Future Planning - Family Trust

As a young married couple, we have a Family Trust set up that currently has a commercial investment property that has no money owing on it. It is currently tenanted out and earning an ok rent return.

We are looking to sell the property for a number of reasons, and are starting to think about the best ways to manage the proceeds of the sale. Once we take out taxes, stamp duty etc our estimated amount left over is pretty close to the amount we have left owing on our PPOR.

Considering we are only young, I am after some opinions, if it would better to pay off our home and own it outright, or invest the money from the sale into another investment property or shares for our Family Trust.

Our goal with the Trust is to build it up with shares/properties so that it can help fund our future childrens' education.

Obviously, I will be discussing this further with my accountant, but I would love to hear from anyone on InvestEd who may have encountered any similar situations or has any thoughts. Thanks.

 

StillLearning....we all are!

To throw in my 2 cents...the interest on your PPOR is non-deductible and conventional wisdom is that your own mortgage should be paid off first in order to minimise your non-deductible debt.

That said, if you can find an investment that has a net return greater than your current interest rate (say 5.5%) including capital growth, it makes sense to put it there.

Over the last few decades we had a mortgage on our PPOR and still invested in residential properties and it by far outweighed the benefits of reducing interest on our mortgage...but the past is no reflection of the future.

Hope this helps.

 

Great advice manic! Always best to reduce your debt if you can but if there is a better rate of return available, I would consider investing in that. Good luck!

 

Do the terms of the trust allow the trustee to lend money to a beneficiary at no interest? If so you could possibly borrow from the trust and pay down the house loan. You could then borrow against the house and onlend to the trust for further investing.

Save tax and get good asset protection.

Make sure you get proper advice on this - from someone legally qualified as there are many issues to consider.

 

StillLearning,
What works best to achieve your goals?
If it is building your asset base within your trust now to generate future income, then that is what is needed to be done.

Investing is a long term cycle, closely linked to your working life cycle, at the start, conserve capital as much as possible, borrow what is affordable so to invest in capital growth assets with a balance for income serviceability, then when your asset base is sufficient for your needs and goals, then start paying down debt.

There are very few people that earn sufficiently high income in their early years that have the cashflow to invest and pay down debt at the same time, doing so will inhibit what you can achieve. By taking the long term investment view and using your income wisely, you can achieve far more.