try to diddle the tax department - personally I like my kids teachers to be paid well, have roads well maintained & decently lit and have hospitals and other vital services available when I need them.

I'm sure that the members of your family all have differing tax ofset needs, so getting this right now is probably achievable but tricky, but imagine the problems in five years when all your circumstances & needs have changed!

If you do wish to pursue this course, each of you need to have their own solicitor and you need to have a separate legal agreement detailing what should occur if someone defaults on payments or is required to sell their portion of the property (remember there are stamp duty and capital gains implications even if they sell their proportion to other title holders).

Personally I'd put it into a trust which distributes to family members proportionate to their investment. Use the sums invested in the trust by each party as their tax shelter (do it on an ongoing basis rather than once off) and only purchase positively geared property.

This shelters you from family disagreements & financial difficulties to some extent - but you still all need your own solicitors and trusts, as legal entities, can be sued if there is a divorce or severe falling out in the family.

Good luck and may due diligence be with you - you'll need it with this course!

Cheers,

Aceyducey

 

[always_learning]

The only reason to negatively gear a property is because the government pays part of the loan in reinbursed tax and the capital gain on the property makes it a good deal. There continue to be deals out there which deliver the cap growth & and positively geared, so why try to diddle the tax department - personally I like my kids teachers to be paid well, have roads well maintained & decently lit and have hospitals and other vital services available when I need them.

Lets ask the question "Why does the government continue to offer negative gearing ?", "What is the benefit?" if it is diddling the system then the government would put a stop to it or limit it significantly ? I choose to believe that the government offers a tax incentive to private people to buy or build homes for people who cannot/don't want want to buy homes for themselves. Gosh if the goverment wants 47% of my efforts and then 11% GST when I spend what remains, to provide schools of such low standards than I dont want to send my kids to, hospital that I dont want to set foot in etc. Then I am all for a smaller government!

 

[agent007]

Hi Photo guy,

I have all the concerns that Aceyducey pointed out. I think that it will be a business and family nightmare (may be not now but in the future).

What I would suggest is to use the power of all your combine deposits, credit, wages, etc. to buy a small block of units or small group of town houses/ duplexes. You would be able to negotiate a goog price. Then, after the building is purchased you all can have your own titles on the units based on your participation on the business (lets say 1, 2 or 3 units per family). In that way you all are together but not mixed!.

Regards,
James

 

[NigelW]

Originally posted by photo guy
I am going to buy property with my 2 brothers and their wives and my father. We all earn decent money and pay too much tax, don't we all.

We want to buy 3 properties between us and contribute differing amounts to the loan. What is the best way to structure this considering we will contribute and "own" different percentage of the assets. With rent included we'll be repaying about $2300 per week on a 800K-900K loan.

Interest and exp would be around 85K

rental income about 48K

loss 37K

How would the tax benefits if any be worked out, My boss reckons a trust might be the go. But I got no idea on them. Does any one have any links to sites that would help or a suggestion on how to do this. We will all be on the titles.

I won't address the +ve vs -ve debate and will assume that you think CG will outweigh holding costs and that eventually the property will go +ve cashflow

You all need individual legal and accounting advice. That is, each person/couple should see a different lawyer and accountant.

Step 2 is to agree on a plan for this investment. Ie what's the goal? what's the timeframe? eg your plan might be to invest for 5 years and then liquidate and distribute the proceeds...
How does this plan fit in with everybody's individual plans? Are there babies/job losses/divorce/health issues on the horizon for anyone and how will that impact their participation?

Step 3 is to realise that investing with family and in-laws can be quite messy. You need to treat this like a business proposal. Thus, you need to formally set out at the outset the "rules" for issues like:

1) control - who decides which properties are bought, when they are sold (if at all), when and how expenses are met, how income is distributed if it is discretionary, similarly capital entitlements, how the investment is to be wound up if all want to exit, can 1 party exit? if so how are their entitlements calculated? Are there premption rights to prevent people outside the family buying someone else's share.

2) tax & structuring issues - how to individually get the -ve gearing deduction and do so in the most effective way? Presumably you'll all have different tax rates and needs - also you are putting in different proportions of the cash...

Some options might be:
1) unit trust with you all as t'ees or (preferrably) a corp tee
2) unincorporated joint venture
3) all names on title as tenants in common in respective proportions
4) company with shareholders agreement
5) partnership with you all as partners

Of these unit trust with each of you individually borrowing to buy units in your respective proportions may permit you to get your deduction and seed the trust to purchase the property/ies in questions. Within each family, the investment might be made through a hybrid or discretionary trust to provide flexibility of individual distribution.

Land tax is another consideration and it may be that multiple structures would result in a land tax saving.

You must of course get financial and legal advice specific to your circumstances, but as you can see I've just scratched the surface of the complex issues you will need to work through.

Good luck
N.