General advice needed re acquiring new IP and re-working an existing IP

[JoshyBoi]

Hi!

I've been viewing the forums for quite some time as a guest, but finally decided to create an account!

So here's my position -

I'm 23 yo working as a commercial lawyer in Brisbane with a decent salary. I own an IP (apartment) 50:50 with a relative (acquired June 08, debt 375k, value based on listings 450-475k - slightly positively geared due to it being in short-term corporate letting pool).

I would like to take full ownership of this property, and my brother agrees to this occurring. Is it best to have him gift me the property and for me to take out a new loan for the current debt + half the increase in value? Is that a fair way to do the calculation? or should I buy his share, which would attract an investment rate of stamp duty? Is there a better way?

Note: Whichever option I take, I will probably do it at the same time as I settle on my 2nd IP in late-2011 as then I won't be liable for any LMI. Ultimately the purpose of acquiring the full property is so the banks don't treat the whole debt as mine while only accounting for 40% of the income!​

I have also placed a deposit on an off-the-plan apartment due to be completed late-2011. That deposit is 55k (funded completely through a personal loan (the banks didn't really know/care what I was doing with the money). I've done my budgets and I can and will pay off this loan by September 2011 - albeit not a smart option, I took this path because I got a great deal and had limited cash reserves, plus it was compulsory saving to a worthwhile goal and I figure I can deduct the interest payments (although I will have to talk to a good accountant/financial adviser re this and my situation generally, any recommendations in the Brisbane area? Please pm me or post here if you like).

Worst case scenario, I will sell this property pre-settlement and cop the double stamp duty...reliable estimates plus current pre-sales on a nearby similar development have the apartment already valued at 100k more then I paid for it - it helps that i bargained hard originally. Although, I'm hoping for the preferred scenario where I settle on this 2nd IP - I intend to put both mortgages with the one bank, x-collaterising if need be, in order to negotiate a substantial discount and accelerate towards a 3rd IP, I'd say I'm in a pretty good bargaining position.

My only other debt is a car loan for which I owe 11k - although this will be paid off by mid-year, I'm getting rid of it first as its not tax deductible - Since reading the forums i've realised it was a really dumb mistake buying a new car, but here's to hoping it'll last me 10+ years.

I am serious about getting involved in IP and building my portfolio - I have started assisting with selling off-the-plan IPs around my full-time work, thus building knowledge and contacts. The income I get from this isn't needed to meet my above goals, but it will certainly assist to speed it up!

I would very much appreciate feedback on my approach to date and what I should do going forward - again, happy to take recommendations for a good financial adviser / accountant who can help me long-term (I also want to set up my own SMSF in the next few years) I'm just worried that I'll pick one ad hoc and be wasting money...

 

[JoshyBoi]

I'll take the 59 views of this thread and absence of replies as a 'meh, seems ok, you say it seems to be working, goodluck!'

thats kinda the outcome I was aiming for anyway...let me know if that interpretation is wrong =)

in the meantime I will continue reading the backlog of the threads on this forum and self-learn so to speak, I have already learnt quite a lot!

 

[PI141]

No Not Mehing this - just a bit to take in and compute - I am sure the replies will come soon - too late for me to get my head around it - I am not sure about the gifting - I still think you will have to pay Stamp duty on it - but I still have not read it a few times yet - let me think a bit - we are here !!!

 

[josko]

Hi Joshy Boi,

I hope you don't mind but I will segregate your post to answer where I can.

Hi!

I've been viewing the forums for quite some time as a guest, but finally decided to create an account!

So here's my position -

I'm 23 yo working as a commercial lawyer in Brisbane with a decent salary. I own an IP (apartment) 50:50 with a relative (acquired June 08, debt 375k, value based on listings 450-475k - slightly positively geared due to it being in short-term corporate letting pool).

I would like to take full ownership of this property, and my brother agrees to this occurring. Is it best to have him gift me the property and for me to take out a new loan for the current debt + half the increase in value? Is that a fair way to do the calculation? or should I buy his share, which would attract an investment rate of stamp duty? Is there a better way?

This question has many different angles and I don't know where to start! I also need to get home! Is your angle that you want to do what is fair for your brother? Or what is financially better for you? There can be a few different answers but I strongly suggest you speak to a qualified accountant.

Note: Whichever option I take, I will probably do it at the same time as I settle on my 2nd IP in late-2011 as then I won't be liable for any LMI. Ultimately the purpose of acquiring the full property is so the banks don't treat the whole debt as mine while only accounting for 40% of the income!​

Again may questions. Why won't you need LMI? If you are purchasing the property from your brother then the whole debt IS yours. Maybe I am not understanding this properly?

I have also placed a deposit on an off-the-plan apartment due to be completed late-2011. That deposit is 55k (funded completely through a personal loan (the banks didn't really know/care what I was doing with the money). I've done my budgets and I can and will pay off this loan by September 2011 - albeit not a smart option, I took this path because I got a great deal and had limited cash reserves, plus it was compulsory saving to a worthwhile goal and I figure I can deduct the interest payments (although I will have to talk to a good accountant/financial adviser re this and my situation generally, any recommendations in the Brisbane area? Please pm me or post here if you like).



Worst case scenario, I will sell this property pre-settlement and cop the double stamp duty...reliable estimates plus current pre-sales on a nearby similar development have the apartment already valued at 100k more then I paid for it - it helps that i bargained hard originally. Although, I'm hoping for the preferred scenario where I settle on this 2nd IP - I intend to put both mortgages with the one bank, x-collaterising if need be, in order to negotiate a substantial discount and accelerate towards a 3rd IP, I'd say I'm in a pretty good bargaining position.

You are in a precarious situation here and need to research this thoroughly. How many floors and units to your apartment block? Have you thought that there will also be others trying to do the same thing and this could lower property prices?

Why would you expect a substantial discount from a bank for X-Coll? If you are negotiating a few mil then perhaps...but under 1mil....hm-m. Have you seen a broker or bank about servicing your new loan with a current personal Loan in toe. I know you plan on paying this loan off but you will net to get a pre-approval going at LEAST a month before settlement.

My only other debt is a car loan for which I owe 11k - although this will be paid off by mid-year, I'm getting rid of it first as its not tax deductible - Since reading the forums i've realised it was a really dumb mistake buying a new car, but here's to hoping it'll last me 10+ years.

A good lesson is always a practical one.

I am serious about getting involved in IP and building my portfolio - I have started assisting with selling off-the-plan IPs around my full-time work, thus building knowledge and contacts. The income I get from this isn't needed to meet my above goals, but it will certainly assist to speed it up!

Good for you.

I would very much appreciate feedback on my approach to date and what I should do going forward - again, happy to take recommendations for a good financial adviser / accountant who can help me long-term (I also want to set up my own SMSF in the next few years) I'm just worried that I'll pick one ad hoc and be wasting money...

I have bought a few OTP's myself and I would like to know more about your situation as per questions above if you are willing to share.

If your plan is sell pre-settlement, you would do wise to start the process now.

If your plan is to hold then you would do wise to try a few online calc's (bank websites etc) to find out if you are in a situation to hold onto both properties.

Financial Advisors don't generally deal with direct property investment and will advise you to put money into shares to diversify your portfolio.

And that advice was free!

Regards JO

 

[HomeBuyAU]

Here comes the flood of scouting now the holidays have finished , do your research before hooking up with financial advisors or mortgage brokers, look for many years of experience dealing with clients.

 

[JoshyBoi]

Thanks JO!

This question has many different angles and I don't know where to start! I also need to get home! Is your angle that you want to do what is fair for your brother? Or what is financially better for you?

I want to be fair to my brother - but also think about what is best for me - ultimately, if it costs a bit more to be fair, so be it - the relationship is worth more then a few $$.

There can be a few different answers but I strongly suggest you speak to a qualified accountant.

I am definitely in the market for one - and would be really interested to hear if others have an accountant based in or around Brisbane that they strongly recommend?

Again may questions. Why won't you need LMI? If you are purchasing the property from your brother then the whole debt IS yours. Maybe I am not understanding this properly?

I won't need LMI as my LVR will be below 80% - that's why I'm not buying him out now and waiting for the equity to increase to allow sufficient funds. I have created a separate spreadsheet where I've put in the debt owed, estimated expenses on purchasing him out - and then a range of values to calculate the breakeven point - which in this case is the point where that can be done and still remain < 80% LVR. I'm hoping the market stays strong over the next 12-18 months and I will be < 75%.

How many floors and units to your apartment block? Have you thought that there will also be others trying to do the same thing and this could lower property prices?

There's about 60 units and only 8 floors - I've done my research on the area and it is a premium living location, having said that the majority of purchasers are buying to live in it - and that's certainly the impression I continue to get from the sales reps - but they do have a vested interest!

Why would you expect a substantial discount from a bank for X-Coll? If you are negotiating a few mil then perhaps...but under 1mil....hm-m. Have you seen a broker or bank about servicing your new loan with a current personal Loan in toe. I know you plan on paying this loan off but you will net to get a pre-approval going at LEAST a month before settlement.

My borrowings will be in the vicinity of 1mil at that stage, I probably went a bit too hard too soon in getting bigger properties, which ultimately slows me down. I haven't spoken to a broker, but I've used many online calcs provided by many of the banks and they indicate I can borrow what I need - I've run best and worst case scenarios and the results are positive.

By substantial, I mean 0.75%-1% which seems reasonable given what I've read in other threads. I like to play the card with the banks that I am young and have a lot of business to bring them.

If your plan is sell pre-settlement, you would do wise to start the process now.

If your plan is to hold then you would do wise to try a few online calc's (bank websites etc) to find out if you are in a situation to hold onto both properties.

Thanks JO, I have been doing the calcs and feel I will be in a situation to hang on to both properties. But I should reevaluate my situation 3-6 months out and see if its necessary to sell.

Financial Advisors don't generally deal with direct property investment and will advise you to put money into shares to diversify your portfolio.

Ok its definitely an accountant I need - and I will be looking at that prior to the end of this financial year, the sooner the better I think. I will keep reading the forums to see if any names are thrown around.

And that advice was free!

Thanks JO - I really appreciate it as at this stage I am trying to focus myself and set appropriate, achievable goals. The wealth of knowledge available here is amazing and will certainly assist. Even just talking about my situation helps me understand it a lot better!

 

[josko]

Hi Joshy-Boi,

Good for you, this forum sure does help alot of people.

In regards to your brother, I think what you suggest sounds fair and reasonable. If you want to really find a fair price then maybe a few different valuations from actual valuers and not an agent would give you a truer estimate also.

I don't know any accountants in Brisbane but there are a few suggestions here:

http://www.somersoft.com/forums/showthread.php?t=35390&highlight=brisbane+Accountant

and here:

http://www.somersoft.com/forums/showthread.php?t=31379&highlight=brisbane+Accountant

It sounds like you are really on top of your numbers, again good for you.

On research, mostly OO's and low density blocks are ideal, well done. It certainly sounds like your goals are achieveable and you can hang onto your original IP.

Back to the Stamp Duty matter I missed. I am almost certain that Stamp Duty will need to be paid upon changing names on the title.

I guess you will have a few questions to ask an accountant when you find one.

Good Luck.

Regards JO

 

[JoshyBoi]

Hi Joshy-Boi,

Back to the Stamp Duty matter I missed. I am almost certain that Stamp Duty will need to be paid upon changing names on the title.

I will definitely have to look into this further, probably through the accountant

Thanks again!

 

[Bon]

I personally wouldn't be buying in Brisbane (your brother's share) right now, Melbourne or Sydney as they both seem better poised for growth IMHO.

 

[JoshyBoi]

I personally wouldn't be buying in Brisbane (your brother's share) right now, Melbourne or Sydney as they both seem better poised for growth IMHO.

Bon - how do people generally go about buying interstate? Do they travel for the weekend or buy without seeing? If the later, how can they be sure of quality/values etc?

 

[Bon]

i'm not too sure mate, probably some old threads you could find by searching like this one - http://www.somersoft.com/forums/showthread.php?t=17067&highlight=buying+interstate

or start a up new thread?