Header Ad Module

**revdev** · 02-08-2006, 03:35 AM

Hi B52,

Welcome to the forum (well welcome on your first post anyhow

)

Nothing like starting with the BIG question. I see you have searched through the myriad of posts on 'structures' - the respective merits or otherwise has been picked to bits many times on PT.

Your structure setup should reflect your own personal situation, which begs big questions right back; what do want to achieve (do you want 1 investment property or 101?) Also how do you plan to achieve it (buy-and-hold, trade, do up...?)

There is a chapter by Chris O'Connor in Graeme Fowlers book "Real Estate Investors Secrets" which covers all of this in laymans terms.

Anyway, we all love a good story so fill in the gaps...give and you shall receive!

All the best

G

**Rhys** · 02-08-2006, 05:49 AM

Hi & Welcome,

I think you will find the answers to most of you questions in prevoius post on here somewhere, but if not then my advise is to use the chaps on here as a resource and fire very specific questions at them.

If at the end of that your still not sure then perhaps run your situation past a property lawyer & Accountant.

You've already established each structure has different attributes, now you need to match the attributes to your requirements.

This bit is not intended to scare you but it is theretically possible that you require both a trust and laqc or even more. (your starting out so i doubt you will Im just trying to highlight that its not nessaserily a 1 to 1 relationship between investor and structure) E.G I think there are some investors on here that buy and hold in a family trust and also do trades via a company/laqc or trading trust.

its not really possible for anyone to give you an answer along the lines of "you require a ___ " with out knowing a lot more about you, your investment plan and current situation.

Sorry - I expect your even more confused now. Dont be put off by this, push through it, starting out is a very difficult time but it wont get easier by not bothering to.

Cheers
Rhys.

**BobT** · 02-08-2006, 07:23 AM

Hi B52

I am just having my structures done (sounds like I am in a hair saloon) by a chartered accountant called Gilligan Rowe and Associates. Their web site is www.gra.co.nz. They are charging me about $1,000 plus GST just for a letter of advice, but the set of structures that they are puting in place are tailored for me and my circumstances. I know it may sound like a lot of money up front when you are starting out but it is well worth it. If you make any mistakes at the beginning of your investment career they will follow you around for a long time to come. GRA will instruct your accountant and your solicitor how to act and set everything up for you.

Hope that helped

**xris** · 02-08-2006, 07:52 AM

Hello B52,

You may want a different point of view, one which I have mentioned before and which did not seem to taken with much seriousness. I do though think that in some situations it is definitely worth considering.

If you are just looking to enter the rental market , and if you have no firm plans to start doing any developing or trading for a while, if at all, the give serious consideration to buying in your own name.

Why?

Well, why not?

If at a later stage when you have clearer plans you decide you want to start trading or developing then you can set up your structures. It will be a lot easier to do this if your existing properties are in your own name than tangled up in an already existing complicated structure.

Your plans are likely to change a lot as soon as you gain experience after buying your first one or two.

If you just want to own buy and holds for your retirement there are few, if any, advantages to owning in a structure or in your own name. (Trusts maybe, but that does not have to be done straightaway.

Complicated structures can be time consuming and expensive.

Just some thoughts. Enjoy the journey.

xris

**MJU** · 02-08-2006, 08:08 AM

Forums are great in that you get a wide range of opinions to pick through and (try to?) make sense of!

You also get people disagreeing with each other, and that can be useful for the facts that the discussion introduces.

By way of example I don't agree with the view put forward by Xris that you should for now just buy directly.

I don't believe it is ever a good idea to own property directly. If you use a company to own your contemplated first investment you can later move the shares in the compnay around any later more appropriate and possibly more compicated structure. This has the advantage of not being a property sale, and threfore not triggering any depreciation recovered.

The less you know nowabout what your strategy and intentions are, the better insurance this option is!

Have fun!

**sarahd** · 02-08-2006, 12:43 PM

I think that setting up structures are good also, however I've seen a lot of people think its "too hard" because of the structures and therefore don't buy.

If they have a simple need of buying one investment property, sometimes people get put off by trying to get to grips with LAQC, Trusts etc and end up thinking its not for them, or there's no way they can manage it or hope to understand it. This puts them off a very good investment.

Not everyone is in property investment to be come financially free or full time. There are a lot of 'dabbler's out there who are happy to have one property as part of a diversified investment portfolio.

I think buying in a personal name is a legitimate option for some people.

If you have a salary, you can still tax deduct expenses. There are other ways to protect your assets other than Trusts, so your house could still be protected from 'predators'. If you're on a salary, also low risk for 'creditors'. Why rush into complicated structures?

S

**David_W** · 02-08-2006, 01:58 PM

In my opinion buying in your own name is a cop out, and an excuse for laziness.

For the cost of setting up a company ($60 + your time if you can do it yourself, or just a few hundred by a professional) you can get this made into a Loss Attributing Qualifying Company if you are a newbie investor in a job.

However your own home, life insurance policies, ungeared equity securities (shares) and positive cashflow properties should be part of a trust structure always.

Both Gilligan Rowe and Company Solutions are experts in tri trust structures, that offer asset protection blended with tax maximisation. Look them up.

When I practised as a lawyer I had a client own a property in his own name. About 8 years or so later he did a couple of property trades. Got audited by the IRD and was flagged as a trader. A year later to pay the IRD debt he had he sold the investment property for 9 years. A hell of an argument ensued and he was found liable to pay tax on the "capital" gain on the property bought for investment purposes in his own name 9 years prior. The amount of tax payable was over $150,000, with legal and accounting professional fees over $30,000. This could have been avoided by having the right structures in place at the start - and NOT owning a property in your own name.

DO NOT PURCHASE PROPERTIES IN YOUR OWN NAME.

Too many bad things may happen (lose job/business, serious illness, crash into a mercedes a day late on your warrant, start trading or developing). If you like palying Russian Roulette - good on ya. But I prefer a more prudent approach to spend up to say $3,500 on structures to get them right at the start.

Get the right structures in place always - no exceptions, ever.

**b52** · 02-08-2006, 02:21 PM

Originally posted by revdev

Your structure setup should reflect your own personal situation, which begs big questions right back; what do want to achieve (do you want 1 investment property or 101?) Also how do you plan to achieve it (buy-and-hold, trade, do up...?)

Revdev - Well, I've just turned 20 and I'm looking to use property investment to enable myself to retire early/be able to invest full time. Basically, I want to make some decent money doing something I'm really interested in. So I guess I will have to buy a fair bit more than one. I also am hoping to do a combination of buy-and-hold and renovations, but that may change in the future.

Originally posted by rhys

Sorry - I expect your even more confused now. Dont be put off by this, push through it, starting out is a very difficult time but it wont get easier by not bothering to.

Rhys – Thanks for the advice, I knew one could do that, I just wasn't sure what the benefits for someone like me would be. Yes it is difficult starting out, but I'm sure it will get better once I can get in there!

Originally posted by BobT

If you make any mistakes at the beginning of your investment career they will follow you around for a long time to come.

BobT – Thanks! I will definitely look in to what they could do for me. And that is precisely the reason I'm trying to find out now what I need to be doing, the last thing I want is to finally start getting ahead only to be stopped by something I did as a silly newbie!

Originally posted by xris

Complicated structures can be time consuming and expensive.

Xris – Interesting point of view, but that's exactly what I'm here for! The issue of depreciation that MJU mentioned is part of the reason I was looking to set up a structure first. As in, how much more difficult would it be for me further down the track if I wanted to do it, if I had bought in my own name first.

Thanks for your insight MJU!

Very insightful responses guys thanks a lot! I've got a lot to consider/think about.

Brooke

**pgflt** · 02-08-2006, 06:24 PM

I agree with David W 110%

**SuperDad** · 02-08-2006, 08:10 PM

Thanks for the story David - it is brilliant to hear of actual cases. I agree with pgflt 110%.

xris - out of interest, what structures do you run for property ownership? (I am wondering whether you are playing devil's advocate, or whether you are the devil's advocate

) I remember a while ago you suggested that I consider owning IPs in my own name. Others poo-pooed the suggestion, but it got me thinking. Up to that point, I had thought that the main benefit of an LAQC was that you could distribute losses out against shareholder's income. After your suggestion, I looked into personal ownership in more detail, and realised that this was one of the myths associated with LAQCs.

Finally, I am one of those who have gone out and decided to set up the complicated, expensive structures first up. Why? Because of stories such as the one David has shared with us.

Paul.

**xris** · 02-08-2006, 08:55 PM

Hello B52,

I guessed there would be some replies to my suggestion which would not all agree with what I said.

A quick couple of points.

Thank you for elaborating on your plans. I would suggest that because of these plans you most definitely do need some sort of structure set up before you get started.

Second, lest anyone overlooks the fact, I have never said that owning property in your own name is better than in a company or trust, but rather that it is an option that might suit some people. I have also implied that it is an option which is too often unfairly dismissed as reckless, foolish or never worse considering – an opinion I still hold.

If you read some of my posts you will see that I prefer reasoned logic with opinion, rather than guessed illogic.

This is why I like mju’s comment:

Q By way of example I don't agree with the view put forward by Xris that you should for now just buy directly.

I don't believe it is ever a good idea to own property directly. If you use a company to own your contemplated first investment you can later move the shares in the company around any later more appropriate and possibly more complicated structure. This has the advantage of not being a property sale, and therefore not triggering any depreciation recovered.

It makes sense to a point, even if I believe there are other factors which need to be considered which might lead to a different conclusion. But whatever, good advice which you must take into consideration.

Sarahd’s is my favourite post because it so closely reflects my own thinking.

Q Not everyone is in property investment to be come financially free or full time. There are a lot of 'dabbler's out there who are happy to have one property as part of a diversified investment portfolio.

I think buying in a personal name is a legitimate option for some people.

If you have a salary, you can still tax deduct expenses. There are other ways to protect your assets other than Trusts, so your house could still be protected from 'predators'. If you're on a salary, also low risk for 'creditors'. Why rush into complicated structures?

[As a slight aside, pgflt’s remark is as sweet as it is short.

I agree with David W 110%

Q I agree with David W 110%

If 100% is an absolute (this is just begging a vehement response from all you mathematicians out there), then does this mean that you agree with everything David has said, and some of what he has not said (impossible?), or that it doubles back to be only 90% different from David’s, ie 90% righter or 90% wronger?]

And that leads us nicely into to David’s post and argument.

Q In my opinion buying in your own name is a cop out, and an excuse for laziness.

Quite dismissive of many intelligent people who have carefully considered the options and chosen to hold in their own name, not to mention those who know of no other method of ownership. I would think ill-informed or unintelligent might be a better description than laziness or a cop out.

Q When I practised as a lawyer I had a client own a property in his own name. About 8 years or so later he did a couple of property trades. Got audited by the IRD and was flagged as a trader. A year later to pay the IRD debt he had he sold the investment property for 9 years. A hell of an argument ensued and he was found liable to pay tax on the "capital" gain on the property bought for investment purposes in his own name 9 years prior. The amount of tax payable was over $150,000, with legal and accounting professional fees over $30,000. This could have been avoided by having the right structures in place at the start - and NOT owning a property in your own name.

A good story which gives a good warning, but I am a little surprised that you have chosen to use it as a reason for ‘not owning in your own name at the start’ argument. Your reasoning does not follow and your conclusion is a non sequitor.

I had a client own a property in his own name. About 8 years or so later he did a couple of property trades. Got audited by the IRD and was flagged as a trader.

You presuppose that the client had advanced knowledge of what was going to happen eight years into the future….

This could have been avoided by having the right structures in place at the start - and NOT owning a property in your own name.

Before he embarked on the trading you say he could have set up appropriate structures to protect himself. This failure had nothing to do with his decision eight years earlier to own a property in his own name, but rather in his naivety or foolishness just before embarking on his trading activities. If he had placed the property into a trust or company as you earlier advised people to do…

For the cost of setting up a company ($60 + your time if you can do it yourself, or just a few hundred by a professional) you can get this made into a Loss Attributing Qualifying Company if you are a newbie investor in a job.

However your own home, life insurance policies, ungeared equity securities (shares) and positive cashflow properties should be part of a trust structure always.
…and without additional protection, he would still have been liable on the first property as a trader, as has been discussed on this site endlessly.

Anyway, I agree with mju. This site is wonderful for all the differing opinions we are all entitled to have, to give out, to accept, and to reject. Long may it continue. I for one learn something every day.

xris

**xris** · 02-08-2006, 09:05 PM

Hello Paul,

Didn't read your post till after writing my long post above.

In answer to your question I own property in all these structures: companies, trusts and own name, and have done so, to a greater or lesser extent, for many years.

Not anywhere near as many though as another member said a while ago (who??) - 18 trusts and 22 companies or something as mind boggling as that. A parnership, no not yet, although I suppose that might depend on definitions and interpretations.

xris

PS I met a guy a few weeks ago:

"Of, I'm all right: 'My home, my long term rentals and my trades and developments have all been safely in my family trust over the last 35 years'."

I held back my tears.

**SuperDad** · 02-08-2006, 09:06 PM

xris,

Hopefully you didn't construe my posting as implying that you have suggested that owning property in your own name is better than in some other structure. Just to be clear, the point of my posting was to say that your question made me think in more depth about something that I had written off on the basis of what other people had claimed. If you hear "private ownership bad, LAQC good" enough times, you come to believe it. Now I appreciate that different needs demand differernt stuctures.

Paul.

P.S. I see you have now posted while I was writting this post. I though I'd leave the original content of this post as it was (because it reports a lesson I learnt, which others might benefit from), although you obviously have not misconstrued my post.

**revdev** · 02-08-2006, 09:37 PM

Originally posted by David_W

In my opinion buying in your own name is a cop out, and an excuse for laziness.

Tripe.

I am currently a non-resident for tax purposes and my girlfriend (the other member of our "partnership") is a Turkish National. Setting up trusts and or LAQC's at this stage would only bring us under the spotlight of the companies office for a yearly audit, along with other trust complications.

We are also in the process of building a business case for the Immigration Dept, regarding residency for her in NZ. At this moment, our current "partnership" status assists us with this process.

Once we return to NZ, it will be a straight forward for us to then re-arrange our affairs.

I consider that neither a cop-out nor lazy.

One size does not fit all David.

All the best

G

Header Ad Module

Structures for a first time investor

Structures for a first time investor

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment

Comment