Structure to develop and sell/hold

[knightm]

Buddy of mine is eyeing off a house with battle-axe potential. GR of around 1 mill on completion. Wants to probably sell the original house and keep new one for long term. It has yield potential in the 5% range and excellent CG prospects.

He is considering a unit trust for all the reasons Terry has previously espoused (I emailed the list to him)

Any thoughts?

 

[Terry_w]

too broad a question.
what state is the land located in
what is his income?
anyone else involved?
could someone else be involved in future?
what other assets does he have?
what are the bankruptcy risks like?
does he own property in the same state now, if so what is land value?
what are the risks if he dies/?
what does he want done with the property after his death?
could he ever live in the property?
is he claiming a main residence now?
how much cash does he have?
where is deposit coming from?
can he qualify for finance?


Does he have a spouse? if so, same questions for her/him

 

[knightm]

1 what state is the land located in

nsw
2 what is his income?

husband has approx 90k job income, wife has approx 30k business income, family has approx 40-50k tax free foster care income (4 kids including some high needs)

3 anyone else involved?
There might be junior JV partner for a small profit share in preference to project management, if needed to avoid cash fees along the wa they have someone they can trust

4 could someone else be involved in future?
see above, minor partners, as well as they might ask other family or friends for small stake if needed for additional servicing or cash flow at peak debt in the development

5 what other assets does he have?
ppor approx 700k, IP1(SMSF 600k), IP2 (Own name 600k)

6 what are the bankruptcy risks like?
fairly small, page day job

7 does he own property in the same state now, if so what is land value?
yes, poor and ip

8 what are the risks if he dies/?
organisationally for the family huge, financially he has insurance

9 what does he want done with the property after his death?
wants to sell half up front, keep half for minimum 5-8yrs, selling to pay off any residual PPOR debt at that point. Its unlikely he will keep this forever.

10 could he ever live in the property?
Highly unlikely.

11 is he claiming a main residence now?
yes

12 how much cash does he have?
40-60k

13 where is deposit coming from?
ppor equity approx 100k available now, 400k buy in, keep existing house, qualify for da rear house, apply for finance to build rear house, total spend 800k approx

14 can he qualify for finance?
yes he has solid financials


Does he have a spouse? if so, same questions for her/him[/QUOTE]
see above, except she has a growing PM holiday let business, she has PI insurance and full RE licence. When the Dev is finished they would like to use her business to manage the short term letting of the property.

 

[Terry_w]

You missed the point of some questions, though he may want to consider using a unit trust of some sort so that investors can be brought in more easily in the future. Units could be owned by a discretionary trust to allow for asset protection and income flexibility. Land tax will apply, but he may be up around the land tax threshold already. The spouse could possibly own some units and, if the trust was fixed, this could reduce the land tax bill, however she is running a business, which is risky.

Any trust should be carefully considered for asset protection, estate planning on death, incapacity and bankruptcy. Probably would borrow to buy units, or lend money to the trust to get the deposit in there. There should be a commerical loan agreement to allow interest to be claimed. This loan should be factored in to estate planning and wills etc.

 

[knightm]

I think he wanted this kind of thing terry. He already has a DT so he can put some units of UT in that for asset protection and streaming. Other units by him or her or partners.

Is UT same as DT for ownership, ie Corp Trustee of UT owns ATF the UT?

So an example...

1 John St is owned by ABC Pty Ltf As Trustee for ABC Unit Trust.

Unit Trust Shares there might be 1000:

400 - ABC family DT
250 - dad (for some Neg gearing)
150 - mum
200 - uncle jim partner

Is this close? thanks again Terry

 

[knightm]

... and correct me if I'm wrong but transferring unit trust shares does not trigger duty is this right? this is why its easy to bring in investors later?

So if he can set up UT and own all the shares himself at purchase time (he is in a bit of a hurry its going to auction soon) then a meeting can resolve to sell some shares to other parties later? Or are there hidden costs to doing that.

 

[Terry_w]

... and correct me if I'm wrong but transferring unit trust shares does not trigger duty is this right? this is why its easy to bring in investors later?

So if he can set up UT and own all the shares himself at purchase time (he is in a bit of a hurry its going to auction soon) then a meeting can resolve to sell some shares to other parties later? Or are there hidden costs to doing that.

Unit trusts issue units to the unit holders. Transfer of units is a CGT event and subject to stamp duty in NSW too - currently 0.6%, but much less than the duty on the transfer of land. Transferring units may be a breach of the loan agreement with any lender, so the trustee should seek permission too. Asset protection should also be considered.

Your mate should get legal advice as this is a complex area.

 

[Terry_w]

I think he wanted this kind of thing terry. He already has a DT so he can put some units of UT in that for asset protection and streaming. Other units by him or her or partners.

Is UT same as DT for ownership, ie Corp Trustee of UT owns ATF the UT?

So an example...

1 John St is owned by ABC Pty Ltf As Trustee for ABC Unit Trust.

Unit Trust Shares there might be 1000:

400 - ABC family DT
250 - dad (for some Neg gearing)
150 - mum
200 - uncle jim partner

Is this close? thanks again Terry

Close - but units instead of shares.

Trustee would own the property for the benefit of the unit holders.

A unit holder could only negative gear if they borrowed to buy the units.

Also need to consider the terms of the trust carefully as unit holders could be liable for the debt of the trust.

 

[knightm]

Thanks again Terry!

 

[antistar]

Units could be owned by a discretionary trust to allow for asset protection and income flexibility.

Quick question on this one as far as ASIC is concerned:
1. Does John Smith (individual) own his shares in John Smith Pty Ltd (the corp trustee for John Smith Disc Trust) beneficially?
2. Does John Smith Pty Ltd (corp trustee for John Smith Disc Trust) own the shares in the corporate trustee company for the unit trust non beneficially (i.e. On behalf of John Smith Disc Trust)?

Thanks

 

[Terry_w]

Quick question on this one as far as ASIC is concerned:
1. Does John Smith (individual) own his shares in John Smith Pty Ltd (the corp trustee for John Smith Disc Trust) beneficially?
2. Does John Smith Pty Ltd (corp trustee for John Smith Disc Trust) own the shares in the corporate trustee company for the unit trust non beneficially (i.e. On behalf of John Smith Disc Trust)?

Thanks

depends on what John Smith is after.

 

[antistar]

Probably would borrow to buy units,

One for the finance gurus:
If the unit holders borrow to purchase units into existing UT holding a property title that would be pretty straight forward. But is there a way that this can be orchestrated at the same time as / prior to settlement (UT holds newly purchased title, unit holders borrow to buy units in UT all at the same time)?

Cheers

 

[antistar]

depends on what John Smith is after.

Money. John Smith is after money

Too complex, will discuss further with lawyer. Cheers

 

[Terry_w]

One for the finance gurus:
If the unit holders borrow to purchase units into existing UT holding a property title that would be pretty straight forward. But is there a way that this can be orchestrated at the same time as / prior to settlement (UT holds newly purchased title, unit holders borrow to buy units in UT all at the same time)?

Cheers

Yes this is common. Loan in unit holder name with title in trustee name.

 

[antistar]

Good to hear. Even if unit holder is a brand new disc trust with corp trustee (i.e. no other assets in said trust / no trading history?

 

[Terry_w]

Good to hear. Even if unit holder is a brand new disc trust with corp trustee (i.e. no other assets in said trust / no trading history?

Yessssssss