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first investment property/loan advice

Discussion in 'Real Estate' started by lukeypapa, 3rd Jan, 2010.

  1. lukeypapa

    lukeypapa New Member

    Joined:
    14th Jul, 2009
    Posts:
    4
    Location:
    melbourne,vic
    hey all,
    i have been looking for a long period of time to buy some property. Initially i wanted to buy a ppor to take advantage of the first home owners grant but have decided to buy an investment property instead. I have planned to put it under a business name with me as director so i still qualify for the first home owners grant in the future.. firstly will this work? will i need an accountant?

    Furthermore the investment property i have found is giving me returns of 111.00 p.w net (that is less council fees and body corp) nothing serious but its a start as i am still in uni and don't have a huge income. My dilemma is should i take a small loan of 12 years and let the property cover the repayments OR should i take the same loan under a term of 7 years and put in the difference out of my pocket, which will be approximately an extra $100.00 a week.

    I can afford the $100 without too much hassle the issue is which one is a wiser investment decision?

    thanks for you help in advance.
     
  2. Billv

    Billv Getting there

    Joined:
    15th Jul, 2007
    Posts:
    1,796
    Location:
    Sydney, NSW
    Since you already have a property in mind, have you actually talked to a bank about your plans?

    You'll need to discuss the loan details with them because the shorter loan periods will mean higher monthly repayments and you won't necessarily be able to afford them or even if you think you do, the lender may think differently.

    With commercial property you'll need a bigger deposit.
     
  3. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
    Posts:
    147
    Is the sole reason you are looking at buying it under a company umbrella is to preserve your first home owner grant? If so, there could be some faults in your logic.

    Firstly - assuming you are in NSW - you don't actually lose your eligibility for the FHOG for a subsequent PPOR if you purchase an investment property (as long as it is purchased after 1st July 2000 and you haven't lived in it for a continous period of six months) .... even if buying under your own name.

    Read the eligibility criteria carefully at http://www.osr.nsw.gov.au/lib/doc/forms/ofh001.pdf

    Secondly - buying under a company (or trust) structure may lose you any negative gearing benefits (depending on how it is setup). This could negate the first home owners grant.

    Thirdly - land tax - depending on where you are buying you may lose your land tax free threshold and end up paying land tax from the first $ of your investment property.

    If you were going to buy under a structure, you might want to look at using a trust rather than a company).

    Regards,

    Jason
     
  4. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
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    Location:
    Berwick Vic
    Not knowing your particular details or goals, I would not be looking at short term loans. If it is a residential property, look at a 30 year loan so the repayments are minimal and you would use an interest only loan. If it is your only property right now, use a lender that offers a 100% offset account as well. You can use the offset to park surplus funds.

    Jason is correct, it is about lenders serviceability calculations and the longer the loan term, the lower the servicing calculated.

    The Vic FHOG requirements is similar to NSW, owning a residential property as an investor as long as you have not lived in it, still entitles you to the FHOG in future.

    I would not normally suggest a company as a vehicle to own a property. I would do the numbers to see if a trust was beneficial or hold it in your own name.
    Greg
     
  5. lukeypapa

    lukeypapa New Member

    Joined:
    14th Jul, 2009
    Posts:
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    Location:
    melbourne,vic
    thanks guys you have been a great. This is the first time i have heard of an offset account.
    just wondering who should i be speaking to about my decision? would an accountant or bank manager be a good advisor?
    I'm not sure now if i should be putting it under a trust because someone mentioned it could compromise the negative gearing benefits and negate the first home owners grant, how is this so? how can i set it up so i dont compromise my grant?
    ill be going and having chat soon with he bank manager about putting it under a trust and if i can fully qualify for the loan, which shouldn't be a problem as i am leaving myself only about 60% exposed.
    ultimately what im asking is if the trust is now the better option?
    btw i'm from melbourne but the property im looking to purhase is in queensland.

    thankyou for all your help in advance.
     
  6. GregR

    GregR Reid Consultants

    Joined:
    13th Jul, 2009
    Posts:
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    Location:
    Berwick Vic
    As a general guide, I would listen to neither a bank manager or an accountant unless they are property investors. A bank manager will know about how their offset works, not necessarily how you should use it and an accountant knows about tax compliance and may be influenced in selling you a trust vehicle.

    The type of trust will determine whether you can access the negative gearing benefits but it you have a low margin tax rate anyway, it may not matter depending on your long term goals.
    As long as you do not reside in a property, you will still qualify for the FHOG at a later point in time (if it continues) irrespective of the number of IP's you purchase first.

    I would need more information to help whether a trust is a better solution than purchasing in your own name. Setting up a trust and ongoing administration is a cost, will it be worth it long term?
    If you need some help, let me know
    Greg
     
  7. jason626

    jason626 Member

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    16th Jan, 2009
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    Location:
    moe(melbourne),vic
    It is also worth noting that if you buy the property thru a company and end up selling it at a later stage even after a year ownership you will have to pay full capital gains tax on the property. Im not sure if it was in a trust you would get the 50 % discount after 12 months ethier, like a personal indiviual would.

    example joe blow buys 2 bed unit for 100k in 8 months sells for 110k capital gain 10k, because he held it less than a year has to pay full capital gain he is in the 30% tax bracket so has to pay $3000

    If he held it for more than 12 months it would be $3000 - %50 rule equals $1500 to pay, campanys are not allowed to you this 50% rule, trusts im not sure on? campanys are also in the 30% tax bracket so they would pay 3k also.
     
  8. jrc77

    jrc77 Well-Known Member

    Joined:
    26th May, 2008
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    The 50% discount is applicable for trusts (if the asset was held for more than 12 months).

    Personally I suggest that you look at purchasing under your individual name until you use up the land tax free threshold for that state (or you might leave room for growth - so use 50-75% of the land tax free threshold), then investigate using trusts after that. This means that the simplest transactions are first (under a individual name) when you are just getting into the property buying. This is what I am planning on doing when I get around to buying some investment properties.

    Regards,

    Jason