Borrowing Structures

[Property Mogul]

Ok...a question for any SS accountants, mortgage brokers or anyone more experience or knowledgeable than me (which is most on here). My wife and I have 3 x IP, all purchased in joint names. I'm now confused about whether we should have borrowed the $ via a trust, hybrid trust or set up a company etc. I don't even know how to go about these things or exactly what they are.

Can someone explain them to me?

Thanks for any education I can get.

Property Mogul

 

[Rolf Latham]

Hiya

I think you would be well sserved by spending some time and money talking with a good accountant and a broker.

There is too much generality in your question to really be able to help much here, there could be 1000 wrong answers

ta
rolf

 

[Property Mogul]

Thanks Rolf, I guess I'd settle for a laymans explanation and the pros and cons of what each structure is. I agree with your suggestions re a good accountant and/or broker.

I appreciate your response.

 

[letiha]

Well the pro's and cons would depend on your individaul situation and you goals. Its diificult an answer without more specific details

 

[the_captain]

"Use the Search Luke". It's located up in the top right hand corner. Have a read about some of the issues and then come back and post some more specific questions.

I'd advocate that before going to see anyone. You want to have some intelligent questions to ask and at least a grasp of the issues so you can make an educated decision about any advice you get.

 

[Bricks & Mortar]

a quick summary

Ok...a question for any SS accountants, mortgage brokers or anyone more experience or knowledgeable than me (which is most on here). My wife and I have 3 x IP, all purchased in joint names. I'm now confused about whether we should have borrowed the $ via a trust, hybrid trust or set up a company etc. I don't even know how to go about these things or exactly what they are.

Can someone explain them to me?

Thanks for any education I can get.

Property Mogul

OK
I'm not an accountant or broker and you will need to get professional advise
but I'll take the bait and give a generalisation:

Probably you have bought you 3 properties as a 50/50 split
This would be too costly to change

To get the maximum benefit (tax wise) out of negative gearing Your next purchase would best be held by the largest income earner.

Conversely if your acquiring a positive/neutral property, it would best with the lowest income earner.

As the property might change in the future or your earnings may change,
a Hybrid trust structure will give you the opportunity to allocate to a particular unit holder ( not the 50/50 or 25/75 whatever your title says) but divide it as deemed by the trust, so you may benefit with the negative & positive situations.

The allocation can also vary between partners year by year, along with that it does provide a bit more protection from being sued. Conversely all loan applications will need you both to be guarantor for the loans (which is no big deal) but the lending institutions from which you borrow will be a bit more limiting. (property brokers will know where to go)
The set up of the Hybrid is very important, as is how the documents are worded on your contracts.(You will needs a solicitor who works in this area!)

Company trust (discretionary trust) works quite differently whereby all losses are carried forward to the following years, but any profits will have to be distributed in the same year and cannot be offset for later. Unlike Hybrids you cannot personally claim it (Negative gearing) off your income.
I suppose you liken it more to a business.....All revenues less costs = return which gets taxed at the company rate. In regards to being sued. It is probably the safest option.

I'm more than happy for anyone to correct the above information
Its just written to give a basic guide of the difference
Research it further PM there are plenty of post here.

 

[MarkB]

My wife and I have 3 x IP, all purchased in joint names.

Afaik, joint names means you're jointly liable.

My much better half (wife) and I never buy property jointly - we always have it in one name or the other (whether it be directly or via a company / trust). We do this because it means we have more servicibility than if we had been jointly liable for all our loans.

But to echo the advice of others - get advice from a MB and an Acct.

M

 

[alexlee]

PM, as a general rule it's very hard to even give you the pros and cons of using different structures unless you understand the basics first. You need to understand the basic differences in tax treatment between companies, trusts and individuals, and how it affects your serviceability (as others have pointed out). You also need to think about what your situation is likely to be in the future (income, chance you might be sued, etc).

I'd suggest reading some basic books on tax and structures first, and then speak to your accountant / MB. Your advisors are really limited by how much knowledge you have yourself. Yes, you can just trust their advice, but how do you know their advice is good? An accountant, for example, may suggest a structure based on their limited understand of your situation, but if you don't tell them everything (and without understanding the structures first, you may not know what you should be telling them) it may not be the right structure for you.

As I'm sure you know, changing structures down the track is very costly.
Alex

 

[Property Mogul]

Alex, Mark et al, thanks for your thoughts. I am now more knowledgeable than I was before my post. At least I am beginning to know what I don't know.

I'll make sure I consider all your points before IP4 and speak to the accountant.