Residential loan in company name for prop development

Keen to get some thoughts - our accountant has provided two options if I want to set up a structure to buy develop sell 2-lot subdivision/townhouse build:

Option 1. Discretionary trust
Option 2. Company with a discretionary trust as shareholder

Leaning towards 2, as not looking hold the townhouses post development just want to sell them. We are not looking at projects bigger than 2/3 lot max.

If I go with Option 2, my financing question is: Can I access residential home + construction loan, even if loan is in company name?

If so, is the loan assessed on my ability to service (as company director I assume I would personally guarantee this loan), rather than the profit/loss potential of the development project?

 

If youre doing it as a residential loan which it seems like it will fit, then yes, if its a brand new established comoany you will provide personal guarantee and will use your income for servicing.

Banks will not use projected revenue under residential lending.

 

Have you sought legal advice as well?

The company can borrow as residential loans just like a person can.

Yes

 

Option 2 will severely restrict your financing options. Option 1 is generally fine.

 

I do a fair few of these, under the second structure.
Each development in its own company, with shareholding to a wider umbrella company/trust.
Lenders generally ok with it and this set-up offers some lending flexibility for multi-projects.

 

This seems like a perfect sagway for me to join in.I am a first time poster and as such somewhat hesitant just to start a thread of my own.
I am in very similar situation as fellow MMM316(apologies for gatecrashing your thread!)
I am a reasonably experienced investor /renovator hoping to try my hand at development.
I have a DA approved site for duplex in Sydney .
I have been trying to educate myself while also trying not to fall for biases ,I have many and so do many educators.
However general consensus seems to be for these projects to be done through trusts or companies.Trying to understand exact advantages.
Seems like personal guarantee needs to be given so it is not asset protection..
GST perhaps?
30% company tax rate?
Flexibility?
If someone could sum up the main benefits it would be amazing.

 

It certainly improves asset protection
No change in GST
main thing is the tax savings
others include land tax, stamp duty potentially, estate planning, lending
See some of my posts in the legal and tax section, I have written about 800 tips with many covering these topics.

 

I came across this post as i am searching for the same answers too. I have the land but my husband and i want to develop but I need to understand what structure is best for us as in the past we have just purchased IPs under our names. I have been told to continue the same as we intend to hold and rent but I want to know more myself so we know we are making the right choice.

 

If the land is already owned this means the costs to change to another entity may be costly for tax and duty. Understand tax issues for developing as its nothing like rental use.

Explained in our developer toolkit

 

Who gave you this advice?
Seek specific advice from people qualified to give it, will save you loads in the long run.

 

This is something you need specific legal advice on. It is like asking what medicine you should take because in the past you had a headache.
You already have a structure and changing it will be costly as well - but might still be worth it in the long run.

 

Scale of dev may be important. Its exceptionally difficult to profit ona duplex but subdivision of 14 lots of resi land easier. But if the land has been owned 20 years it may be easier too. There could also be a cgt + profit making issue. The whole thing needs some advice. And costs need to consider GST since GST paid will be creditable and GST on sales but if the margin scheme can be used it could assist. Projected income and costs need this as a basis to calc projected profit. Its irrational to invest $2m in a dev and not know if its profitable. It may not be. Have seen plenty lose money on seemingly simple devs because costs exceed income. Most people will ignore all the council costs, civils, approvals and selling issues. And the unknown

Then consider finance. Its harder to get dev finance and may even be costly and not 80% LVR etc.

 

Thank you. I think thats maybe why we were given this advice. I will have a look at the toolkit. Thank you

 

An accountant. Yes it looks like we need to get another opinion thank you

 

Thank you I will look more into it. Who is best to give this advice ?

 

A solicitor that knows tax would be best.