The pain of not structuring right.

For those new to property investing, make sure you get your structuring right from the beginning. I only have 3 IP's(jointly owned with my wife - big no no) which we accumulated between 2002-2009, but we are now paying $20k in Land Tax per year as a result - which is A LOT of money, compared to what we are getting back. It's a 3rd of our rents. Then I'm slugged with rates, water, maintenance. And whilst we're at it, take another 6% out for Agent fees. And of course then there are the repayments to the bank.

Sell? It's not ideal - we'd have to pay a tonne of CGT as we are on "pretty good" salaries. And then what?

Would I do it again? Not with the sacrifices one has to make and the long term pain vs little gain. Sure, the value of each property has gone up a lot, but all I ever wanted was a comfortable retirement coming from the rents and not having to rely on the Government.

When we purchased our IP's, my wife was concerned of a separation(you just never know right?), so all IP's are jointly owned which is causing us grief now. Get a good accountant and get it right from the start.

My 2 cents worth from a burnt out investor.

 

Didn't you consider all those costs before entering the financial transactions? Paying CGT means you made a profit.

 

What would you have done differently? And while the costs are higher than they could be, the profit motive and endgame is still the same, right? You seem to be regretting investing altogether.

 

I would not focus on the cost of the CGT. Focus on the choice of selling and the results the equity will give.

Generally CGT is not that much of a burden as it reflects as under 25% of the profit. Most people are pretty happy to take 75% of any profit on a after tax basis. If the net equity after selling, paying all selling costs, loan payout and the tax can be used effectively it may even be a major benefit.

 

In many instances it is worth considering just selling up properties and going into shares. Less headaches.

 

I feel for you. It sucks to learn about land tax strategies once the horse has bolted. And it just shows to other players how good advice can help.

 

Absolutely agree with the notion that most people benefit from the forced savings associated with paying off a mortgage. The system by which one invests and how it encourages disciplined, consistent action is IMO arguably more important over the long term than individual investment performances. Notwithstanding buying lemons will result in an undesirable outcome

 

An issue very close to my heart and I feel your pain.

If there is ANY viable strategy to convert that equity into income without selling, I'm all ears.

That's what made LOE or at least partially LOE so damn attractive. RIP.

 

How many will you hold post selling...just the PPOR? The one benefit property has over shares is utility in terms of being able to move into it, or passing it down to your kids etc. Having said that, you can also convert everything into stocks etc (now) and just divvy up the cash down the track...which is a lot simpler, and perhaps even more welcome by the beneficiaries.

 

I believe by having them in seperate names it would give u both the benfit of the full tax free threshold (each) in your state, but of course has other tax implications too??

I was thinking if land tax becomes an issue in the long run for me, i could sell and buy into interstate properties to ensure we could stay under the threshold but of course this comes with cgt and buy in/out costs which may defeat the benefit

 

Similar situation to you OP. Took a look at portfolio and just sold the weakest link. One of the main factors for me was that I would never ever move back there and we couldn't see a potential use for it for family members (parents etc.).For us this was the weakest link investment (Capital gains wise even though went did cover interest)

CGT of 300K approx and after discount will end paying 70K in tax which is actually not that bad. Land tax is one of the issues we considered as the problem you encountered is quite common and I don't think it's a structure issue

This Andrews government does not support landlords and incoming Shorten government doesn;t as well so I am happy to have gotten out of one of them

With 2 young kids I would always keep at east 1 IP as hedge just in case house prices do go really crazy and can sell it to help them in to the market

 

I'm not sure how the specifics work in Melbourne but is there an option for you to transfer one half of 2 properties to each other so you end up with one property 100% you, one property 100% wife and one property still 50:50
Most states have some reduction in transfers for spousal transfers. Or if there is no relief then model out the scenario and see if it's gives you some relief with that is the same as a few years of land tax so worth short term pain for longer term gain.
Eventually the values will continue to increase and the problem will just keep compounding if you wish to hold these until retirement.
You could chose to sell one, although you think your CGT will be massive you will be surprised at how little it actually ends up being after all the cost bases are adjusted and claimed for. Even at the top tax rate paying the CGT on one and then re-investing in a different entity or ownership may work out better for you

 

THIS.

 

as a broker, and as a Lawyer specialising in structuring I can see many people getting into shares now instead of property, many are even selling property to invest in shares - I am not advising on investing in shares though just the legal, tax and lending issues. but it is a large movement.

 

Like super with its concessions?

 

Could you elaborate more on “the legal, tax and lending issues “ associated with shares please? I’m new to this and yes, I’m selling one of my Investment property now and will use the proceeds to invest in shares & other financial instruments.

 

Paul, I might just coming out from a cage here, but really what sort of concessions with super available now? I’m 50 years old and if I contribute more to super, what benefits are there? Thanks

 

Ownership structure
funding structure
documentation
tax issues such as debt recycling, deductibility of interest, franking credits
serviceability

etc