Family Trust or Business Trust?

Ottah on 22/03/2017 - 11:03

Hi

Brief history:

Goal: Purchase a investment property with my partner.
Issue: Loan serviceability
Financial situation: Work and live in regional Australia with my partner. Earning around $85,000 and partners salary approximately $55,000. Both just hit our 30s, no children at this stage.
Savings: Little low at the moment, trying to build granny flat in one of the properties and saving for a wedding.
Assets:
I/P: Minto, NSW (bank last valued it at $640,000). Rent is $350 p/w, looking to build granny flat, loan is $425k on I/O
I/P: Leumeah, NSW (bank last valued it at $640,000). Has granny flat. Current rent is $700 p/w with granny flat. Loan is $480k on I/O
I/P: Ingleburn, NSW (never got valued but was recently asked to sell it for $520k). Loan is $288k I/O, rent is $340 p/w
I/P: Whalan, NSW (not sure of valuation but assuming $650k?) Has granny flat, $700 p/w rent with granny flat, loan is $475k I/O (coming off fixed period soon).

Partner's assets:
Own's 40% of a property with another person. Loan is fixed until 2019.

Debts:
We don't have any debts (other than mortgages of our own properties), no credit cards etc… We own our cars outright, no hire purchases, no student loans.

I am barely breaking-even due to the ongoing repairs and maintenance of the properties. The homes are old and I have done only what is required to keep tenants in the properties. Negative gearing helps a little but I only get partial ($0.20 to a dollar?) money spent on repairs back.
Recently went to a family mortgage broker looking to take some equity ($50k) out of the some properties for health and family reasons, he declined due to banks having a different criteria in assessing investment loans and my serviceability would come into question.

My partner is wanting to buy a property with me but the bank are not lending at the moment due to the amount of loan I have.

Considering the option of moving all the properties into a family trust/company trust, so I look like I don't own any assets.
Wondering how likely this could work? What are the pros and cons of moving assets around?

Thanks

Financial

Comments

  • JetLi on 22/03/2017 - 11:21
    +2

    CGT and stamp duty alone on the transfer would be a killer, let alone the ongoing accounting fees to service the company/trust. Better off finding another bank.

    • scotty on 22/03/2017 - 12:22
      +3

      That. You can't simply rub out your name & change the owner to your trust. You pretty much have to "sell" to your trust so CGT & stamp duty would apply. Moreover mortgage with trust means it won't work with negative gearing as interest loss to the trust cannot offset your personal income.

      Do check with an accountant and/or financial adviser.

  • mskeggs on 22/03/2017 - 11:32
    +2

    Have you considered getting some leverage in your portfolio? (/sarcasm).

    You can't, or at least probably shouldn't, transfer the properties to another structure as it would create a CGT liability, and stamp duty, I believe.
    If you were seeking the purchase the new property in a trust, you might meet the lenders requirements by your partner offering a personal guarantee, but it does look a bit thin financially.

    Note the reason why the banks are becoming reluctant to lend is the concern that it prices dip borrowers 'just breaking even' will not be able to cover their loans.

  • railspider on 22/03/2017 - 11:52
    +7

    At this level of debt, you really should be taking this question to a financial advisor. Pay a couple of hundred for an hour of their time and get some real advice.

    Although, spoiler alert, I'd suspect they'll tell you to sell one of the properties if you want 50k back and are just barely breaking even.

    • Ottah on 22/03/2017 - 12:58

      Yes I considered selling one but If I do, we may not be able to afford another property in Sydney. A run down house in greater Sydney is around $550k now which is very difficult to digest when rent is $330 in the area (I'm thinking of Lethbridge Park area). Properties haven't gone up like in inner west Sydney but they have still expensive for the area.

    • ChickenTalon on 22/03/2017 - 12:58

      Good advice, but I'd add something important

      At this level of debt, you really should be taking this question to a financial advisor who doesn't receive comissions.

      You'll pay more, but you'll actually get useful advice, not a sales pitch.

  • Findo on 22/03/2017 - 12:10
    +2

    Are the tenants alright in your properties? The clientele in those areas sound…bad

    • Ottah on 22/03/2017 - 12:55
      +1

      Tenants are fine in those areas. They are more afraid of losing the property I think? Never had much issues with tenants. Since 2014 only had 1 loss of rent due to tenant falling behind and leaving the property (lost $1k roughly).

  • tomsco on 22/03/2017 - 13:35

    If you're struggling to break even, would you consider diversifying into other investments.

    Sure, property can net a good long term result, but you keep hearing about all these people getting up to their neck in debt purchasing 10 or so IP, and then have to declare bankruptcy due to declining markets and lack of cash flow.

  • JimB on 22/03/2017 - 13:45

    Good on you for looking after your financial future.

    However, I think you're putting all your eggs in one basket.

    Property has done very well, if I were you, I'll be looking to diversify out of property, or at the very least, sell one or two and utilise the money to buy your own family home.

    As for moving your assets to a Trust, I doubt it will achieve anything in the short to medium term other than CGT and Stamp Duty issues.

  • [Deactivated] on 22/03/2017 - 16:58

    TLDR…

    • Baysew on 23/03/2017 - 15:50
      +2

      Have 4 and 40% investment properties, barely breaking even.
      Want to buy another as well as taking $50K equity out.
      Serviceability of loan to do this not evident.
      Thinking that moving assets to a trust may help.

      Answer - No. Due to CGT, stamp duty,loss of offsetting negative gearing against person income.

      • [Deactivated] on 24/03/2017 - 15:43
        +1

        Thanks for the summary dude (:

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