Some complex questions…
I stumbled into property as a way to make money after buying a house in Bath, UK when I was 26yrs old after 3 years of renting.  The logic of paying a mortgage V rent made sense.  After a couple of years I relocated with work to Cambridge UK so thought I should buy another house to live in rather than paying rent, as the logic was still sound.  When I moved to Manly, Australia and met my wife we became more interested in property and started educating ourselves with books and seminars.  We bought our 1^st block of 3 positively geared houses (all in a line, just line in the game Monopoly!) in Maitland as we couldn't afford a house in Manly.  Through the equity in those properties we bought a house (our principle place of residence) in Manly.  Since then we have not been able to walk past estate agent windows without looking at the house/ unit prices in whatever area we happen to be in!  We've bought another house in Cairns on a long term lease to the Defence Force, a share in a large property off the plan in Fiji and are looking to buy a house in New Zealand & Melbourne. Our financial advisor keeps telling us to stop buying property as we are over exposed in that investment segment and pushing us towards shares, however our accountant tells us to stick with what we are doing as it seems to be working.  We understand property and enjoy being more in control with respect to shares, plus the share market appears too complicated for us simple folk to fathom!

My questions;

Q1: All the properties are either in my name or my wife's name.  We have heard that property or hybrid trusts would be a better way to protect our equity from one accountant, and another accountant saying we should start a company and place the properties under that structure. Is there a way to transfer the property into a trust/ company without paying the stamp duty again?   

Q2: We have only ever bought houses. A growing % of the population will require a unit with modern life.  Why would one buy a depreciating asset of a unit V a depreciating asset of a house + appreciating asset of the land the house sits on? Are we being too simple with this line of thinking?

Q3: Mortgage interest rates in the UK are around 5% … can we utilize a UK mortgage on an Australian property?

Regards
Dominic de Souza

Q1: All the properties are either in my name or my wife's name.  We have heard that property or hybrid trusts would be a better way to protect our equity from one accountant, and another accountant saying we should start a company and place the properties under that structure. Is there a way to transfer the property into a trust/ company without paying the stamp duty again?   
Well done on the property purchases. First thing is, you should not purchase a property in a Company because you will trap the negative gearing in the company and not be able to offset the losses against your wages and the transfer will trigger stamp duty and capital gains tax . Also if you ever wanted to sell the property you will lose the 50% exemption from capital gains tax.

Secondly there is no need to transfer to a Hybrid Trust which will trigger capital gains tax and stamp duty. There are many other better ways of achieving asset protection without having to transfer the property.

For example you can draw out the equity by constantly gearing up the properties that are at risk (properties in your name) and buying new ones in our Property Investors Trust™. Hence the new properties are protected and the only thing that is exposed is the equity in the old properties. Instead of cross collateralizing them together which will hurt you from a refinancing point of view, you can establish an Equity Protector Trust™ to protect the remaining equity in the "at risk" properties .

This is cost effective and eliminates the need to transfer the properties which will trigger stamp duty and capital gains tax.

Alternatively you can sell the Life Interest in the property to a Property Investors Trust™ which protects the property and there is no capital gains tax nor stamp duty (except Queensland and in Western Australia we need to use a lease).

There are other options but you really need to sit down with an Accountant from Chan & Naylor who will, after sitting down with you and assessing your situation, come up with the correct strategy for your situation. This will take up to 2 hours.
(Edward Chan - Chairman – Chan & Naylor Australia www.chan-naylor.com.au

Q2: We have only ever bought houses. A growing % of the population will require a unit with modern life.  Why would one buy a depreciating asset of a unit V a depreciating asset of a house + appreciating asset of the land the house sits on? Are we being too simple with this line of thinking?
This goes to the heart of what our message is about when we consider property investment and what good investing is really all about.

Of course, our premise of strong investing is wholeheartedly based on capital growth as the first and foremost reason for investing.

One thing you need to be careful of is making a similar series of assumptions that many of our client's initially do. These can lead to ill-advised investment chpices and missed opportunities. 

Let me explain...whilst you have undoubtedly heard that land appreciates and buildings depreciate, and in fact this is true in accounting terms, you must be careful not to get caught up in this concept. You see, property grows in value (capital growth) because the demand for it outstrips the supply, not because it's got a front and back yard.

For instance, there's plenty of land in the NT but it's not worth much because the supply demand ratio is absolutely the wrong way round.

The second assumption you need to be cautious about making is that houses have a land component, whereas units do not. In fact units do have land content, as the owner of each unit owns part of the land on which the development is built and a similar ratio of the common land, ie the gardens, driveways, entrances, stairways etc.

Let us analyse this with regards to the value of the land as a % of the total value of the property, rather than the physical size of the land.

Perhaps if we were to look at two identical boutique blocks of units built in, say 1980 by the same builder, one in Blacktown and one in Bondi, and ask which one is the most valuable?

Of course the answer is the Bondi one. Further, the demand for Bondi property is greater than Blacktown property so the capital growth is greater. Therefore, putting these elements together, we can see that units have strong capital growth potential if the demand is high and the supply is limited. We can also see that there is a strong land component in units situated in high land value areas, where the land value is a much higher % of the total value.
(Jack Henderson - OIEC & Director Metropole Property)

Q3. Mortgage interest rates in the UK are around 5%...can we utilise a UK mortgage on an Australian property?
Whilst I do not have a detailed knowledge of the UK mortgage market, I think it would be unlikely that a UK lender would accept a property located in Australia as security for a loan. I certainly know that Australian lenders will only accept property located here in Australia as security (i.e. can't use a UK property as security for an Australian loan).

Notwithstanding that you may not be able to borrow in the UK from a practice sense; it's not a good idea from a financial sense. Certainly the headline interest rates in the UK are lower. However, if you earn all your income in Aussie dollars and then you take out a mortgage in Pounds Sterling, you will own yourself up to foreign exchange risk. That is, if the Aussie dollar devaluates, your UK mortgage will become comparatively more expensive and you may lose your advantage. Therefore, to cover this risk off, you would have to hedge your exchange rate risk. This gives rise to more cost. This strategy isn't really practice on a retail level. In the 1980's many Australians got burnt with Swiss Frank loans...don't repeat their mistakes.
(Stuart Wemyss - Director – ProSolution www.prosolution.com.au)

Querying Queensland…

My wife and I have recently purchased an investment unit at Mermaid Beach, Gold Coast, within 500 metres of the beach and only 200 metres from the Gold Coast highway and transportation.

I have noticed many articles singing the praises of Brisbane for investment but not a lot said about the Gold Coast. Rents have been increasing and tenants are finding properties harder to come by. What do you consider to be the medium and long term prospects of this area?

Regards
Tony Argyle

Hi Tony

Thank you for your question.

Your question does not address if you are requesting the details about the Long Term Prospect of Rentals or Growth. With respect to both, it all depends on supply and demand. The Gold Coast has received some great growth in the past 5 Years but not all of the Gold Coast has performed well. Some areas have performed well while others have been stagnate. Without knowing specific details such as how many in the complex, amenities, size, ratio of Owner Occupiers vs Investors, age, exact location, it can be very difficult to determine the growth of your specific property.

On my recent visit to the Gold Coast, it was obvious that there is a lot of activity, there are cranes in the sky everywhere, some areas are being transformed while others are quite tired and dirty. The completion of the Gold Coast Exhibition Centre at Broadbeach looks fantastic and will be a great draw card to the area.

Mermaid Beach is slightly different as it sits in the middle of the Surfers / Broadbeach area and say, Burleigh Heads. Location in this area is key.

Regards
George Kafantaris - Managing Director & Licenced Estate Agent
Metropole Buyers Agency QLD

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