Okay I think I'm Ready: Strategy, Structure & Finance

1. Are our goals to retire at 50y/o realistic?

Hi Thunder,

Personally, I wouldn't undertake your proposed strategy. Its too risky. What you are proposing to do will place you and your family under great stress.

If I were you, I'd take the easier route. Now, with a household income of $300,000 each year, I'd be inclined to save $100,000 p/a. I'd set up a family trust with a company trustee and invest in direct shares. (Australian shares). Keep doing this for 10-12 years. Based on an average return of 12% pa (6% dividend yield and 6% growth) you'll end up generating an income of about $180,000 in 12 or so years.

Compare this with building up a property portfolio, dealing with finance, interest rates, annoying/destructive tenants, property outgoings (which are significant) and finally capital gains tax if you sell down.

I'd be seeking advice and not basing a strategy off the success stories you read on the internet. Often there is more than meets the eye behind each story.......

All the best with it.

Regards Jason.
 
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These posts are appalling, factually flawed and appear unqualified opinions. Thats what free advice gets? Financial and tax advice for free is probabably as good as asking someone who has first aid to do a bypass
 
Hi Thunder

Who advised on the PPOR set up? This will provide very little asset protection because you are basically acting as trustee for your husband. Having him on the mortgage destroys any little protection there was. I guess you may not have been working at the time and couldn’t qualify for the loan. If this is the case then not much you could have done, but if you were working then best to leave him out of it completely. If you qualify I would change the loan to your name only. This may also assist with borrowing capacity a bit, depending on many things.

Your accountant is providing legal advice! What would happen if you died? Who is the director, husband probably? Imagine if you died and there was a problem with the will. Appointed husband executor, but he cannot handle the job and someone else is appointed, family, or public trustee company. They will control the shares of your trustee company. They could sack the director and appoint themselves as director. They could then distribute trust assets to benefit themselves. If they are not beneficiaries they could simply amend the deed (depending on wording) and vest all the trust assets to themselves. Your husband may be a surviving appointor, and could sack the trustee. But this can all be done before he gets wind of it. It is also a major hassle changing trustees.

If you were the sole shareholder and director and die then the trust would be unmanned until probate is granted. Bills could not be paid etc. The corporations act allows your legal personal representative to take control until a new director can be appointed, but you won’t have a LPR until probate or letters of administration is granted by the Supreme Court. This could be 6 months to a year or more away.

With the LOC the names on this will be the names on title to the PPOR. Again to reduce risk and to preserve borrowing capacity it would be good if you could leave the husband off. Let him start afresh with guaranteeing the trust loans. And structure the trust so that only one guarantee is needed. No sense in both guaranteeing something as it doubles the risk and halves the borrowing capacity of future property.

I like LOCs for tax reasons. It is easy to pay for expenses and write a cheque. But one the money has been used then best to change them to term loans. Eg. You spend $100k on a deposit for the next IP from your LOC. After settlement just change this $100,000 to an IO loan. You may get a lower interest rate and it may not be payable on demand.

You will also need to carefully consider how the trust will access your LOC. Possibly a written loan agreement is needed and consideration of the interest charged is also needed.

Also if buying in VIC you may want to consider buying in one of your personal names. You can then take advantage of the stamp duty exemption and do the ‘spousal sale strategy’. Wait for growth and then sell to the other spouse. No stamp duty payable, increase deductions to the purchaser and the cash released to go off the non deductible home loan.

Terry when your legal qualifications in law come through pls explain how a trustee can steal assets as suggested? Total rubbish and imaginative. Legal personal representative becomes trustee and executor on death. No delays. Supreme court ? Please
 
Terry when your legal qualifications in law come through pls explain how a trustee can steal assets as suggested? Total rubbish and imaginative. Legal personal representative becomes trustee and executor on death. No delays. Supreme court ? Please

hmm.
s 44 Probate and Adminstration Act
Upon the grant of probate of the will or administration of the estate of any person dying after the passing of this Act, all real and personal estate which any such person dies seised or possessed of or entitled to in New South Wales, shall as from the death of such person pass to and become vested in the executor to whom probate has been granted or administrator for all the person’s estate and interest therein in the manner following, that is to say:

(a) On testacy in the executor or administrator with the will annexed.

(b) On intestacy in the administrator.

(c) On partial intestacy in the executor or administrator with the will annexed.

See the bit in bold above. Before the grant the estate does not vest in the executor/administrator.
 
And the trustee wouldn't be necessarily 'stealing' the assets but legally distributing to themselves or associated.

Are you an accountant?
 
Let me go through this more.

Upon death the deceased can no longer deal with their property – obviously.

But the affairs of the deceased need to be taken care of with bills paid, loans called in, tax returns done and property transferred according to the will or intestacy rules. The person who does this is usually the executor of the will. Sometimes there is no will, or the will is invalid so there will be no executor. In this case someone related or close to the deceased can apply to administer the estate. This person will be called the Administrator. Together the executor or the administrator will be known as the Legal Personal Representative, LPR.

The LPR cannot start acting on their own. They have to be appointed by the court. Probate needs to be applied for if there is a will. The court will then look at the evidence and determine if the will is valid and will then appoint the executor by issuing a certificate of probate. Until this time no body has authority to deal with the property of the deceased. Land cannot be sold, or even title cannot be transferred until probate is in place.

Section 44 referred to above says this is the case. So when someone dies there will be a period, until probate is granted, where the assets of the deceased will be in limbo. Probate takes time to get done. The executor must find the will, look for other wills, obtain proof of death (sometimes getting a death certificate can take ages if there are questions on the cause of death) advertise and wait (30 days from memory) before making the application.

There will be a minimum period of about 1-2 months before probate is granted. Sometimes it takes a year or more. Until probate is granted no one has any legal authority to act. This is only logical too because no one knows if the will is valid, or if there is not a more recent will waiting to be used by another executor to apply for probate.
 
Nice post - it helps to include all the numbers. I'll let the experts talk about the structures. Personally I think structures are over-rated compared to just getting runs on the board.

The glaring issue I can see from your numbers is your very low savings rate. You have circa $180k in post tax (assumption from $300k pre tax spread between 2 people) income per year, mortgage payments in the order of $50-$60k (assuming P&I) per year and all you can save is $24k per year? Where does all your money go?

With a savings rate like that investing is going to be a tough gig and personally I don't think you will get anywhere near your goals. Particularly if and when interest rates increase again. You need to start saving hard if you want to meet those goals at a reasonable risk. That means getting control of your expenses. If you have middle class expenses with a middle class income the results will be average. If you want your investing results to be above average your saving needs to be above average.

And for that matter the assets you invest in need to be above average - I would personally suggest investigating CIPs with the amount of equity you are starting with so you can better protect your serviceability going forward and bank the superior cash flow in the mean time.

Good luck with it...
 
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