Hello from another Gen Y. The procrastination stops here!

[Perp]

BK, spend the weekend making sure you're buying in the appropriate entity name (ie perhaps a Trust if you're planning to build a portfolio - talk to your accountant), and start thinking about the most appropriate type of finance. If you haven't read it yet, I highly recommend Stuart Wemyss' new book "Smart Borrowers Handbook", discussed here. I would go so far as to recommend it as essential reading for every property investor intending to build a portfolio, as it contains such important and valuable information, much of which isn't readily available elsewhere.

Strategies that can be OK for buying one or two properties can really hinder your ability to grow beyond that (at least without incurring significant expenses), if you don't get it right at the outset. Make sure your structures and loans can grow with you.

Well done on getting started!

 

[beekay]

BK, spend the weekend making sure you're buying in the appropriate entity name (ie perhaps a Trust if you're planning to build a portfolio - talk to your accountant), and start thinking about the most appropriate type of finance. If you haven't read it yet, I highly recommend Stuart Wemyss' new book "Smart Borrowers Handbook", discussed here. I would go so far as to recommend it as essential reading for every property investor intending to build a portfolio, as it contains such important and valuable information, much of which isn't readily available elsewhere.

Strategies that can be OK for buying one or two properties can really hinder your ability to grow beyond that (at least without incurring significant expenses), if you don't get it right at the outset. Make sure your structures and loans can grow with you.

Well done on getting started!

Thanks ozprep, more food for thought. I've already signed the contract of sale, does that mean its too late for me to put it under a trust? Or does this happen with conveyancing, I can see my accountant first thing Monday which shouldn't be a problem.

I've read about trusts in How to Legally Reduce your Tax.

With finance and trust structure i'll have to see my accountant this week. Most likely I will go 1/3 variable 2/3 fixed, interest only for 5 years, pump money into offset, then redraw a large enough chunk in the offset for a deposit on another IP or PPOR. However I'd probably like to reduce the LVR on the house over time to about 50%. So I need a strategy asap.

If I'm totally wrong with this approach someone let me know.

 

[Perp]

I've already signed the contract of sale, does that mean its too late for me to put it under a trust?

Maybe, maybe not. If you want to put the purchase in a Trust I would contact the agent ASAP and advise them that you wish to purchase in a Trust and ask them about what is required to change it. I think in Vic you can do it and it may be as simple as changing the name on the contract; in QLD you'd be stuffed if your deposit had been accepted - you'd be up for a second lot of stamp duty. Thus the importance of getting it right from the outset... So think of a name for your Trust - I think you're allowed to have duplicate Trust names (unlike business and company names etc), so pretty much any trust name is OK. Then it also varies between states whether the purchaser is "ABC As Trustee For XYZ Trust" or "ABC" (and the "as trustee" part is taken care of via other paperwork). You need to sort this out ASAP. And you probably will also want a corporate trustee. To set up a corporate trustee and a discretionary trust will probably cost you $3-4K, and about $1-2K per year to maintain both.

I'm assuming you know that if you buy in a discretionary trust, you can't take advantage of negative gearing against your salary, but you gain asset protection. The losses can be carried forward for when the property does make a profit, though. And if you trade shares or run a business in another entity (company or trust), you may be able to distribute profits from those entities to this Trust to offset the losses. (ie those profits from other activities become tax-free to the extent of the Trust's losses)

Some people say you can gain both negative gearing and asset protection benefits by using very specialised types of hybrid trust. As you may have read on the forum, it's highly controversial as to whether these structures will stand up under ATO scrutiny.

Most likely I will go 1/3 variable 2/3 fixed, interest only for 5 years, pump money into offset, then redraw a large enough chunk in the offset for a deposit on another IP or PPOR. However I'd probably like to reduce the LVR on the house over time to about 50%. So I need a strategy asap.

Fixing interest can significantly restrict flexibility, so ask the questions as to whether you can still refinance, pay out, etc without incurring big charges, then whether or not to fix becomes a judgement call as to where interest rates are going. Research shows that over the long term, fixed rate loans are more expensive. I always go variable but I have enough cashflow to absorb rates rises; if a rate rise may cause you to have to sell, then fixing can be worthwhile.

Parking additional funds in the offset, rather than paying the loan down, is definitely the way to go, hands down.

 

[beekay]

Maybe, maybe not. If you want to put the purchase in a Trust I would contact the agent ASAP and advise them that you wish to purchase in a Trust and ask them about what is required to change it.

Silly me, I didn't do enough due diligence on trust structures before i started. *smacks forehead. Hopefully its not too late. I've called the accountant and they will see me during the week hopefully. My deposit hasn't gone down yet!

you'd be up for a second lot of stamp duty.

Might be a good idea then for me to get it all right before I buy the 2nd IP if I can't get out of it this time. And then cop the SD to move my first IP in.

I'm assuming you know that if you buy in a discretionary trust, you can't take advantage of negative gearing against your salary, but you gain asset protection.

I'm a salaried slave with no intention to go full time own business anytime soon. (Hey being a slave ain't all that bad except maybe my salary don't go so high). However I do intend on starting a side business and asset protection might be the go just in case I encounter in litigation.

Also I'm not sure that without negative gearing I'd be able to afford the property. But then again, I'm seeing an accountant this week to get this clarified. If its too late, then I should cop a hit from the stupid stick.

Some people say you can gain both negative gearing and asset protection benefits by using very specialised types of hybrid trust. As you may have read on the forum, it's highly controversial as to whether these structures will stand up under ATO scrutiny.

I will only conduct investment in ways that are tax effective but not tax evasive. Again I'll ask the accountant about this too!