More questions on building new house in back yard?

I've been feeling frustrated that the Brisbane market is moving, and have wanted to use our family trust loan to buy another house. Anything we buy in our preferred local area will be negatively geared, which is not what we want.

So... we're investigating splitting the double block we have and instead of two houses rented, we would build two new houses in the back yards, giving four houses rented.

This works mostly due to building on "free" land and rent from four houses will turn this negatively situation into positive territory.

These blocks are in hubby's name but our plan is for me to buy one block (and pay the duty involved) which will be recouped in just two years due to the saving in the land tax that would be paid if they stay in hubby's name.

We will pay capital gains tax but that will never be paid twice, so I don't mind that. We also gain flexibility if we sell down, and can spread the sales to minimise capital gains tax.

There are costs involved, but the benefits are worthwhile.

It means we both would be earning rent from two houses which also suits us now we are not "working".

Is there anything I might be missing? Any downside to transferring one house into my name that I've missed?
 
Wylie,

What do you mean by 'trust loan'? Does the trust have a LOC or similar? If so you should read the deed and see if the trustee has the power to lend money to beneficiaries. There should be a written loan agreement between the borrower and the trustee. Consider this in wills and succession plans.

If buying in Husband's name and later transferring to your name = stamp duty and CGT. Why not just buy it in joint names with a deed of partition so as to avoid both CGT and stamp duty.

Or buy it in a new trust. Two trusts as tenants in common maybe with each trust getting one block on sub-division.

If you are not working, can you qualify for a loan? (any issues with the trustee lending to a person without a job who may not have the means to repay the loans? Is this prudent - could the trustee be sued by another beneficiary)

etc.
 
What do you mean by 'trust loan'? Does the trust have a LOC or similar? If so you should read the deed and see if the trustee has the power to lend money to beneficiaries. There should be a written loan agreement between the borrower and the trustee. Consider this in wills and succession plans.

Thanks Terry. The trust has a loan facility that is mostly undrawn. Trustee does have power to lend money to beneficiaries, and we do have written loan agreements. Our wills and succession plans are all up-to-date. So that side of it is covered.

If buying in Husband's name and later transferring to your name = stamp duty and CGT. Why not just buy it in joint names with a deed of partition so as to avoid both CGT and stamp duty.

These blocks are already held in hubby's name. It served us well when he was earning and I wasn't, but now neither of us is earning, so moving forward, I'm wanting to transfer one house into my name, and then we build one house in "his" back yard and one house in "my" back yard.

For the cost of paying to transfer, and paying capital gains tax (which is just bringing it forward, and won't be paid twice), we reduce the land tax and can time the sale of each of the four blocks if we want to in the years to come.


Or buy it in a new trust. Two trusts as tenants in common maybe with each trust getting one block on sub-division.

We could transfer one house into the name of a trust, but I think it is simpler to just transfer it to my name. Is there a threshold for trusts for land tax purposes? Other than that, buying in a trust doesn't give me any benefits (does it?) and will cost me to set up and administer (audit, tax returns etc?).

If you are not working, can you qualify for a loan? (any issues with the trustee lending to a person without a job who may not have the means to repay the loans? Is this prudent - could the trustee be sued by another beneficiary)

etc.

The plan is to use the trust loan to build the first house on "my block" (once it is in my name). Once it is built and I have two houses rented, we use an "asset lend" or "low doc" type loan to build the second one. Our broker says this will not be an issue. He knows our finances well, and sees no issue in getting approval on this basis. I would have two houses, both unencumbered, perhaps valued together at more than $1M and would be wanting to borrow $300K.

If we can borrow enough to repay the trust loan that is our plan. If not, we have the other houses to refinance and/or revalue to shuffle things about.

Our loans would increase but the rent from an extra two houses puts us into positive territory instead of negative, which is good considering we are not earning much.

Worst case, we sell one of the houses. I'm comfortable enough with this to move forward.
 
I am not quote sure from another thread that we can do this without GST implications. That thread confused me.

Our plan is to never sell these houses, but plans are never set in stone.

I've spoken to a builder whose work we've seen and who comes highly recommended. I've spoken to his town planner and designer to get an idea of how all this would work.

I'm yet to bring our accountant into the picture, but will do so.
 
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