First IP dilemma

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From: Fedora Tarsitano


I have just finished reading Jan Somers "More Wealth from Residential Property". Not only was I excited and inspired but am very motivated to start straight away - before I talk to people who not having investments in IP's may 'advise' me that it wouldn't be a good idea!
That is why I am seeking help from all of you who have and are still investing in property and doing it successfully. I am sure that you have all sifted through all the good 'advise' already given.
My dilemma is this. Currently I am running my own business ( under my own name - not a company ) and am renting a commercial premises. I am not the sole breadwinner in the family. My business is Part Time and the returns reflect this. I already pay minimal tax. It's my husband's wage that needs some tax relief.
At this stage my rent is low and I do not know if my term will be extended as new owners have taken over and refuse to commit till March 2003.
I have contemplated in buying a residential property where I would run my business as I do not need main street exposure.
What are the tax implications of such a venture? Is it wiser to look for another rental premises (and pay double rent next year) or buy our first IP elsewhere with a REAL tenant? Can I have both? We have enough equity to do either or both.
I am very impressed with the generosity you all give towards this forum in concern with your time and knowledge. I hope someone can steer us in the right direction. The area I speak of is 'Coburg' Melbourne.
Also, does anyone know of an accountant who regularly deals with IP clients - in the Northern suburbs of Melbourne - as mine obviously 'has no idea!'
One more question if I may? I have a small amount in my private super which has remained stagnant for a while. Can I incorporate this money in any way towards my IP investments?
Thank you to everyone.
 
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Reply: 1
From: Dale Gatherum-Goss


Hi and welcome!

>I have just finished reading
>Jan Somers "More Wealth from
>Residential Property". Not
>only was I excited and
>inspired but am very motivated
>to start straight away -
>before I talk to people who
>not having investments in IP's
>may 'advise' me that it
>wouldn't be a good idea!
>That is why I am seeking help
>from all of you who have and
>are still investing in
>property and doing it
>successfully. I am sure that
>you have all sifted through
>all the good 'advise' already
>given.

This is a wonderful place to learn and to share your knowledge and experiences so "enjoy".


>My dilemma is this. Currently
>I am running my own business (
>under my own name - not a
>company ) and am renting a
>commercial premises. I am not
>the sole breadwinner in the
>family. My business is Part
>Time and the returns reflect
>this. I already pay minimal
>tax. It's my husband's wage
>that needs some tax relief.

Ah, this can be a little bit of a trap. Please do not invest for the tax relief but more for the income or the capital growth. Circumstances change, as do the tax laws and you can find your benefits dry up quickly.

Also, it is not wise at all to have investments in your name if you also own the business. If the business is sued, or you go broke, you could lose both your business and your investments. Best to separate the ownership to be careful and smart.

>At this stage my rent is low
>and I do not know if my term
>will be extended as new owners
>have taken over and refuse to
>commit till March 2003.
>I have contemplated in buying
>a residential property where I
>would run my business as I do
>not need main street exposure.

One of the benefits of buying in your husband's name is that if someone sues your business, they cannot claim the IP that sits in his name. It is also for this reason that i would consider placing the family home in his name as well. Don't worry, the family courts ignore ownership if the worst case situation happens anyway.


>What are the tax implications
>of such a venture?

You would pay rent to your husband and it is he who would then deduct the interest on any loan, the rates and insurances along with all other expenses involved in owning the property. If the expenses are more than the rent, he would get a tax refund. If the income is more than the expenses, he will pay a little extra tax.

A newer property, built after 1985, will provide you with excellent tax deductions without costing you anything although you will need to arrange a Quantity Surveyor to quantify those deductions.

>Is it wiser to look for another rental
>premises (and pay double rent
>next year) or buy our first IP
>elsewhere with a REAL tenant?

Why not buy something and put a tenant into the house until you are ready? You can if you wish. This gives you bargaining power too with your existing landlord if you want it.

>Can I have both? We have
>enough equity to do either or
>both.

Yes, you can have both but it might be worth talking to a mortgage broker abt how much you can borrow before you get too excited.


>I am very impressed with the
>generosity you all give
>towards this forum in concern
>with your time and knowledge.
>I hope someone can steer us in
>the right direction. The area
>I speak of is 'Coburg'
>Melbourne.
>Also, does anyone know of an
>accountant who regularly deals
>with IP clients - in the
>Northern suburbs of Melbourne
>- as mine obviously 'has no
>idea!'
>One more question if I may? I
>have a small amount in my
>private super which has
>remained stagnant for a while.
>Can I incorporate this money
>in any way towards my IP
>investments?
>Thank you to everyone.

No, unfortunately, you are unlikely to be able to use your superannuation for investing in properties. Sorry.

Good luck and have fun

Dale
 
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Reply: 2
From: Will G


>I have contemplated in buying a residential property where I would run my business as I do not need main street exposure.

>It's my husband's wage that needs some tax relief.

Hi Fedora,

Consider this :-
Your husband buys a residential property and rents it to your business ?. This structure may give your husband some tax relief(if it is geared correctly - negative gearing and/or lots of good depreciation) and an IP.

I'm not sure what structure(your husband could possibly buy the property through a trust ???) would be appropriate to achieve this goal but a good accountant/solicitor/adviser should be able to advise you on an appropriate structure.

I'm sure gurus like Dale or Sim may be able to help/advise on pros/cons of structures that may help your situation.

There may be implications with CGT and commercial properties that are different than CGT for residential investment properties. Depreciation for a commercial property may also be different.

Hope this helps,
Will

'think out of the box'
Surround yourself with a team of professionals 'Rich Dad Poor Dad'
 
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Reply: 2.1
From: Fedora Tarsitano


Thank you to Will and Dale for advise.
I will look into it. Much appreciated.
 
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