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Building a portfolio within a trust

Discussion in 'General Property Chat' started by JackKeily, 4th May, 2016.

  1. JackKeily

    JackKeily Active Member

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    I don't have any investment properties as of yet, but I plan on build a 7-15 property portfolio by the age of 45 (I'm 21 this month, so I have plenty of time).
    I have every intention to build my portfolio in a trust for security reasons, but I was hoping to gather some more information on them.
    My main questions would be these:
    1. If my property is in a trust, does that effect how my payments are made? Eg, if one was in a trust, could I have a P&I loan with a offset account on this property?
    2. I know that once a property is in a trust, I can't touch the money in the account for 10 years if I want to get a reduced tax. But once the property has been in a trust for 10 years, can I take the money out however often I wanted? Eg, if a particular property was in the trust for 15 years, could I take the weeks rent from said property when I please without being hit with a big tax bill?
    3. An add on from Q 2, once the trust is 10 years old or older, can I take money out as I please without having to wait another 10 years? So if after a property has been in the trust for 15 years, do I have to wait 10 years after every weeks rent to get it without being hit with the larger tax?

    I'm sure I'll think of many more questions that I will probably ask in the comments, but thank you to everyone in advance for your answers!
    Also, any information added that I didn't ask for would be greatly appreciated.
     
  2. hobo

    hobo Well-Known Member

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    @JackKeily What is this 10 year rule / limit you are referring to? I've not heard of this before, I don't think.....
     
  3. JackKeily

    JackKeily Active Member

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    I've often heard that if you have a trust set up, you will get taxed normally if you take the money out before 10 years, but you get taxed less if you wait 10 years to take the money out.
     
  4. hobo

    hobo Well-Known Member

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    My understanding is more along the lines of, "a trust must distribute all income in the year in which it is received/earned", but I am not an expert. I'm sure someone else will clarify shortly.
     
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  5. JackKeily

    JackKeily Active Member

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    If this is true I would be much happier to build within a trust! Do you know if I could have a P&I loan with an offset account in a trust?
    Or if I could use equity of properties already in the trust to buy more?
     
  6. D.T.

    D.T. Adelaide Property Manager Business Member

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    Nope. It's every year, the trust has to distribute out to beneficiaries and if it does not it's taxed at the highest rate.

    The trust has its own bank account in its own name. Get the rent paid into there, and have interest and property related expenses come from it.
     
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  7. D.T.

    D.T. Adelaide Property Manager Business Member

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    Yes, i have properties both IO and P&I within trust structures myself. Corey Batt set them up that way for me and they're working well.
     
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  8. JackKeily

    JackKeily Active Member

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    Is there an option to have a offset account within a trust? Thank you for all your help!
     
  9. neK

    neK Well-Known Member

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    You are probably thinking of an investment bond which has nothing to do with a trust.
    Investment Bonds - Insurance Bonds
     
  10. D.T.

    D.T. Adelaide Property Manager Business Member

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    Yes, of course.
     
  11. Plutus

    Plutus Well-Known Member

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    1. Can I ask why you want such a large portfolio? You're going to need to consider developing or being a very, very high income earner to service such a huge portfolio.
    Have you considered other asset classes? Residential property isn't exactly high yield & I'm assuming its yield your after? Have you considered say, building up to 10 properties, selling out of them and then using that wealth to achieve the yield you desire?

    2. Also maybe consider tracking it via $$ rather than via total number. total numbers are nice, but I think most people would rather have 2x Potts Point mansions than 20x Moranbah meth shacks.

    3. "I have every intention to build my portfolio in a trust for security reasons, but I was hoping to gather some more information on them."

    Right now you're 21 and you've presumably got sweet FA, why spend thousands on building a complicated trust structure unless you're certain you actually need one? What makes you think you do? What are the risks you are hoping to mitigate and how else can you mitigate them (e.g. insurance, not marrying people you're pretty certain you hate & will want to divorce in 5 years)
     
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  12. D.T.

    D.T. Adelaide Property Manager Business Member

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    Wouldn't put 7-15 in the "large" category.
    People hear about it and think its a cool idea. To be perfectly honest, I only use my ones for land tax thresholds.
     
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  13. Plutus

    Plutus Well-Known Member

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    I might see if I can dig it up, but I recall some stats a while back about 70%ish percent of property investors only having 1 investment & once you hit the 5+ properties mark, you're talking about less than 1% of investors, which I assume means its an absolutely tiny percentage of the overall population.

    I could be entirely making that up / have imagined it though.

    Maybe its not big by somersoft/propertychat standards, but its not something very many people at all achieve..

    I still think portfolio value is a more useful metric though, I'd rather have a half a dozen blue chip inner places with 7-8 figure values than be a Nathan Birch "I've lost count how many I've bought" (righto, sure mate. Not selling me on your property management services when you're claiming you can't remember how many you personally own.) slumlord.
     
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  14. neK

    neK Well-Known Member

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    But number sounds cooler than value ;)
     
  15. Terry_w

    Terry_w Solicitor, Finance Broker, CTA Business Member

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    This is completely not true - and also bizarre!!!!
     
  16. Plutus

    Plutus Well-Known Member

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    True.
    Its a "do as I say, not as I do" type thing anyway because I'm working toward a goal total portfolio value & both my purchases so far have been 10%-ish of it.. So I'm at 20% or 2/10.
     
  17. Big Will

    Big Will Well-Known Member

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    Depending on the asset choice but 7-15 even smaller cheapies I would consider large.

    The ABS provided that less than 1% of all investors have 6 or more properties. So to be in the top 1% I would consider large as it is well above average.

    However if you compare him to someone like Nathan Birch with 160 properties (?) then yes it isn't large.
     
  18. Peter_Tersteeg

    Peter_Tersteeg Finance broker and strategist Business Member

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    You're probably thinking of an insurance bond structure. Practically speaking you can't really buy property (directly) through this type of arrangement. This definitely doesn't apply to any regular type of trust that people purchase property in.

    I've got clients that built portfolios of more than 15 properties by the age of 30. They had a few advantages:
    * Significantly higher than average incomes so they're able to service large amounts of debt (even with positive cash flow you need a good income to do it quickly).
    * Low living expenses (often living with family, single or a couple with no kids).
    * Pre-APRA regulation. I doubt many could have acheived the same results in the same time if they were starting now. It can still be done, but it's much more difficult in a 10 year timeframe.

    Also ask yourself why a specific number of properties? Why not 5 more valuable with higher income properties, or 50 really cheap properties? Figure out what financial outcome you want, then what a portfolio looks like that meets that outcome.
     
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  19. Player

    Player Well-Known Member

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    ^
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    This
     
  20. Ouga

    Ouga Well-Known Member

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    "Trying is the first step towards failure" Homer
    You need to think what risk you are hoping to mitigate with a trust.
    A trust can be a good structure to hold your assets depending on your personal circumstances, but it can also not be of much value and unnecessary complexity that is not cheap (yearly accounting fees etc.). In general terms, it provides value where your employment carries the risk of you being personally sued. Also you should be aware trusts do not offer much protection against the family court (such as in a divorce etc.) - this is general of course and there has been some discussion on the forum on ways to mitigate this. But you need to try and see past the cool "asset protection" line to understand what this actually means and how it applies to your particular situation.
    There is value in simplicity.