Buy Property in Trust / Company / Personal Name? Get Endless BORROWING POWER & Save TAX! 🏠

hi everyone my name is PK and here I have Monica Rellis here she is a solicitor and in this episode will be talking about entity structures honestly speaking if you get this right then that's you know a long way towards your property investment strategy and property investment goals we'll be talking about personal name versus Corporate entities we'll be talking about types of corporate entities for buying investment properties we'll talk about the considerations of buying in different entities like land tax cgt or capital gains tax we'll talk about negative gearing does it give you benefit in different entities like companies trusts Etc and the pros and cons of setting up a trust you know this cost involves there's Deeds there's documents etc etc but we're very fortunate to have monik on because like I said she is a solicitor at sound Council that's where she works she's also a muso and she's also a lecturer I believe so very accomplished woman very all-rounded uh person and also a property investor so who better to have on and thank you so much Monica for making time for us pleasure to be here PK thank you for having me um all right well maybe we'll just start from the start like just a bit of an introduction for you like what's your sort of Journey been like from an investment or property investment perspective yes so I bought my first property I think when I was um 28 years of age um I bought that in my personal name with my brother um Regional New South Wales and at the time I went with my brother because he helped me service the loan better on what was basically a $350,000 property at the time um so I had the deposit saved up um well we actually went in 50/50 with the deposit but I had additional cash um for renovations um so we bought this house in mind with the idea to renovate that to um increase the equity and increase the rent on the property um which we did so I think we renovated for no more than 25,000 it was basically a paint job new kitchen um restained the the hardwood floors just to give it a bit more of a modern look and that increased the value by about um $660,000 so we were quite happy with that and the rent originally we were told we could rent it out for 350 after the re Renovations we were able to rent it out for 450 per week um so it's amazing what a cosmetic Renault can do in that regards um and then I bought my second property couple years later um this one was actually a unit also Regional New South Wales but in a very small complex um which has had since considerable growth but also the rental yield was phenomenal so um it outweighed the risk but again with that particular property the reason why I went with a unit which is something I generally don't do was because in this particular town there aren't many units and not many one-bedroom homes so I saw that there was a scarcity I also was aware that there was going to be um a lot of developments happening in the town in terms of roads and other um infrastructure which meant that my place would be in high demand and still is so that's what I went and did now at that point I wanted to go for property number three um and I leared whoops the banks aren't going to service me even though both my properties were positively geared in cash flowed and that struck me as odd but um particularly with tier1 banks they do shade down that income um and and this wasn't when interest rates were at you know 2% the the interest rates were at 5% at this time and I was still being told no I couldn't service um which was strange because I had a very strong income by this point in time for a single person and um my properties were producing me income which they weren't factoring in so I then um looked at other ways to restructure my portfolio based on the stuff that I was given advice to clients when I was working for a big four tax accounting firm and I realized that you know there are some benefits to restructuring and taking out all the debt in my name um and basically that's what I did I restructured the portfolio and from there on I've well I haven't exactly um oh sorry went on to buy property number three um which was now about a year and a bit ago and I'm now in a position where I can literally keep buying properties endlessly as long as I have the deposits so that's kind of where I'm at now I'm looking to maybe buy another three or four in the next 12 months oh wow amazing I didn't know that good for you some of the best lessons are the hardest learned so um as well yeah exactly hopefully we can sort of all all make the most of um your experiences and learnings and I just want to ask this question as well because people will be like oh why do we have a solicitor or a lawyer talking about entity structures and trusts and and companies like should an accountant be talking about that so could you just elucidate you know what the place is for a tax lawyer or a solicitor in this realm yeah so accountants are good from an accounting point of view so you know running numbers and understanding the structures in terms of a perhaps tax accounting point of view that's what they're really good at what solicitors um do and this is actually something that accountants can't actually do is draft the documents that are needed to form those companies and trusts and this is probably more important not so much in the sake of a company um especially when we invest a lot of my clients tend to be um individuals or husband or wives so you know documentation is somewhat Irrelevant in that case however the trust documents are actually very very important to have them properly drafted by a solicitor because down the track particularly when you are trying to uh move the asset um say you want to transfer it um into General uh intergenerationally um through your family that's when it can be problematic um I even had one client who did a do it your own trust deed I think it was a law path trust deed that they um had to go at and the actual powers to purchase property was missing from the trust deed um and then it was a costly exercise because we basically um had to re UMO the deed we had to vary the trust deed um and it was yeah it was a lot of work to get it to where it needed to be in order to not only be able to borrow in the property but also to ensure um the client's wishes down the track would be met um so and and that's the other thing I think a lot of people forget is that trust isn't a structure per se it's actually a contract um a contract between what we call a truste and the beneficiaries so the truste is the person who manages the trust similar to like a director in a company and the beneficiaries are the people who are going to benefit from the the profits and um the distributions from that trust at the end of the day so having a document that is worded is very very important um and as well as that I think also getting that advice on you know um often I get clients saying oh yeah I want to buy property in trusts but I also want for asset protection um because their accountant says they might have that benefit it again depends you know who is your trustee who's your beneficiary and who's your appointer in order to actually have that asset protection at the end of the day right right I think this will be news to a lot of people or hopefully it's beneficial but I can definitely resonate with that I'm actually going through a restructuring exercise of our sort of family Holdings you could say at the moment and our we have a brilliant accountant but he's sort of employed or he's working with a completely different solicitor or legal professional tax lawyer as we call them to actually fashion a lot of these you know trust deeds and all this sort of thing and yeah it's a completely different skill set so if anyone's out there sort of wondering maybe we should get an accountant to talk about this yeah we should always get accountant advice but I think it's very relevant and pertinent to to have a solicitor's advice on this because they're actually the ones in the legales and of course I should also say none of what we're about to talk about um is financial advice or or legal advice or anything of that matter it's information and is General um in its nature but let's uh let's start with the first point so personal name versus you know these corporate entities we're using the word entities a bit Loosely like you mentioned because a trust isn't really an entity um but for someone who's new to property investing they're like oh it's just so much easier just to buy under my own name or wife's name or 5050 um I guess how should we think about this yeah I mean look there's nothing wrong with purchasing under your personal name it's just you have to be aware that there are some limits um that you're going to hit so if you are looking to rely on um your Investment Portfolio as a passive income stream that can then replace your active income streams at a later point in time then um you know perhaps you know buying property in your personal name isn't the best option um for for hitting that goal um so some of the issues with um buying property in your personal name really is around the depth that is attached um to to you as a person so I like to kind of view Dent as like a a beaker of water right um and every time you take out a loan whether it's a house loan a credit card loan or or a car loan that Beaker gets filled with water and the only way you're going to get rid of that water is by paying down that debt or pouring that water into a bigger beaker because your income has gone up um so once you hit that particular Point that's it you you can't borrow any further um but also in your personal name there's a lot of risk attached to it um particularly for business owners um if you are like a professional like myself a solicitor real estate agent even um and you have Assets in your personal name they are very much exposed to litigation if someone were to to sue you for some um particular reason so um there are those particular um hurdles there and then the other issue you often have is that you're limited with in terms of who you can actually um pass the property on to um other than through a will or um intestacy um generally speaking like you're limited um in terms of who you can pass that property on to without that other person then having to pay stamp Duty and cgt on the estate so um there there are some important considerations there I guess the other issue to also think about the tax implications as well so in terms of the tax implications of owning property in your own name um if you become a high income earner and of course this is going to change from the 1 of July with the um stage three tax rates um but as soon as you go into that top marginal bracket the income that you're going to produce from your property whether it is um income from rent or from capital gains when you sell your property is going to be taxed at that higher tax bracket which for a lot of people to lose 46 cents in a dollar of your rental income so that's nearly half when you're facturing the Medicare Levy um is a lot of money to part with right and likewise even with um selling property in your personal name yes you get the main um residence ta oh sorry main residence tax if it's your own main residence but you also get the cgt exemption um for Investments property which basically means um you only pay tax on 50% of that income but you know 46 48% of you know 50% is effectively a quarter of that income that is going to go to the atto um and and that's a lot of money to part with when we're talking about you know gains of you know upwards of hundreds of thousands of dollars or even millions of dollars at the end of the day and from a tax planning point of view there are just better ways to um structure your portfolio so so that you can also minimize tax right so this is where corporate entities come in so basically um a company is what we call an artificial person it has the same rights um both uh legal and contractual rights as an individual but instead of just now having um me um as a person who buys property I can effectively like clone myself in a company and now that company can buy property and this is quite important because now you have another fix titious person that can buy property and if you have multiple properties ideally you would try and set it up in multiple structures um and there's a couple benefits in doing this um or using companies as a structure to begin with so first of all um in Australia companies have what's called um basically this um um um limited liability principle and so what that means is that as a shareholder of a company if you have fully paid for your shares you are no longer liable or owe any money to the company other than if you want to inject more Capital um to to buy uh or to purchase more assets or you know um but apart from that like you are not liable to the company um and then we also have directors who manage the company now the director are governed by what we call director's duties and they're basically fiduciary duties owed to the company to ensure that the companies managed responsibly um and these two principles basically isolate the risk in an entity so for instance if you own property in your own name anyone can attack that who tries to come after you can attack that property in a company the only way people can really come after the assets of the company is if the company have or the directors of the company have breached those um director's duties right and this becomes important particularly um where for instance a company doesn't perform well or is unable to pay back its debts if the directors have done everything possible to ensure that the company could pay off its debts but it still can't we now have the corporations framework that allows um creditors to step in and actually restructure the company we don't have that in our personal name the only option really is bankruptcy um which is not necessarily a pleasant option for most people although in Australia it's treated as a recovery process um you know and and I I have seen clients that are are bankrupt and still making half a million dollars a year um it it doesn't stop you earning but it does limit in terms of whether or not you can own property so you know um having the corporations framework is just that extra layer of protection given that provided that you meet the the requirements to have that protection um the other thing that is really effective for companies is the tax planning purposes so companies in Australia um and I'm just going to talk about this generally um because with property it's a little bit different in terms of how they treat companies but generally speaking the company has a 30 cents to a dollar tax rate so if you are already a high income earner and even from the um July one tax cuts um as soon as you're earning more than $45,000 it becomes effective to have a company and from a property um purchasing point of view what's really useful about owning property in a company is that um all the profits are now going to be taxed at 30 cents to a dollar not your marginal tax rate um the only time it will be taxed at your marginal um tax rate is when you distribute to the sh shh holders um but then again there are also other things we can do with those shareholders such as using trusts for the shareholders um for Better Tax planning purposes and and to achieve similar effects to what we normally do in um in a basic trust structure so holding property in that company um means that you do get that tax advantage um but then it also means now the company is producing an income um with which you can then use to service the loans um so I'll talk more about that in just a moment as well because um it it's it's also um important to note about the responsible lending legislation and the consumer credit code and to a certain degree companies don't fall under the consumer credit code because they are corporate entities um so again that also impacts the servicing um side of things as well um so so yeah that's the basic structure with the company from a tax planning point of view especially with profits everything stays in the company there is one problem though with companies and that is when you want to sell the property within a corporate entity um so companies do not get the um cgt tax exemption and unfortunately property is considered passive income streams um so whilst there is a small business tax offset for entities that earn less than um a couple million dollars um it does not apply to residential property uh when you sell the property however and this I guess is where a little bit of creative lawyering and tax planning comes into it you could potentially save your cgt uh discount if you were to dispose of the company that holds the property not the property itself and so what I mean by that is if you have one company that owns one property and you were to sell the company that holds that property to another person who wants to buy the business or the company then as a shareholder um the profits made on the transfer of the shares which will be at market value and so market value of the property you will still get your 50% cgp discount if the company has held that property for more than 12 months so you can still get it it's just limiting who you can sell the company to right and so I'd love to say this to real estate agents out there if there's any agents who are investor focused and you know are willing to you know buy and sell corporate entities with properties in them then this could be an interesting Avenue right um but like I said it's very very rare that that happens right and so this is why we kind of look at then the trust um structure so to speak which isn't really a structure it's more of a um contract right right so how trusts then work is basically you have um couple um parties the first one or the the most essential one is the trustee now that trustee can either be an individual or a company right and then you have your beneficiaries who the people who are going to benefit from them and depending on the type of trust and we've got different types um in Australia so we've got our basic you know fixed unit trust we got our discretionary trust then we have hybrid trusts um as as a three main broad categories of trusts um but ideally like depends that would determine you know um the type of trust determines I guess how those beneficiaries will benefit so if it's fixed unit trust it's a bit like a company um shareholders uh you know it's based on proportions so if you have a husband and wife ideally they will be 5050 as the benef fisheries and that's fixed so their distributions will always be 50/50 but in a um discretionary trust as the name suggests the distributions are going to be discretionary um and that's why a lot of people love discretionary trusts particularly from a tax planning point of view because you can distribute to Mom and Dad you can distribute to your kids when they turn 18 and they're at Union and don't have jobs so you can um you know filter I guess the profits made from the the ities um down to you know whoever earns the least amount of money as possible from a tax planning point of view right um so what's really important about setting up a trust structure is that trustee right so if I were to set up a trust and have me personally as the trustee then I'm going to have the same problems as buying property in my personal name I'm going to hit that Beaker when it gets filled up and can't Serv as the loan anymore with having a company as a trustee and this is where it gets really really interesting um The Entity itself has its own servicing limits and what I mean by that is and you might be thinking well how is this possible I've just set up a company it's not making money how is it going to service Alone um well congratulations you've now become as a director of the company you be effectively become the bank of mom and dad so you guarant the loan for the company so you're still using your service ability but in capacity as a guarantor and this is where understanding the um banking legislation and lending legislation is important because from a servicing point of view guarantors um yes it will show up on your um servicing checks but it doesn't necessarily say the amount that you've guarant told the property for right and you're not the name that's on the loan documents either it is the entity itself so how this then works with either companies or companies that have that corporate trust entity is is that you as a director will guarantor the company to take out that loan and so that loan then stays only with that entity so if I go to another company then the same process happens again right of course the bank will know that you have guarantor an entity right and they will often ask the question well can we please see the financials of that business and this is where it is important to show that at least the debt obligations are being met um and that's where we then also work with an accountant to provide the right documentation and the financials back to the bank to um demonstrate that the company is managing the asset on its own effectively right and if you do that then you can kind of go company one company new company 3 company four and of course you will pair that company ideally with a discretionary trust um for tax planning purposes to distribute income and of course for the cgt discount right because as I said before even though we could probably save that with a company how often do you see people selling properties in company structures I haven't yet un unless it's commercial property and that's that's a different cattle of fish but for residential um property no no no one seems to do it right right um so that's Bas the basic structures I think um yeah so is there anything there that doesn't make sense P or no it's a I think it'll be a lot it'll be a lot to take in for sure for for for some people so I might try to actually there's one thing that way back you know you were talking about inheritance um and and making sure whatever option you're going with is congruent with um you know being able to hand it down because so many property investors of course they want to build wealth they want to build passive income but they want to build inter generational assets that they hand down to kids grandkids um so of course you know none of this is financial advice and everyone's different um but did I hear you correctly when you said that when you buy under your personal name and then you know there's an inheritance event let's say that the people receiving that inheritance or those property they have to pay like uh stamp Duty or capital gains tax or or how does that all work it depends it depends right it depends on whether the person has a has a will or doesn't have a will to start off with um so this is where estate planning comes into it um and it depends if you're passing it down to say children then you probably won't have to pay um stamp duty but if you pass it on to say a best friend then the implications from a taxing point of view changes yet again um so you know the and and I say this with to anyone who owns property you need to also have a wheel um in place as well that can deal with those assets um but yeah that that's something that's really really important to understand um and likewise with uh companies and trusts right um companies are Perpetual they don't have an expiry date If I Die Tomorrow someone will take over as director and my shareh Holdings will go to whoever I've gifted it to in my will so the property can keep going and I can pass it down like that um for properties in a trust um and even with a corporate entity effectively yes that is the same but most States except for South Australia um limit trust to 80 years so if you die and you pass down to your kids your kids might only have another 30 or 40 years left to keep that property in the trust before they then have to actually distribute that property and and then that can also trigger certain cgt tax events if certain requirements aren't met um so the these are the conversations that you really need to be having um with both your accountant and solicitor um right at the very beginning because if you don't get the structure right to restructure later means you're going to trigger stamp Duty and cgt again U potentially depends how how the structure is so you know th those are the considerations there right yeah so South Australia was 80 was it 80 years for for trust are the other states and territories like a little bit more or do you know them off the top your head like New South Wales Queensland Victoria so all the states are caped 80 South Australia has put what's called Perpetual um limitations but and this is where I would say approach this with a bit of caution um it hasn't been tested before the courts whether that will hold up right right so whilst it might be Perpetual the law like the common law of trust says that trusts need to vest at a particular point in time so how that then inter plays with you know the traditional law themes um hasn't been before a supreme court in South Australia it hasn't been even before the high court in Australia yet so it might be the case where someone's like yes I want to have this Perpetual trust and we won't probably see it for another 50 60 years and realize well it's not really Perpetual it's just until the original person who set up the trust or the original trustee kind of you know dies out or passes it down to the Next Generation but maybe won't go to the third generation so we just don't know that how that will play out just yet um so again you know word of caution there you know um yeah sure sure no I think it's uh worth everyone getting individual advice from their own accountants and solicitors on this but it's a very I mean you know by hopefully watching or listening to episodes like this you kind of figure out all the stuff that you didn't know you didn't know and and like it can like even listening to you even though I kind of know much of the stuff it's still very overwhelming and it's like oh my God like you know there's so much to to consider um yeah and even from my point of view as well like I have clients that come to me with some questions and I have to really think about these things because it is a very complex of Law and so I often see people on you know Facebook Forum saying no buy and Trust buying a trust and it's like well hang on a second yes you got the cgt discount you got the tax distribution that's all good but is it necessarily the best structure for your personal investment strategy right so it might be good if you're going to you know buy flip Buy sell Etc if you're buying and hold you don't really need to have a trust you can just leave it in a company um because it's so much easier to manage the asset if it is in a company and pass it down there's less complexities around that um but then you also have your land tax considerations as well right um and this varies state to state so cgt is a um federal tax so it's the same across every state stamp Duty and land tax um differs from state to state and land tax and structuring is very very important so so for instance in New South Wales um would you use a discretionary trust to own property probably not because from a land tax point of view you are paying land tax from zero dollar or from the first dollar uh that the property is valued at um and so if you are a sa investor I mean look you can factor that into your um into your um you know planning um as well and it's definitely something to factor in but but at the same time you know there's only so much you can charge someone for rent and if you're going to start paying an additional five grand a year um on land tax or more um then you know that's an extra $100 a week you're going to be charging to a tenant to cover that um so you got to weigh that up and then weigh that up with the potential cgt benefit if and when you sell um so again like when you are thinking about these structures is you also have to think about the bigger picture and what is your investment plan if your goal is just to kind of you know flip and have capital gains every couple years and pay some cgt then Happy Days um use use a discretionary trust that's fine or use a unit trust in New South Wales as well because the unit trust in New South Wales has the individual tax threshold but the discretionary trust doesn't so um the these are considerations to to think about um just to be clear so to interject on in each state the land tax um free threshold is different for a unit trust versus a discretionary trust versus a company versus personal name um that's what you're saying I just want to make sure it's clear everyone so I'll just use new southw as an example because that's the state I'm based in right so um let's say don't quote me on this this is not the correct figure but let's say the land tax thres New South Wes is at a million dollar okay um that threshold is in your individual capacity companies also can hold property value of say up to a million dollars um and so can fixed unit trusts however discretionary trusts don't get that um benefit because in New South Wales they they say well we don't really know who you're going to distribute to that person might own other property so we're just going to tax you on the value from the first dollar right Victoria is again similar but different thresholds so for instance um I think the threshold in Victoria for um personal land taxes dropped down to 100,000 but for trusts it's 50,000 and that's regardless of whether it's a fixed trust or fixed unit trust or discretionary trust it's just at 50,000 um but then there are exemptions for rooming houses for instance that don't have land tax uh or won't pay land tax um and then we look at Queensland where doesn't matter if you buy an a company person name discretionary TR oh sorry personal name is a little bit higher the threshold I should say but like for companies in discretionary trusts or unit trusts it's a fixed threshold of I think it's 350,000 right then we go to wa and it doesn't matter what structure you buy in uh because nobody pays land tax inwa so um you know so the these are these are the things you have to be thinking about and South Australia is very similar to Melbourne and with with the threshold limits um you know so you have to and it's hard because you don't have that foresight necessarily at the beginning am I going to buy and hold am I going to sell um but like for instance you know for people that I know who are keen on buying and holding like if they're buying New South Wales I probably wouldn't recommend a discretionary trust as my go-to um strategy to begin with I would look at other options first um and even that I've had a client in Victoria um who wanted to buy a property about holder for 10 or 15 years and we we um sat down with their accountant and we did some forecasting as to you know how much land tax will you be paying over 15 years um versus how much would you potentially have to pay on tax with your capital gains and after that 15year period the difference was I think probably about five grand difference so um it was still better for them to pay the land tax every year to save um five grand um at the end of the day um but again you know that's you know everybody has different circumstances and that's why you need to really work together with your accountant and also have your solicitor to set up those documents to your correct intentions yeah yeah and this is so useful I also don't want people thinking oh land tax is really high in New South Wales therefore I'm not going to invest in New South Wales I'm only going to invest in Queens that I remember when I first started I was tempted just to buy in Queensland because I was thinking that the stamp duty is much lower in Queensland versus most other states I was like I'm going to hack the system but you know at the end of the day there's no perfect State I mean queensland's probably as close but then wa doesn't have LX so there's no perfect outcome in it and same with structure structuring or choosing which ownership um model you want to buy your properties and there is no perfect solution and so like us saying you really do need to customize it is not like a a cop out or it's like it's actually the truth and um I think one thing that is quite difficult for the novice investor Monica is like when you go to three different accountants or I'm just making this up three different solicitors or or or tax lawyers you tend to get sometimes tend to get like conflicting advice like I get people messaging me all the time saying oh I I watched your video the other day PK on how to get England sporing capacity through a trust structure and I went to my account and he said that was a scam and so then went to another account and he said yeah i' helped more than a hundred clients do that so it's like who who do I trust um I don't know if this is a question to you per se but like what's your perspective on on that um it's funny you say these CU I actually teach business and corporations L to accountants um at in one of the universi that I'm at and believe it or not I mean look accountants particularly those that have the chared accountancy um qualification probably are better at understanding structures than someone who just has a CPA to begin with um so there there are I guess there's different levels of accountants and likewise there are different levels of solicitors so I have friends that are solicitors who have never studied you know the the intricacies of trusts and corporations because that's not their area of law they don't know this stuff and when you speak to them about they're like wow and they feel you know overwhelmed as well and they're like how come I never picked up on that um the reason why I did this was this is my area of law that really interested me I I did work for a tax accounting firm um so I do have a background in indirect taxes and I also got to see exactly what these uber wealthy clients were doing to structure their um assets and that is when I realized well none of these super rich people have you know um property in their personal names and so you have to ask yourself why and so through my connections and and that's kind of and my training that's where I learned about these structures so a lot of it really depends on the experience of the professional um you know your typical tax accountant is not necessarily going to know how to structure assets because that's what they do they're very good at bringing down your um you know taxable income so you pay less tax and funny just on that point I learned also the hard way of probably if you're looking to buy property in the next 12 months you might not want to be paying as little tax as possible at tax time so I know that's around the corner like you want to have more taxable income because that's going to help you service better um so so little things like that um so you know and so a lot of accountants are very much on like let's claim everything claim claim everything because you get money back well um for property you don't really want to be getting money back because those small gains is not going to be enough for you to have cash to buy property particularly at the rate the market is moving so um yeah like I said it's really just the experience of the you know the professional um the more professionals that deal in the areas and and those are the questions you should be asking your accountants and your solicitors is like have you had clients that have done this before if they say no okay see BU like go find someone who says yes I have clients that do it um because they will be able to give you that advice if they've not done it before then they're limited by their own knowledge and experience yeah no well said and I think it's so tempting as well I think people have fomo because I just got the stats the um just this morning in in May which is um previous month we're recording this in June in May the property Market or the national average went up 8% and so if you annualize that that's almost double digit gains and so people are like by the time I ask like accountants and solicitors like I've missed out on like 203 $40,000 of growth but honestly I think you need to step back and and see things strategically because if you get the wrong structure or the wrong setup then forget that $40,000 of growth you might be costing yourselves 500k in you know unnecessary taxes in a transfer event 20 years down the line or 30 years down the line so yeah just I think just chill and let the growth happen and just get that strategy uh real solid to start with yeah absolutely and that was the thing for me when I had to restructure my own portfolio I had to pay cgt and stamp Duty again um and it was not cheap right and luckily I had like the equity in a property to do that but that was a deposit for another purchase that I could have you know done but I had to use that money first to fix my structure up to be able to have that endless B borrowing capacity or what I call the ability to debt Silo so you can have that um endless borrowing capacity yeah so yeah that that's I guess the um yeah the the thing to think about as well um one other thing I probably should also mention with you know purchasing properties in these various entities corporate entities or so either companies or companies with a trust of some sort um is that there are more complexities as well from The Lending point of view so because you are guarantor the loan you now have to get independent legal advice um for most banks um for that uh to process that loan um so again that's another cost you do have to factor in and of course the cost for setting up the structures as well which is often if it's a company with a trust you're looking about close to a th000 or just over $1,000 every single time you set it up right and with these siloed borrowing entities to kind of unlock the endless borrowing capacity if we want to use those terms if you buy in a company structure every time versus Buy in a discretionary um trust structure every time with the corporate trustee does it matter in terms of the fundamentals of the Endless borrowing capacity that sort of siloed borrowing um model that we're talking about whether it's bought in company versus discretionary trust with corporate trustee it's the same thing because at the end of the day it's the company that is giving the benefit so whether it's a company in its own capacity or as a truste is the company that gives that benefit um the only thing you have to be aware of is you do have to have deposits and your entities need to be able to repay those loans fully so if you are thinking to negatively gear in a company or a trust well first of all there's no such thing as negative gearing in those entities um it's just essentially running the business as a loss and those losses yes they can be rolled over to future income years but that will then if if the if the property is running out a loss then that will impact your servicing on the next loan on your next facility so you just have to factor that in and of course that's also dependent on certain lenders right so for the tier one lenders yes it definitely impacts it for the tier some tier 2 and some and of course tier three lenders they probably don't care um but yeah like it is something you want to try and you know aim towards is making sure that the loan can pay itself off so you are not negatively geed in those entities right yeah I'm just mindful of time and you have to probably go soon just quick last two questions I don't want to be a party pooper but I think people will be thinking about this you know with rates the way they are they're not super high but they're high relative to the last sort of five years and almost no properties are of course positively geared from from day dot especially at say 80 88% lvr of course give it two years rents go up maybe uh rates come down and Notch then they become positively geared but right now they're not um does that mean this whole endless borrowing uh strategy kind of falls on its face because none of those companies um are actually self-sufficient um yes and no so I a lot of it is to do with a waiting game but there are other things you can potentially do to have the endless servicing or the end endless um borrowing capacity um so one of the things is if you have savings put those savings on your you know um offset account right because then suddenly that entity is going to start performing positively right so there's ways you can structure it um likewise I mean depending how you put the money into the structure and again this is not legal or financial advice um you know remember that it is a corporate entity so you could effectively charge someone a consulting fee a yourself to pay money into the company to then offset that you know deficit um as well so there are creative ways that you can do to kind of circumvent that um uh but yeah the the the easiest one is just any savings you have transfer it onto you know the the um yeah the offsets of the of those facilities um yeah that that's the main thing so yeah you just have to um you know talk to the right people and come up with a strategy but even that as you said you know and I've known this with my own properties in the last couple years um if for whatever reason they're not going to be performing as well as they should I just wait 12 18 months and then I can go again and then I also have Equity as well so it's kind of like a win-win um in that regards um you know like I think a lot of people think is a fast game particularly if you have had a lot of equity um growth in the last couple years because of Co and um other economic factors but you know um the people that I have seen that have 4050 properties that are making a million dollars plus a year from property have done it over 20 30 years so it is a slow game I think a lot of people are very lucky if they owned property just before Co and have had that growth that then probably may be able to expand that portfolio at least initially a lot faster than what we traditionally have been able to do so great you know by all means take advantage of that but structure it the right way because then once you've bought those properties you will see a bit of slowdown right right but having those structures in place will just you know allow you to do things tenfold great advice great advice uh and and so practically like you know of course you're you're a solicitor you're on the legal side of things let's say I'm a normal Mom and Dad investor I hear all this and I'm like yeah this sounds great kind of goes over my head to some extent I need some advice should I be going to my accountant first and then sort of asking them to get in touch with a a Monica type person or should I be going to Monica first and then she or you will then leaz with an accountant how was how does it work yeah so usually what we tend to do is say to clients what is your strategy number one figure that out whether they figure it out on themselves or they speak to some sort of financial advisor or property strategist out there to figure out you know are they going to be buying and selling buying and holding how many properties do they want because I mean I know for me for instance when I first started buying property I didn't have a figure in mind I was just like yeah I'm just going to buy one and see see where it takes me right um if I had said to my accountant and he he says this to me he said oh if you told me you were thinking to buy 10 20 properties and leave off the income from those properties I probably would have told you to structure it you know years ago when you were you know in your early 20s before you had studied law and all this other stuff okay fine um so again this is what I mean like sometimes accountants might know these things but they just don't think unless you tell them your your goals they're not going to give you that advice to begin with so I'll say figure out the strategy first um and then structure The Entity and look you can have a you know a conversation with your accountant in between if it is your your your typical accountant and say look I'm thinking to do this what are your thoughts um but then go and get the advice from someone like myself or solicitor who can actually give you the ins and outs of the legalities behind why you're structuring it that way and what I do with my clients as well is I do you know sessions sometimes hour or two hours with them where we actually you know draw things out and draw them these diagrams of how these structures are like um and talk them through you know what you can then later do with these structures which I haven't talked about in this video and particularly with you know lending between entities and that's where it gets really really cool um and interesting as well from a tax planning point of view so we we do um guide clients through all of these first and then we say to them okay now that you've structured now you're ready to to go and buy some property go off and buy some property and once you have that property bought that's when you go back to the accountant for tax planning purposes um and to you know you know um yeah um get those accountant letters for the next um purchase and so got it it's really good to know and I think um that strategy part is is so important um you know at least for my clients it's we shouldn't just have like a I want to make a 100K passive income in 10 years some sort of arbitrary goal but at least for my clients we reverse engineer that and say based on your capability and capacity and your goal here here's a financial model let's reverse engineer and see what's actually possible and then go to the solicitor go to the accountant um to actually make it happen but I'm so lucky my wife is a CA so she kind of she's across this um Monica how how can people sort of found out find out about you how can they reach out to you how can they get in touch so easiest way and I might just give you my email afterwards um as well but um if you contacted me at monica. sound counil .or uh so that's my work email address otherwise search for me on Google or follow me on Instagram and Facebook so just uh on Instagram I'm Monica Rellis so very easy to find me um and just send me a DM and we'll yeah get in touch and go from that that's awesome that's awesome well thank you so much and guys I I must stress this and I'm not sort of like trying to give Monica business or anyone business here but I think it's really important when you find a professional don't just like you know pick their brains for 2 hours and expect it for free like if you seek advice be prepared to like invest in that advice do you know what I mean so you know a lot of people complain oh I'm trying to figure out this endless boring capacity structure but I can't get two hours with my accountant or an hour with my accountant like if you want good professional advice from good professionals you know price is what you pay value is what you get so that's very important shout out to for whichever professional you're using whether it's Monica or not but thank you so much Monica I think that was a yeah that was a world of of not advice but information hopefully we have to watch that maybe two or three times to really absorb it I'm very grateful and thank you so much no worries thanks for being here um and thank you everyone for for watching or listening if you did find it valuable please let us know in the comments your thoughts as well I did a video just last week with a mortgage broker on a similar kind of vein on endless borrowing capacity so maybe match the two up build your knowledge invest in yourself and don't have fomo for the real estate market even though it's going up set your strategy right you'll thank yourself in the future for it thank you thank you for watching hit the Subscribe button hit the like button and thank you again Monica

Channel: Australian Property Mastery with PK Gupta

Views: 35,887

Keywords: Real estate Australia, Real estate investing, australian property, australian housing market, australian economy, australian property investment, australian property market, buying property, australian real estate, economics explained, David Quan, heise says, first home buyer, personal finance with ravi sharma, michael invests and tries to make money, property investment accelerator, pk gupta, buyers agent, martin north, walk the world, rentvesting, interest rates, loans

Id: A_A1btvX0Ro

Length: 52min 1sec (3121 seconds)

Published: Wed Jun 05 2024