Structure

[Nathan22]

Hi guys

We are nearly ready to buy our 3rd and 4th IP's. But I want to structure them right.

I have asked questions about companies once before on SS but since talking to a couple of seasoned investors my outlook has changed slightly and I need advice from some of you savvy investors, in particular investors with a brokering or accounting background.

Bit of an idea of our strategy.
Buy and hold.
Along the way I want to create equity where I can by renovating and developing certain properties.
We are on good money atm but things will change shortly when we move.
In the next two to three years we are hoping to have another child so my wife will then be a stay at home mum on a small wage. I would imagine Id still bring in close to $90k. So with my wage, CF+ investments and borrowing from the right lenders at the right time we shouldn't have an issue with the serviceability.

We have no personal debt.

Our two current IP's are Joint Names Joint Tenants.

We own approx $300k worth of land in QLD

We want to control 10 - 15 properties asap.

Given the above scenario, would you recommend purchasing in a company or as individuals or in some form of trust.

I always thought to base the structure around liability, minimising land tax, and minimising the CGT when we finally start selling off.
As I said, I have had advise elsewhere saying that the likely hood of being sued is minimal and if you do get sued there is always a way to get to your assets anyway. Land tax is inevitable and companies and structures are just too expensive for the benefits they present. "Of course Accountants will push companies and trusts as the best option as it is more money in their pockets..."

Looking forward to getting some feedback.

Nath

 

[Terry_w]

Not enough information.

Getting sued is certainly possible and the likelihood of being invovled in contractual disputes increases the more contracts you enter - including loan agreements. Bankruptcy is unlikely, but if you are sued and lose then you don't want to lose all the wealth built up for your family. A properly structured discretionary trust will not be vulnerable to attack. But this doesn't necessarily mean you need a trust to own property.

First thing to consider is to sever your joint tenancy on the existing properties. Potentially dangerous from an asset protection POV and an estate planning POV.

Next is land tax. Which state will you be purchasing in and what are the land tax implications?

Then consider what the cashflow position is likely to be on the next property being purchased. Consider them one at a time. Will it be negative or positive before tax? If negative then consider how negative and how long. If you buy in a trust the loss is trapped. But this may not be an issue if you are likely to be pumping cash into the trust to store in an offset - if you have no non deductible debt then this is possible.

Consider how far away are you from in accessing super. What it be beneficial to get a property you own, indirectly, into super? If so a unit trust may be the go. The units could be owned by yourselves or a discretionary trust.

If you decide to set up a trust, may sure it is properly structured and operated. i have seen well drafted trust deeds, but the transactions behind them done in such a way as to weaken the trust.

 

[RPI]

In QLD each trust has a separate land tax threshold. That can make a separate trust worth the cost alone. But if you need to negative gear then a discretionary trust may cause cashflow issues. You need specialist advice. If you are investing down south then an appointment with Terry W and a couple of flights would be money well spent.

 

[Nathan22]

Terry

Thanks for your advice.

First thing to consider is to sever your joint tenancy on the existing properties. Potentially dangerous from an asset protection POV and an estate planning POV.

Can you please explain why you would sever the joint tenancy on our two existing IP's. Maybe with a scenario.

Next is land tax. Which state will you be purchasing in and what are the land tax implications?

We will purchase in any state as long as the deal suits our strategy, At the moment I think it will be around Brisbane for atleast one or two. So id say if we purchased again in individual names we will reach our land tax threshold.

Then consider what the cashflow position is likely to be on the next property being purchased. Consider them one at a time. Will it be negative or positive before tax? If negative then consider how negative and how long. If you buy in a trust the loss is trapped. But this may not be an issue if you are likely to be pumping cash into the trust to store in an offset - if you have no non deductible debt then this is possible.

Our strategy for the next Three (which will hopefully be purchased in the next few months) is reasonable yield and reasonable growth. So we're looking for good properties within 30 - 40 mins of the CBD with 6% +. In saying that if I found a good property with neutral yield but good growth I would purchase and let the tax benefits push it over to CF+

Consider how far away are you from in accessing super. What it be beneficial to get a property you own, indirectly, into super? If so a unit trust may be the go. The units could be owned by yourselves or a discretionary trust.

My wife and I dont have much super but do want to get a property via SMSF asap.


Another question re land tax. If my wife and I purchase properties in Queensland in Joint Names Joint Tenants would we be purchasing up to 1.2mil in land before reaching the Land Tax Threshold or will it still be $600k?

Thanks again Terry.

Nath

 

[Paul@PFI]

Watch trust in QLD. Yes they each come with a separate but lower land tax threshold BUT.....QLD also has a nasty stamp duty rule not found in other states. It seeks to tax changes in beneficial entitlements. So transfer or issue of units in a unit trust is dutiable. Also changes to a discretionary trust can also trigger transfer duty.

Worth understanding these rules if a trust is contemplated.

Also in QLD I do NOT suggest holding multiple IPs in one unit trust.

 

[Terry_w]

Can you please explain why you would sever the joint tenancy on our two existing IP's. Maybe with a scenario.

Ok, here are 2 examples from different aspects - estate planning and asset protection.

1. Nathan dies, wife inherits automatically. Wife remarries...
2. Nathan and wife die on an aeroplane crash. Nathan is older so wife inherits for a microsecond and property passes via her will or intestacy laws. Maybe be ok, depending on the circumstances, but what if she had a will leaving everything to the RSPCA, or a family member makes a family provision claim or she has children from an earlier marriage

Solution, TIC with Nathan leaving his share to a testamentary trust for the children. Wife could have a life interest to reside in the PPOR.

--

3. Nathan is running a business. Wife sick, business suffers as Nathan is taking time off. Nathan ends up tinkering on bankruptcy. Wife dies, Nathan inherits automatically just as be becomes bankrupt. Whole house is lost not just half.

But depending on the situation JT may be better.

e.g. Nathan know's his will is likely to be challenged when he dies. He wants to make sure current wife gets maximum possible so inheriting automatically bypassing the will can mean less likely that the JT owned property will be attached. (note that it could still be attacked in NSW via a notional estate order, this could happen even if you reside outside of NSW).