Structure for a first time small development

[srini]

Hi all,

I've just started reasearching developments and reading some of the great threads like the ones from MichaelW.

The idea is to buy a block with development potential with a house on it. Then get a DA for 2-3 townhouses/units with a view to buy and hold. But, we would like the option of selling 1 of the completed units if serviceability becomes an issue.

We are a family of 3 and have 3 IPs that are all tenants in common.

I have read through the threads I can find on development structure and the more I read, the more confused I get. Are there any books on development I can read?

What sort of structure do people use for a small first-time development?

I've read through these...

http://somersoft.com/forums/showthread.php?t=65620
http://somersoft.com/forums/showthread.php?t=31580
http://somersoft.com/forums/showthread.php?t=34282
http://somersoft.com/forums/showthread.php?t=63809
http://somersoft.com/forums/showthread.php?t=36891
http://somersoft.com/forums/showthread.php?t=22358
http://somersoft.com/forums/showthread.php?t=47876
http://somersoft.com/forums/showthread.php?t=34180
http://somersoft.com/forums/showthread.php?t=62022

Thanks
Srini

 

[Terry_w]

Since there are 3 separate families involved you would need to separate your interests and to allow for asset protection.

I would suggest a unit trust with each family owning their units via their own structure. Discretionary trust to hold the units would be ideal.

Also you need to consider asset protection and in particular protecting one spouse so only have one of you involved directly in this project in giving guarantees. Worst case scenario only one of you goes down with the development.

 

[srini]

Hi Terry,

Sorry to have misled you, family of 3 as in my wife, toddler and I.

 

[Terry_w]

Hi Terry,

Sorry to have misled you, family of 3 as in my wife, toddler and I.

Not mislead, I think your toddler needs his/her own trust for asset protection. He should seek his own legal advice too.

Sorry, that was a misreading on my part.

In that case if there is only one family you could do it in a discretionary trust structure, but a unit trust structure would also add much greater flexibility. Ideally you should still try to keep one spouse out of providing any guarantee for added protection.

 

[Aaron_C]

If you are going to keep the units, you need think about the tax effect. The easiest option is just to continue to purchase the property as a tenants in common arrangement in personal names. This makes things a lot simpler from a tax perspective and negative gearing etc.

However, since you already own 3 IPs this may cause you to incur more land tax than you would like to pay - in which case consider a family trust to allow flexible distribution of the development profits upon completion to the most tax effective person.

Unit Trust won't work that well for the same reasons it does in NSW since in Victoria we have the land rich tax slug for that.