Time to buy an investment property but what strategy ?

Discussion in 'Investment Strategy' started by Dudechi, 10th Jan, 2019.

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  1. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I demand you give me free legal advice without knowing all the facts!

    You don't know what you don't know I guess.

    It sounds like you want to protect the house from bankruptcy resulting from a failed development. Can your wife qualify a loan? Are you willing to pay more tax, more land tax?
    What do you want to happen when you die, when you wife dies? Will you keep or sell? How do you want things to proceed if capacity is list? Worried about family law? etc
     
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  2. Tofubiscuit

    Tofubiscuit Well-Known Member

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    Hmmm... development funding is very different. Best to speak with broker when he or she gets back
     
  3. Ghoti

    Ghoti Well-Known Member

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    @Dudechi take a step back and look at what you are proposing. You are planning to invest $1.5m, with no experience, and you're seeking legal advice from an anonymous internet forum.

    @Terry_w actually gave you good advice, albeit brief. Yes, you should see a lawyer.

    For example, in case of asset protection, why a company rather than a trust? If a trust, what kind of trust? What structure should the trustee adopt? What impacts do they have on your financing and taxation positions? You really need good advice specific to your situation. And if it costs $5k, its only 0.3% of your proposed investment. Cheap to cover your arse imho.
     
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Im not a lawyer, but suggest none of that is simple at all, especially with the overall lack of data.


    ta
    rolf
     
  5. albanga

    albanga Well-Known Member

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    I’m a straight shooter on these forums and I can tell from your posts your way over your head and haven’t even started yet.

    Let’s look at the FACTS:
    - You want to purchase a property with DA meaning your already paying an inflated price for someone’s else’s work. A lot of developers make their cream as part of the DA process.
    - Correct me if I’m wrong but you have done zero finance analysis. I work with some developers and their spreadsheets are 1,000 rows long and won’t touch a Dev until they see +20% profit.
    - Your sell costs are based on what? An estimate of today’s prices in a falling market?
    - Your proposing 1.7mil debt doing not 2 but 3 townhouses with zero experience. I can tell you for certainty your developer friend isn’t going to have all the answers. Ask any developer on here if each new one doesn’t throw another unseen challenge.
    - Your more focused on structure than feasibility and financing.

    If I can give you any advice it would be to start small. Maybe do a subdivision and single build first OR at most 2 townhouses but please do the DA yourself.
     
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  6. Big A

    Big A Well-Known Member

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    @Dudechi im not a lawyer or expert on this matter but have some personal experience in such structures. I will give you my opinion on structure which I believe was your key question and not on the projects viability or risks associated with such a project.
    Based on the info you have supplied I would place it in a discretionary family trust with a corporate trustee. The director of the corporate trustee should be you wife. Yes you will be liable for land tax in a trust, but if you own any other property already you will more than likely pay land tax either way. A trust should also still give you the 50% capital gains discount that under a company you do not get.
    Keep in mind finance under a trust structure is also a little more complicated.
    This is the set up I use to hold my investments.
     
  7. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    How can you say that Big Al?
    You don't know if there is a chance they might live in the property, what their wishes are if they were to die, what if they have 2 children, what if the wife cannot qualify for finance, what if they might want to bring in other potential owners down the track etc

    All I could say based on the 'facts' given is that a trust might be worth considering.
     
  8. Big A

    Big A Well-Known Member

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    @Terry_w Why so serious? This is a forum, so people give there opinion based on there level of knowledge and experience. I based my response on what I have done with similar investment's using similar structures. Yes there is a lot I don't know about his personal situation but I respond based on what the OP did say rather than didn't say. They might want to live in the property, they might have 2 children they might want to bring in other potential owners down the track, they might , they might , they might. His left arm might fall off in the future. There are a million variables that might exist or could eventuate. My opinion comes from the information he has provided and what I would do and have done in a similar situation.
    Again I'm just trying to give the OP an opinion / view point on the structure side. A lot of the responses have been about whether its a good investment and the risks associated with the project. I don't know if that's what the OP was asking about. I might be misreading the post.
    In saying that I might be way off and totally wrong. I'm not an expert and even if I was I would not be making decisions based on information I read in posts on a forum. I would take all the different information and do more research on those options and then put forward your findings and ideas to a professional for the final decision.
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    This guy might just go out and do what you advised him and suffer the consequences. It is best to keep comments vague so that there is not a recommendation such as 'it might be worth considering a discretionary trust'. This way it doesn't read as a recommendation and helps prevent issues arising for both him and you.
     
  10. Brady

    Brady Well-Known Member

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    You really need to seek professional advise (bank/accountant/lawyer), they need to communicate and be on the same page.
    You don't have enough experience to be able to filter it through each channel.

    Can you afford to borrow the funds?
    - maybe able to in joint names, but is that how you're planning to setup
    - what happens if it's under corp trustee structure, will that change the ability to borrow
    - what about the plans, are the properties separate dwellings, can you use as if complete, if not and done 'in one line' will you have enough equity/cash

    What structure is best
    - might be better to have structure one way, but guess what might not work with the bank
    - are you selling, holding, paying the project manager, so many if buts and maybes....
     
  11. Big A

    Big A Well-Known Member

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    @Terry_w Thanks mate. I see where your coming from. I do try and re enforce a number of times in my posts that its an opinion and not advice. But I do realise people are very cautious on forums of a financial nature when it comes to posting information. In all seriousness though has it ever happened where some one on a forum wrote something and some one acted on it then later sued? I mean is that even possible and if so what has the world come too? Is it not the whole purpose of a forum for people to share there ideas / knowledge and experiences whether they are right, wrong or indifferent?
    But I do see what your saying and I will amend my original post just so there is no mistaking it as an opinion and not advice. Luckily I have my assets in a trust structure so when I get sued there is nothing I personally own. LOL.
    Cheers
     
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  12. Big A

    Big A Well-Known Member

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    Looks like I cant go back and edit a few posts back.
    @Dudechi just to be clear my posts are all opinions on what I personally have done in the past and is not advice. So no suing if it doesn't work out for you ok.
    In all seriousness though no one should ever base decisions on what they read in posts on a forum or any media in general. These forums are great for generating ideas and thoughts about different options / possibilities. Take everything your read with a grain of salt and then cross check the information with a professional in that field before making any decisions. I have a Financial Advisor and an accountant who has a degree in financial law that I sit with before making such decisions.
     
  13. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I haven't heard of any cases, but better to be safe than sorry. I get carried away in my posts too sometimes.

    And just because 'your' assets are held in trust doesn't mean they are safe from attack.
     
  14. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    But do you have a lawyer as this involves legal advice. I constantly see accountants providing legal advice in relation to trusts - you might as well use a hairdresser as they are equally qualified.
     
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  15. Big A

    Big A Well-Known Member

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    No I do not have a lawyer that I use when making financial decisions. I don’t feel like I have needed one as yet. My accountant seems to understand the world of trust structures well enough for my liking and like I said he has a degree in the legal side of accounting. I also use a large city based accounting firm for my business accounts that I also double check with any significant personal decisions that I make with my personal accountant. So far that has worked well for me. I have had my family trust structure up and running for 10 years now and it has been serving its purpose well.
    Not that keen on adding a lawyer to the payroll above and beyond the financial advisor and accountants I already use or else there might be nothing left to invest with after all there fees.
     
  16. Sackie

    Sackie Well-Known Member

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    Have you done a thorough feasibility? Maybe post it so others can have a look and give their feedback.


    Going off just what you said "So 1.4-1.5 mil investment can comfortably make 1.8 mil return if all 3 are sold And if everything goes smooth".

    That would be a 16% gross return on total development costs IF everything goes smoothly, which never is the case. Those numbers don't look good from the start. Also, that's assuming your TDC is even only 1.5m. Could be a lot more if your feasibility is poor.

    Tread very carefully. The idea of developing may sound sexy, but in reality its quite high risk, even at the best of times.
     
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  17. Brady

    Brady Well-Known Member

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    $1.8M end value > potentially $1.6M or lower 'in on line' valuation
    @ 80 % loan = ~$1.28M maybe available.
    That's minimum $120-220k cash required...
    Without cost blow out, holding/interest, valuation coming in right.

    Do your numbers. Seek advise.
     
  18. BuyersAgent

    BuyersAgent Well-Known Member Business Member

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    @Dudechi I have to agree with @Terry_w you need more advice and with @albanga and others who have suggested this might be a big stretch financially for you at this time (unless you have other deep pocketmoney you haven't mentioned)

    I typically help investors with 1-4 properties already to do their first and second developments and we normally go for a 1 into 2 dual occupancy which means much less overall debt and much less risk. Find a site where you keep the house, tinker for a year on a DA (learning HEAPS while you are doing that) then build 1 extra house, then subdivide and sell one or both or keep both, whatever you prefer.

    This is the entry point for a small developer with limited funds.

    Doing 3 townhouses as a first development I only see when folks have a lot more equity or very high earnings like medical doctors and those with businesses having over $500k income etc. The stress of peak debt (that moment when you are servicing 80% of the debt for the land AND the build x3 AND you have ZERO rent coming in to help will crush you if you go too big too soon. Please be careful.
     
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  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    What happens to the trust if you lose capacity? Or die?
     
  20. Dudechi

    Dudechi Member

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    Thank you for your advice . Very informative . Really appreciate that champ