The Tax System Didn't Kill Property Investing

All right, so essentially what we're going to run through tonight is the three or four things that all of our clients have been hearing over the last two to three months since these changes have come about. Naturally, the advice is probably slightly different to what it would have been 12 months ago before we knew all of these changes we're going to come about. So I want to run you through self-managed super, you know, what to do now or what we're doing now with myself individually and then also our clients. There's a lot of people think that you aren't able to invest in super anymore, which is obviously not the case. I want to run everyone through the equity factory deals that we're doing and why we are doing these deals now. Obviously, the equity that we create is amazing, but there's some real tax reasons and some strategy behind it. So I'm going to run everyone through that strategy. Obviously, the structuring reset, which I know a lot of you commented or put in the text box around, you know, what strategy do we buy in now. Obviously, I can't tell you what strategy you buy in, but I can give you an inside look into what we're currently doing in the pros and cons of each, but obviously don't take it as advice because I don't know your personal circumstance and then what to stop doing to buy. I know that was a question if you have what should I be buying. And then also we're going to jump into some Q&A at the end. So if that sounds okay, let's rock and roll. If that doesn't sound okay, then I'm sorry you're going to be let down. So if we run through what's actually changed since the budget. Now, negative gearing on established properties, which if you're a high income earning PAYG was obviously a big benefit. You've been grandfathered if you owned assets before the change, but if you don't, or I have purchased sorry after the change, you get the negative gearing benefits for the next 12 months, but from one July 27, they are gone. So that's obviously a huge shift, which which essentially means buying properties in your personal name now. It's less effective from a tax point of view. CGT obviously shifting away from the 50% discount and moving towards an indexation model. I'll actually explain what that is in a little bit more detail later on, but that's a really big shift. Obviously the tax that you're paying on the sale of an asset is going to be significantly higher. Now, this is across the board other than new properties. So it'll start to make sense when I run everyone through the equity factory stuff, which is, well, how do we still get access to these tax benefits that really are only for a very select kind of asset? Because the indexation model is even on shares, for example. So really, the only thing that can get the capital gains tax discount is brand new, but we don't just want to go buy someone else's brand new. We want to create it. As the third talent, the new builds, obviously, still being able to access the advantages that no other asset class can access. Discretionary trusts, obviously, you know, that hasn't come in. It's not legislated yet, but it's a very big change and is more than likely going to come into the 30% minimum tax on discretionary trusts. And what are we doing now with soft minister if we can't buy residential property? So that is what we are going to cover off. Let's firstly go through SNSF, because this was a big one. Come out of nowhere and, you know, a lot of people rush to buy a rezy property, thinking that, oh, well, if I can't buy a rezy property, I can't buy any property, but that is not the case. So inside of superannuation, you can still purchase commercial assets, and there are some huge benefits if you are a business owner buying property inside of super. Now, obviously get tax advice, get the right advice from all your different advisors and everything else, but I'm just going to run you through statements of fact and run you through what I'm personally doing, and a lot of our clients are doing. So the big thing that people don't understand about buying property in your super fund, if it's a commercial asset, and you are a business owner, is there is a big tax arbitrage. What I mean by this is if you have a trading company, so you think about my company, Henderson Advocacy, we are a trading company that pays 25% tax on our profits. Now, we also pay rent, and if we didn't own our own assets, we'd be paying that rent to someone else, some other landlord, and it's unfortunately not avoidable. But what you can do is you can buy a commercial property, as I have done, I bought my Brisbane office inside of my SMSF, and instead of paying rent to someone else, or potentially having tax in a trading company, sorry having profit in a trading company that you're going to pay tax on, I can buy a commercial asset inside of my self-managed super fund, and I can rent it off myself, which means I can essentially push money from a trading company, which is the top right, into my self-managed super fund through rental payments, and there is a tax arbitrage because money that is in my trading company, I would be paying 25% tax on, money that flows from a trading company into my self-managed super fund in the form of rent, I only pay 15% tax on, which means I'm essentially making 10% on every dollar that goes from my trading company to my SMSF, which is obviously a massive, massive thing, right, if I could guarantee anyone a 10% return year in year out, they take it, that's essentially what this is. Now, this is assuming you've got less than 3 mil net assets inside of your super fund, anything over 3 mil net assets, you would pay 30% tax, so it may be less beneficial, but less than 3 mil net assets, which would be the vast majority of people, there is this really cool tax arbitrage. Obviously, if I'm the tenant of my own asset, I can make sure that my rental increases are aggressive, because I'm essentially increasing the rent on myself to then pay it from my trading company into my SMSF, obviously I can make sure that me as the tenant or my company is the tenant inside of the asset pays all the art goings for the property as well, which again, can mean I'm moving money across from my trading company into my self managed fund. So that is a really, really big advantage if you are a business owner. Now, if you are not a business owner, it's still super advantageous to me. I have lots of clients that buy passive assets inside of their super when buying commercial and they're not the tenants of their own assets, but it is an added benefit if you are a business owner as well. And not only are you building your own wealth, but you are also paying down the debt inside of that fund, you are paying less tax in your trading company and you are being as tax effective as possible while also building wealth. And obviously, you know, pending the rules not changing as you roll into the age of 60, you know, there's a potential to pay 0% capital gains tax on the asset when you sell it and potentially 0% on income as well. So huge benefits there. And obviously getting the right advice is really, really important, but that's something that I'm personally doing. Self managed super fun owns my commercial asset. We are the tenant money flows for my trading company into the SMSF through rental payments. And I want to make sure that my asset is rented for premium rent. I'm obviously the tenant. So I'm okay with that and I pay all the art goings, which is very big and that hasn't been, that hasn't been stopped. Now, one of the things I actually spoke about today to one of our clients is you never know when rules are going to be changed as we've found out recently. So, you know, this is available right now and who knows how much longer it will be available hopefully forever, but you never know. So the reason I did it is because I wanted to make sure that the loophole, if you want to call it that, wasn't closed before I had the ability to do it. Which I'm assuming is how a lot of people felt with with the residential thing. I was like, all of a sudden, in a month's time or six weeks time, you weren't able to buy a residential property inside of your super fund. And that caught a lot of people off guard. So taking the learnings and the lessons from these changes, if something is available right now, I'm someone who would want to take advantage of that thing before potentially it's no longer there. So these are some of the rules that you've got to consider. Obviously, the business must be, you know, it must be a proper commercial lease in place. This is obviously if you buy renting it off yourself, if it's not, then it can be, you know, a standard lease to another tenant. It needs to be arm's length, it needs to be following the rules and it must be commercial rent and document at all time. Meaning that if the the market rent for the asset is $190,000 per annum, you can't charge 360 grand because that would be probably tax evasion. But super advantageous and it's something that we are doing a huge amount of and obviously our clients are doing a huge amount of now as well. So if you look at why it matters like I just explained before, let's say that we've got $200,000 of money with the sitting in the trading company, assuming it's that there is profit inside of the trading co, you'd pay $50,000 in in tax on that money, assuming it flowed from the trading co into superannuation through the form of rent, for example, you would only pay $30,000 tax on that money. So 20 grand per annum, you can't pay that over 10, 20, 30 years obviously, it's a pretty significant amount. out of money, but that is just a really, really simple example of getting a tax arbitrage, getting, you know, essentially a guaranteed return and and being able to to continue to invest in a very tax effective environment subject to it being right for you. So I guess just to summarize, that is something that hasn't changed. Being able to buy commercial assets inside of your superfund is still available, being able to get lending, still available, and there's some really creative ways you can do that. For example, purchase my Sydney office, pay $7.35 million for it, and I wanted to bring some of our team members into the deal and you know it's a way for them to grow their wealth as well. So we bought the asset in a company structure, I took 51% of the asset and I offered out 49% to some of our leadership team and they were able to come into the deal in their superfund. So they were able to buy their share with their superfunds and obviously correctly documented all the rest of it, but you know 50% or 51% was owned by a company, me personally, and then the other you know 40% was being able to be owned by a team member or some team members and you can do the same thing with the unit trust and that lending is with a major lender as well. It's not like with the limited recourse borrowing arrangements of residential you were with non-banks. The commercial lending environment is very very different and that's with a big four. So some really cool stuff there now and then also you've got fit-outs and things like that right which can also be paid for through your company which is tax-effective again. Whereas where you're renovating a residential property inside of a superfund, obviously it's paid for differently. So the Henderson Equity Factory is the second thing that I want to chart everyone through and that's essentially knowing that high-established property now can't negatively gear it. You've got to carry those losses forward. You're not getting the capital gains tax discount. You're getting the you know indexation or the minimum 30% tax on on on gain. Sorry and and you know there's there's less tax advantages now. But if you follow the legislation and you know you add to new housing supply the new housing supply qualifies for all of these beautiful exemptions. So what we're doing is huge amount of and now also looking at a lot of clients past properties that we've purchased to see how we can implement this strategy as well. We're buying established assets in blue chip locations which has never changed. You want to buy in the best quality location you can and all the properties in that location are going to be established property. Drark is the best quality location to already fully fully built up. We then add supply through a second dwelling which is on a separate title, subdividing, adding townhouses, building a duplex, whatever it is, you have to actually add supply and and needs to be on a separate title. So it can't just be a granny flat that doesn't qualify. It can be subdivided build to it the back. Knock down the existing house build a duplex. For example, by doing that not only you adding supply you're also creating value. For example, I just finished a duplex development that I did paid 1435 for the site. Spend about 2122 on the on the build and my valve just come back this morning at 5.525 million. You've probably seen me do videos on that which means you know I made one and a fish million bucks when you account for holding costs. Plus now, assuming that asset was purchased in an entity where it qualifies for the capital gains tax exemption or CGT discount. Now I can claim mobile appreciation. I've got the equity and I can negatively gear. So that's where the big that's where the big lever is. You obviously need to create value and then why would you sell something which is in a blue chip location? It's now brand new. You can now get negative gear and you can now get depreciation and you can obviously get the capital gains tax discount when you sell. Why would you ever sell it? So obviously holding that asset is something that we advise all of our clients on. You're better off creating two assets from the one property and holding both of those versus holding one and then just buying another one. For example, and the reason this now is more attractive than it was before is because those tax advantages were available to every property. But now they're not. So the difference between being able to get a tax advantage and not being able to get a tax advantage can mean the difference between, you know, a net return of 10% per annum and a net return of 5% per annum. For example, which is a big difference. So you want to you want to play to the tax advantages. So obviously the way that you do that is it needs to be new residential supply. Like I said, it needs to be an eligible new build, which again is a new. It's not just knocked down an existing house and add a house. Like you can't just replace one for one. That's not an eligible new build. You genuinely need to add supply. And we do it in established locations because there obviously infill, which is the best kind of development versus going to a green fields area where everything is brand new. The rents are way more premium in these areas than, you know, than an established asset. For example, the project that I just spoke about, that'll probably rent for two grand aside. And a house in the same street that's established would probably rent for maybe 1,200 bucks if renovated. As a matter of fact, we have clients that we've bought for and renovated the houses in the in the street. So they rent for significant premiums. And that will obviously continue to grow over time. And this is something that I think a lot of investors are missing is they're not thinking about buying established and building new. They're just thinking about go buy a house and land package. Go buy enough of the plan apartment. No good. Obviously, we've seen the the disasters and the the big risk right now with buying it off the plan or a house and land package is you're paying today's price and not settling for 12, 24 or 36 months. And if the market is worse in 36 months time, like a lot of people who would have bought last year and are now settling this year or bought the year before and are settling this year, you've got issues with valuations and things coming in under and there's obviously huge risk with that. So by doing it this way, you remove those risks and you create huge value. This does not mean you can go on by sites where the only reason the deal works is because of the tax benefits. No, we want to make sure that we're still buying sites that are feasible, but with the tax benefits, it makes them even better as a long-term hold. So obviously, we need to make sure that we're in locations that have really strong owner-occupier appeal. So the dominated by owner-occupiers were paying for the land that it's sitting on. Obviously, we want a house that's fully depreciated and old house, the ugly duckling. We need to make sure that the feasibility stacks up. That's the most important thing. The physo works. Obviously, we want to make sure there's margin in it. We want to make sure that we're going to get a premium rent for a beautifully finished product and I know for a fact that if you build a brand new product in an area where everything else is old, you get way more of a premium than if you buy a brand new house in an area where everything is brand new because having a brand new dwelling in an area where everything is brand new is not new unique. Having a brand new dwelling in an area where nothing is brand new is very unique. And you ideally want to have the ability to have multiple exits, right? So you could sell if you wanted to sell, you could refinance, if you're subdividing or turning it into three, you could sell one, keep two, sell two, keep one, sell three if you want. And then there's other really, really cool strategy, which is called partitioning, which doesn't work in every state, but it works in your South Wales. This is a big one especially for those high-income earning P.A.Y. G's, all business owners that have the ability to pay themselves big wages out of their business. The partitioning strategy, if done correctly, can be super effective. Leena asks, "So do you organise the build or does your company help with the location only?" So we do everything with our equity factory clients, we obviously build the strategy, we do the finance, structuring, we buy the asset, we then do all of the approvals, we then build it because we have the construction business, a private wealth client to do a lot of this stuff, and then obviously we have the asset management on the back end as well. And the accounting firm. So this is the partitioned strategy, which I want to talk to it around about. Again, this doesn't work in every state, I'm specifically talking about new South Wales, it does work in certain states, it's not just new South Wales, but I'm going to specifically talk to New South Wales here. And again, there are things you need to consider, I'm just going to give a generalized overview of it, but it is a very, very, very powerful strategy or can-be. So, so essentially here's what happens. So let's say that we go on via property today, and that property is a 700 square meter block of land, and the property has the ability to subdivide and turn into two blocks of land where we're going to build a brand new house at the rear, which is something very common that we do. So let's say that we go under contract on that property and in exchange and settle on that contract, and we're tenants in common. So on the contract, on the front page of the contract, it has Jack Henderson's name, and it has Jack Henderson proprietary limits. It means we're going into that deal as a 50/50 party. Myself, and the company that I also am a shareholder and company of, how sorry, direct draw. Now, I own 50% of my personal name, I own 50% in a company name, which doesn't really sound all attractive until you get an approval and you build a second house and then you can partition the asset and own each asset in one of those entities. Okay so you can see there in step three where it says the partitioning deed allows co-owners to separate their entitlements after the subdivision where concessions apply then the outcome is obviously clean or ownership target attack treatment and better long-term asset control. Now think about why that matters. For example we gone by an old house right now, doesn't qualify for the CGT exemption, doesn't qualify for negative gearing, doesn't really make much sense to own that in a personal name but you would still own it in a company structure because if you're not going to get those incentives in your personal name then you're better off owning it in a company structure for my point of view because I can recycle my borrowing capacity and over time I'll just accumulate those losses and offset them. But the brand new house we're adding to the rear of the property which is going to be subdivided on a separate title. Well now all of a sudden that asset qualifies for the capital gains tax discount, a qualifies for negative gearing and because it's a brand new dwelling huge depreciation benefits and if I was someone earning three four five six hundred thousand dollars a year million dollars a year as a maybe a doctor that is a huge benefit to me as a P.O.Y.G. So at the end of the project when I competition it into two I don't the established one in the company structure and I don't own the brand new one in my personal name. That is that is why it's super important because when you own a brand new property in your personal name today qualifies for all those personal tax benefits. Again it needs to be set up correctly so you know it's not just something you hear Jack Anderson talk about on a webinar and go fuck yeah that sounds easy let's go do it. Something you never get very specialized advice on make sure that you understand how it'll work the GS potential GST implication potential CGT implications it was not done correctly but it is something that if you're going to develop an asset which we do a lot of with the equity factories you can buy it using this partition strategy make sure that you know everything is a okay and there's no CGT and there's no GST implications and right at the end when a partition you've now got a brand new asset in your personal name qualifying for all these beautiful tax incentives and the established one in the company structure so you can recycle the boron custody and roll to the next that's a really cool thing so that's something that we're focusing heavily on now is not just developing property we're developing property to add value add new supply and get every bloody tax advantage that we can get out of it because when there is limited tax advantages you can get you may as well get the ones that you can right just to answer Carl's question is this new South Wales everywhere are restricted by different councils the partition indeed works everywhere it's got nothing to do with councils and Jane says to partition effectively you should purchase in two entities at the time of contract exchange correct hence the reason it's very important to do the structure up front understand why you're buying the asset purpose of it and obviously you want to do that stuff upfront so the last thing not the last thing the third thing I should say the structure reset and I know this was a very very common question that come up in the box which is like what structure do we buy in now you know 30% minimum tax on discretionary trust is coming and you know what do we do now remember Jack Henderson is not an accountant Jack Henderson owns an accounting firm but he's not an accountant so just take this as information not as advice okay I'm going to talk to you through what I do what I understand what clients do doesn't mean it's right for you Emma asked as a client do you guys give us the legal accounting broker advice I find it difficult when a strategy is presented yeah we that's why we have everything in house because we give all the advice to our clients through the individual entities obviously but yeah it's very common when when people people people scared obviously to give advice because you know if they give the wrong advice it can be can be not good for them but the reason we have all of the individual you know companies is to make sure that the information flows freely between them and everyone's singing from the same him shit because there's nothing worse than having an accountant that doesn't speak to you know your lawyer or all that I don't you know sing from the same him sure then you got your your property advisor that's you know telling you something different but yes we we do it all internally so the discretionary trusts now like I said this is not legislated yet but it is near guaranteed to be legislated and and you know it was interesting Jim charmers come out and said in July that that you know I think it was the the the biggest month of new company registrations ever on record and you know he he said the reason for that is because of the strength of the economy and the confidence in the economy now Jim charmers knew that was a fib but he chose to say it anyway now the reason there was so many company registrations in July was because after these announcements were made most people are structured within a discretionary trust when it comes to business and and and you know investments was most common you can income split you can minimize your your tax legally that was very effective asset protection now with this 30% minimum tax everyone's getting away from it I'm setting up companies because that's the next best thing and that's the reason there was a record number of company registrations it was because Jim charmers created this restructuring you know extravaganza and and an accountants absolutely one out of it I can assure you now just to to make people aware of like how this 30% minimum tax on trust works because I think not a lot of people get it so essentially right now let's say that I have $500,000 worth of income that goes from my company into a trust and inside of that trust I've got my wife my two adult kids that are you know over the age of 18 and and myself as a beneficiary I can now distribute to those four people and instead of pushing $500,000 to one person and having to pay 47% tax on every dollar over 190,000 I could push a hundred thousand dollars to myself a hundred thousand dollars to my wife a hundred thousand dollars to my my two adult children each and all of a sudden I've distributed 400 to that 500,000 and instead of paying you know a big chunk of it is 47% tax I could pay you know a chunk of it or the vast majority of what I should say I'd probably have blended rate of you know 25% tax so there's a win there but with this new 30% minimum tax on trust that will no longer be allowed essentially it means every dollar that goes out of a discretionary trust will be taxed at 30% regardless of who you are dispersing it to if that person hadn't earned one dollar of income which means essentially if they're working for someone the first you know $20,000 or of income would be tax-free but if they get into dispersing from a trust they're going to be paying 30% on every dollar so that's the big issue there it's like there's no way to minimize your tax if you obviously sell on asset and it goes through there the same thing and there's also the potential now for a double taxation the way that it's currently being drafted is if you have a bucket company which is a very common you have a discretionary trust personal beneficiaries and then you have a bucket company if the money goes to a bucket company you will get taxed at 30% coming out of the trust and then in the bucket company the remainder of the funds would also get taxed at 30% and that's that effective tax rate that you may have seen out there of you know 50 on percent it's because the double taxation could happen based on the current legislation and who knows if that actually gets passed but if it does that'd be criminal so we know what that so that's why it's becoming less effective is that is the the tax treatment now the asset protection treatment obviously is still very beneficial but people are probably more worried about paying more tax than asset protection I would say now this does not mean every trust is dead obviously there's many different times kinds of trust it's not just discretionary trusts and the lazy default methodology now is very dangerous meaning that you just go oh yeah I'll just do it the same as I've always done it doesn't work anymore mate these major changes means that you've got to get some some really strong advice and the structure as we've just learned from the equity factory doing the partition deed for example with a company and an individual the structure must match the asset that you're buying not much good buying an asset inside of a structure if they don't match up and it's it's a waste of money and a waste of time and and a potentially huge cost to you as the individual so the structure now is very much and I've always has been but it's more important now it's very much a part of the investment return what a lot of people don't understand about investment returns is the gross returns at the top level number doesn't matter just like an business revenue does not matter the real number that matters is what's hitting your back pocket the net return and just the difference in tax treatment paying 47% tax for example versus paying 25% tax means you could earn the same dollar one person would end up with 75 cents the other person would end up with 53 cents which means your net return is 5.3% or 7.5% do that for a long enough period of time and you can you can start to understand the difference in in our comes Melissa says what happens if you own property in a trust currently the rental income is being received in the trust what is going to be most effective moving forward well if you currently own a trust you can't do much about it right that's that's the unfortunate reality if you own an asset inside of an entity there are definitely going to be ways that we can minimize it when it isn't the final legislation looks like for people at currently in trust but if they change it you know that they're they're pretend to there may be a potential for re-structuring, we just have to see how it's legislated. So there is a chicken in the egg story here as well, which one first, company or buying strategy? Company or buying strategy? Well, you don't need to set up the entity until you've worked out the buying strategy. Once you know what you're buying, then you can set up the entity and go buy the thing. So, and Stefano just said, how about a discretionary trust that owns the shares of a company and the company owns the property? So, yeah, that is a very common thing, and it's not just for property, but companies, you know, do the operating and the discretionary trusts were the shareholder, which is how I was originally set up as my company's. And the main benefit there is the asset protection, and then also, again, being able to disperse income. But again, if you flow from a company to a discretionary trust, you then got the 30% minimum tax, which again, it's gonna be less effective. So, what I personally do now is company, proprietary limited, holding company above it, then above the holding company, you can potentially have a discretionary trust and then personal shareholders as well. So, this is the structures that I'm personally watching right now. So, we've got company structure, like I just spoke about, depending on which entity, whether it's a base rate entity, or whether it is an investment entity, 25 or 30% tax is generally the tax rates. A holding company is classified as a active entity. If it, or I should say, it can pay tax at an active entity rate, 25%, if it owns more than 10% of an actively trading business, hence the reason my companies are owned by a holding company, which is big misconception. It's not the same as a bucket company. Obviously, you've got a level of asset protection, and you've got corporate groups and separation, but you don't get the 50% CGT discount inside of a company, regardless if it's a brand new property or not. And also, you do not get the indexation on the asset as well. So, inside of a unit trust, for example, which I'll talk for in just a second, you get the indexation, which is, you buy the asset, inflation is 3% per random over the next 10 years, your asset base or cost base also has inflated by 30% and when you sell, you pay tax on the difference. You don't get it that inside of a company structure, but you obviously carry any losses and stuff forward and then that offsets any future game. Now, inside of a unit trust, a very common structure, I've actually used unit trust for many years, that equity factory deal that I just told you about, that I got the valuation back on this morning, that's actually owned inside of a unit trust. You can, if you have business partners or different asset owners inside of the asset, unit trust can work very well because you're going to have really clear fixed ownerships inside of the unit trust. You do get the indexation inside of a unit trust and you can still potentially do the partitioning strategy. You can do the partitioning strategy with both entities, but again, go and get your own tax agent advice on this from a tax agent that is not mentally impaired. Someone who understands what's going on. This is a lot of effort, don't. Okay, but they're the two ones that I am watching. Could you set up a unit trust with your super and yourself then put units from your personal to the super overtime to reduce tax then top up? So there are very clear rules about superannuation and trusts that know you. Essentially, if you think there is a way that you can scheme the system, it's very hard to do. This is the thing called the SIS Act and yeah, you can't really do it. You can't have a controlling ownership if you've got a superannuation fund involved. It needs to be arms length. There's a lot of things that you can't do. So that's why you need a good advisor. This is essentially the rule that I follow with my account and I. We obviously start with the end asset in mind, meaning like, hey, we're going to do a development or we're going to do a subdivision or we're going to do a passive hold or it's going to be a commercial asset or it's going to be whatever. That then helps us map what the ownership structure should be. Also, where the money is coming from to fund to the asset is very important. For example, if I'm pulling money from my company to go buy a property, then I want to make sure that I'm probably buying it inside of another company. So I don't have to pay the personal income tax on that money before it goes into, say, unit trust or discretionary trust or not creating a division 7a problem. That's a different story if I'm using equity for the deposit out of another property because there is no tax issue with that because I don't pay tax on debt. So that's obviously very important. We obviously want to map out what the exit will likely be. Is this a buying hold asset? Are we going to sell it? Is there a way we can potentially mop up some losses that we might have inside of certain entities? That's obviously very important. And then only then, when you've mapped all that stuff out, do you then sign the contract? Because we are very, very expensive mistakes I'm doing. This is what you should stop, start, review, and act on based on what I'm currently saying. Definitely, you should stop just buying established property because it used to be tax effective. The whole negative gearing thing, oh, just go buy it because you can claim the negative gearing benefits. That's gone, those days are gone. They may not be gone forever. Who knows if it changes if someone else gets in power in a few years' time, but right now they're gone. So we're only buying against established properties. If one, we can do the equity factory strategy on them. Or two, we can add a second dwelling so there is no negative gearing they pay for themselves. They're the only times. We're not just buying passive assets anymore. You should definitely start targeting assets that add new supply because obviously the government is incentivizing that. Countels are incentivizing that through getting approvals faster, all right? The last thing a council wants to see is media saying, oh, you know, this council, for example, is the slowest council in Australia getting new buildings approved in a housing crisis. I'm pretty sure Lake Macquarie council saw something like that. Had a pretty terrible story about that, which generally then meant they got very, very past it, doing it. And there's some really cool planning exemptions and stuff at the moment that state governments are pushing. So that's a good time. Building costs are not ideal. It's obviously way more expensive, but it creates an opportunity. You should definitely review existing structures. If you're a company owner, how is my company currently owned? We had a client the other day I was chatting to. Their company is operating out of a trust, out of a discretionary trust. It's not a company owned by discretionary trust. The company itself operates out of the discretionary trust, which means if they say like that, every dollar of profit will be tacked at minimum 30%. Not ideal, right? So you want to review your current ownership structures, get the right advice on it, and take advantage of any potential concessions that are out there, like the small business, CGT, concessions, and things like that. And then you obviously want to act. I think one of the biggest mistakes I see everyone make, and you're going to say, "Of course you're going to say that, you're a property guy." But like everyone lets an opportunity pass by. Right now, you're getting deals. You are able to get crazy terms on things, and you have the leverage as a buyer, and we are absolutely taking advantage of that for ourselves and our clients. So it's a good time to be a buyer. So what we need to not ignore is obviously the boring stuff, which is boring capacity. Obviously, buying inside of entities can be advantageous, and we can recycle boring capacity. Certain lenders do what's still, so certain lenders don't do it anymore. This stuff's very important. Okay, same thing, 12 to 24 months ago, every lender almost allowed you to segregate an entity if it was covering itself. Now, less lenders do it, but there are still definitely lenders out there, and some lenders don't allow you to do it. If you go through a broker, you have to go direct to bank. But understanding all the ins and outs, and this is obviously very, very important. Land tax, often a very overlooked thing, land tax. For example, inside of Queensland, inside of a discretionary trust, you get a $350,000 threshold, and you get a new one every time you set up a new trust. But if you come to New South Wales, and you use the same structure, you get no threshold in New South Wales inside of a discretionary trust, which meant you pay land tax on zero dollars. So I want to milling the land value, you pay 16 grand in land tax almost, versus in Queensland, it might be very different. So understanding the differences in New South Wales, using a company structure, you do get the threshold inside of a company structure. In Victoria, the same company structure doesn't get it. So the intricacies of obviously which structure to use, when buying which asset, in which state, very important. GST, especially when you're doing development deals, that's big. GST can be five to 10% of a deal. Not small change, making sure that if you don't have to pay GST, you don't pay it. You need to be documented correctly, and it needs to be set up correctly from the get go. And obviously valuations and feasibility, right? Not much good going into a deal. I don't know how many bloody people I've spoken to that have done developments. When you get to the end of the development, it's made no money. And little things like how the valuation happens. For example, I posted a video today, I recommend everyone goes to my Instagram and watches it. But the same asset can get valued by two different methodologies, same value up. But one can value the asset based on a comparable valuation, which is the most common, right? This property is four bedroom, two bathroom, blah, blah, blah. Let's go and see what properties of sold in the last 90 days that are similar. And that is what we will attribute to the value of this property versus not using comparable sales data as the main methodology, but using what we call a cap rate. So what is the income that the asset is producing? What is the cap? cap rate of the capitalization rate for assets in this location, for the example that I used, it was 3.2%, so if we have an asset that's say producing $173,000 of income, which is the my property, $173,000 of income, which is roughly $7,800 a week per side, at a 3.2% cap rate makes that asset worth $5.5 million, where when they were using the comparable sales, it was only worth 4, huge, huge, huge difference, and that is just simply due to two different methodologies on the same property, which is not small bickies, that's for sure. The most important thing is understanding what you're buying and how to maximize the returns of that asset, which is obviously what we do. Now, my personal belief is very few people know the stuff that I'm talking about today, and if they don't know it, they can't go to their account and ask about this. They can't go and chat to X, Y and Z to get the right advice, because they don't even know what to ask. Over the next 8-24 months, I foresee this market separating people down the guts. It's the people who have no idea what's going to happen, no idea how they can take advantage of this as an opportunity, no idea about how to get the right advice, and they're just going, this is too hard, and those people won't get back into the market until they start to see rates come down and the media change their tune. Then there's the other investors, which are people like me and our clients and people like you guys who are listening, which is this is an opportunity. How do we take advantage of this opportunity? How do we take advantage of the tax benefits that are still out there? How do we use our superannuation potentially to buy commercial assets, get the tax arbitrage? How do we do the partitioning strategy? How do we buy established properties, which no one wants to buy anymore, because they're like, oh, I don't want to buy something old, I don't get negative, you're going to depreciation, or I don't get the capital gains tax discount, but what they don't realize is you can buy that asset and create these taxes, you know, incentives. So that's going to be the clear delineation. So Melissa asks, how do you determine which value is using what methodology? Well, generally you've seen in the valuation reports. What I am very good at is talking to people and getting information out of it. So I had a conversation with the value, and the conversation was, you know, I'm asking questions, I'm curious, and he asked the asset, been subdivided yet. And I said, it's approved, and the asset's finished, but I haven't launched the subdivision yet, because when you are doing these kinds of things, you subdivide at the end a lot of the time, not at the start. And he said, okay, well, if it's not subdivided, I can use this methodology, because it's an investment methodology. And if it's two assets on one title, like a house in a second dwelling, for example, a house in a granny flat, we can use this capitalization method. If I tell you learn things. So the house in the granny flat can use the capitalization method, because it's two dwellings generating income on one title. With those separate titles, you couldn't use that method. All right. So six questions to ask before you buy the next property. I'm pretty straightforward. Obviously does this asset add or control new supply, meaning can I create new supply and make the labor government happy? Even though we don't necessarily want to make them happy, but do we play into their new tax rules? We want to do that. Does it qualify for the new build incentives I'm relying on? Obviously, very important. Like I said, if you knock down one house and replace it with one house, that doesn't, even though it's a new house, it doesn't qualify for the new build stuff. What structure should I own it in from day one? So you work that out when you've answered all the other questions that I said. What is the land tax outcome? Something that, again, not a lot of people think about because they don't think about it, but land tax can be a many, many, many hundreds of thousands of dollars a year expense. So minimizing that worth while. What's the GST outcome? If the exit changes, this is obviously important for development. Can I refinance the manufactured equity without valuation or something? Meaning, can I get the valuation to support my feasibility to then give me the money out that I want so I can halt the asset long term? So, like I've made pretty clear throughout this, the old playbook of just buy and wait, it's gone, right? It's gone. And it may come back who knows, but for right now, if you want to make money in property, you're probably not going to go buy and hold properties. The new playbook is really about structure and manufacturing the outcome. So you're not at the mercy of anyone. Like anyone who says you can't make money in property with the changes is just, it's just stupid. It's stupidity. And the reason I know that is because I know I know at a valuation today, let's say for one of these heft projects we're doing, we know exactly what the valuations have come back at. And how much information do you think that gives us then to go and buy the same site that we just completed? We know exactly what the build cost. We know exactly what we can buy it for. We know exactly how long it took, you know, exactly how hard it wants to get approvals. And we know exactly what the valuation is going to be at the end. We have so much more information than people who see on the sidelines and do nothing. I could go replicate the deal that I just spoke about 20 times over, assuming I can find the sites to buy. That's how you win. Do things, get the information, do them again if they work. Don't do them again if they don't work, obviously. So what you guys need to do from my point of view, audit obviously, all the stuff that you're doing right now, what you've done, make sure that you're in the most tax effective structure and what you currently have set up is supporting your future goals, review any discretionary trust and things like that that may change come one July 28th, understand what the changes mean for you. Business owners and PAYG, you should assess where you currently rent your premises. Can you buy that inside of your superfund? How much money have you got inside of your superfund? Have you got catch up contributions that you can make and get a lot of money into super and a relatively short period of time and be tax effective? With the restructure for example, if you do a restructure of your business going out of a discretionary trust into a company structure, what does that look like? A small business restructure using the capital gains taxing concessions that are out there can create huge tax advantages. And there's going to be a lot of people that are doing that over the next 12 to 24 months with these new discretionary trust changes. A lot of people would never know they exist. And if you are a high income earning PAYG investor, how do you still get these tax incentives that mean so much to someone paying a huge amount of PAYG tax? But not having to go buy an offer plan apartment in fucking Docklands or a house on land package in fucking Darwin. We don't want to do that, right? If you earn a lot of money, why do you want to go risk all this hard and cash in terrible locations? Will you do it by buying Blue Chip and creating the outcome that you want? So that's the John Dory. We've got a couple of questions here. Are you suggesting for PAYG we should not use a company structure and we should put property under our own name? No, Joseph. That is not what I'm recommending. What I'm recommending is if you were to own something in your personal own, you would only want to do that if you are getting all these beautiful tax incentives. If you are not, it would be pointless. So the example that I gave was we buy an asset that we're going to develop. So it's an established property and we can add another house to the rear of it and we can subdivide. Turn one property into two properties. But one of them is still established, which means we don't get the capital gains tax discount. We don't get negative gearing. We don't get depreciation. So knowing that, would you own that one in your personal own? Probably not. So you don't own that one in a company. The second one, we get the CGT discount. We get negative gearing. We get depreciation. Probably you own that one in your personal own. And that's why that partitioning deed comes in. Well, you buy an asset, tenants in common, companyverse, you know, personal. Do the development, split it down the middle. We own one in a company. We own one personally. Not advice. Just something to think about and explore. That's when you would own in the personal own. That's it. They're the three to four most important things right now. So superannuation, commercial property, the equity factory stuff, partitioning, what to think about when we're buying in a trust these days. And if you own and trust out of potentially restructure, what I think about companies, what I think about unit trust, what I think about new supply. Now, what do you think? Ask a question. Q and A. All right, what do we got here? What is the minimum dollar value we can apply this strategy on? There are different levels to this strategy where we've got the heft strategy, the game strategy, but I would say like you want some way between 800 or a million dollars of borrowing capacity to bear minimum. Transfer of assets to adult children and structure for them to expand. Obviously transferring assets while you're alive into someone else's name will likely have stamp duty and capital gains tax implications. So if you understand that, then you can definitely transfer it and put it into a structure for sure. But just know that if it's not done correctly, you can potentially pay a huge, each level of tax. Sam says 5% deposit, owner rock, verse 10% investment with development potential. I'm a big fan of the 5% scheme. If you're owner occupier and you're a first home buyer, once you buy one property, you're never going to get access to it again for the rest of your life. So why not take advantage of it? Faults on knockdown existing and build duplex in rural Victoria, EG, a Chuka. I much prefer to do any development knowing the cost of construction right now in a location that is premium that can demand a premium outcome. Because for example, it costs you the same amount of money to build a duplex in a Chuka as it does to build one in assuming you build the same thing obviously as it would cost you to build in 2 rack. except the end product interact will likely be significantly more than in a true cut. Now, you're obviously gonna pay more for the land, but in premium locations, development works much better. And that is why you are seeing the only developments that are coming out of the ground now are in areas where down sizes can buy them 'cause they've obviously got lots of money to pay, or really rich people can afford them. I mean, Beth Luff, which is a big developer, you've probably seen $3.6 billion. That's their go-on under. They tried selling shit product to people that were stingy, and they went bankrupt, so that didn't turn out too well. The affordable stuff really doesn't work at the moment. So something dramatically has to change for it to start working. Joseph asks, "How should we structure the family home "as if intending to buy the forever home "and want to pass it onto the kids?" Well, the only way it can be your forever home and classify as an owner-occupier is to own it in your personal name. Now, for example, if you are a husband and a wife, and the husband works in a higher risk trouble, runs a higher risk business, the wife can own the property 100% in her name. The husband can still be on the mortgage to support the servicing, but the owner sheep is only in the wife's name. It's very, very common to see this with business owners, where they've obviously got a lot of risk. The wife owns the property, the husband's not got anything to do with the title, but they support the mortgage for the servicing. So, yeah, you can't own an owner-occupier property in a company structure and it classifies an owner-occupier. Rick says, "What deposit would be needed "for one of your setups that would get "into a positive e-guide from the get-go?" So, we run all of our Fizos on a 20% deposit. Okay, now, if you use equity for the deposit, that's totally fine, but we don't guarantee that the property's gonna pay for itself at 105% debt, 'cause it's just not possible. We guarantee your property will pay for itself at the 80% debt. And if you're paying six and a half percent interest on 200 grand that if you release as an equity release, that $12 or $13,000 a year of interest that you're paying on that, that will be a tax deduction personally, but that's obviously gonna be your out-of-pocket expense, which in the green scheme of it is next to nothing. All right, Danny, if you have a finished duplex and repayments of six grand a month, but rental income is four grand a month, how are you paying the get-equity or should you be doing interest on me? Well, Danny, naturally, you're only doing things like that if you're gonna forge the get. So, you know, if I'm paying six grand a month in repayments and I'm getting four grand a month in rent, that's a two grand gap. Now obviously I've got businesses that are profitable, I'm able to push dividends into the trust that owns those assets to wash up any losses as we get rental increases, you know, in 10 years time I'm not gonna be worried about that particular thing. And that same asset that might be close to me two grand a month, I've been able to cash out $1.5 million in equity on. So that I really focus on the capital, is not necessarily the cash flow, but some people are different, they want the cash flow, and that's more important to them than the capital. And that's why we have the two different strategies, the heft strategies for people I just want capital appreciating. You know, people have got really good incomes, not really worried about cash flow. People have run really successful businesses and you know, an extra $1,000 a month or a week or whatever is not super important to them, but making a meal or two or three or four is very important. Big George says, "Any thoughts on best areas to buy industrial commercial property right now with low vacancies and capital growth?" So what George wants is the trifecta. Good growth, low vacancy, and plenty of people wanting to rent them. George, anywhere around a major hub, so we just bought a cracker in Burley for a client in the Gold Coast, really close to the freeway, obviously, you know, relatively close to Brisbane, and the Gold Coast going through massive growth. You know, industrial in Newcastle, for example, super powerful, it's in the intersection of Sydney and Brisbane or anywhere in the North Coast. You know, I mean, there's a multitude of areas, but it depends on purchase price and you know, yield, obviously, the more regional or rural you go, the higher you yield, maybe not a strong growth, who knows. Frank, our parents have passed away and they have willed for New South Wales property collectively to their five children. What would you recommend in a way of structuring to hold for a period of say five years? So the thing to understand there, Frank, is if you hold it for longer, I don't know the exact time frame, I think it's 24 months, post them passing away, then you will be subject to CGT past that point. Obviously, if you sell down before that, you wouldn't pay any CGT, potentially on the assets. So if you're only gonna hold for five years, I'd probably potentially rethink that, but again, get really good advice on it. And even the estate planning stuff, so if you're someone who wants to plan for the kids, you know, and you are, I think, you know, one day the kids will inherit all this stuff. Maybe you don't want them to inherit it as individual properties. Maybe you want them to just inherit the income that the property's generated. That's maybe where a testamentary trust can become handy, you know, like a lot of people want their kids to not necessarily have the control to sell assets whenever they want, or if they go through a divorce, they could lose some of the assets. So a state planning is just as important as, you know, the structuring when you're alive. Ben, thoughts on adding value to the PPOR and sell to get the tax-free benefit and then do one of these every few years. Big fan of the buy the owner rock, renovate add value, then sell down. The strategy works exceptionally well if you're a builder. Now, not saying this is cool to do, but lots of bills I personally know, buy owner-occupier properties, they then renovate them or add huge amounts of value to them. They do them with their own building company, all the costs go through their building company, which means it's the deduction inside of their company that I don't charge to themselves. And then they sell the property, and instead of paying tax on property in the company, they now sell the property tax-free. You know, they create massive, massive gains. So that's a very, very powerful strategy. Very new to the property scene, Regan, but just bought a two-bed, one-bath house on the 600 squares in Cardiff Great Spot, well done. With my part, and a 5% deposit scheme, so we could get in the market quickly. What would you do next if you were in my shoes? Regan, what I would do is I would focus on rebuilding your cash buffer, 'cause hope, I'm assuming you've used all your cash to buy the property. So start to rebuild a bit of buffer, so you've got some breathing room and you're not stressed. And ideally, try and add some value to the property anyway. You can, if you bought something that's old, use some sweat equity, make the property look more appealing, tidying it all up, landscaping, things like that. If you're doing the work yourself, it's way more cost effective. And, you know, only three, four, five years time, the property will be worth hundreds of thousands of dollars more, and that's then the equity that you can use to go buy your first investment property, or I'll maybe sell down that one and, you know, upsize and go into a different location, and do something different. But I would focus on just reviewing cash buffers, and ideally trying to do some work to the property yourself. That would be a big win. How old is two old to get into property plans you have discussed? It's a good question, Lena. If it is something that's going to be active in nature, meaning you are buying something to add value that you have the potential to sell down, we advise clients to hold, obviously, but if you do sell down, that's something you probably need 24 to 48 months for, okay? 'Cause there's an exit strategy in mind, and then one of the slides you would have saw that I said you want to have multiple exit strategies. Best case scenario you hold it, worst case scenario you sell it, but if you have to sell it, you want to make sure there's some cash in it. So I would say as long as you've got a timeframe of 24 to 48 months, you're not too old, but you wouldn't go buy a traditional buy and hold property because again, you're reliant on the market that you want to be in control of. We have bought our first property, you know, SMSF with you earlier this year. Thank you, Jason. What can we do to build wealth while we save for another deposit? SMSF's over, if you're done, and we can't use the equity in that, why don't you board it in there? We just got a focus on decreasing debt, and obviously allowing that property to grow. On then one day, we might be able to sell it, get out the gains, and then roll into a big commercial asset. I'm sure that the strategy team will walk you through that. So what you can do now to save for a deposit, if you've got a property already, obviously we want to get that revalued and see if there's any equity in it. And if you're having a lot of property, the thing that I always taught every client to focus on, and I actually did a podcast last week with a client who had bought a couple of properties for us, and I said to her, hey, the next step for you before you're going to do anything is going to increase your income. She want to become a salesperson in tech sales. That podcast will come out next week. So everyone should listen to that. But it's essentially talking about increasing income. So right now, Jason, feel like, hey, we've bought the SMSF property. We're maybe capped in our personal name, or we haven't got equity. Like focus on income. 'Cause they're the two world drivers. Capital appreciation is one. Income is the other. Income is just the harder one, because it's active and you have to do it. So is there potentially a career pivot you can make? Is there potentially a career jump you can make? Meaning you can go up in the firm that you're currently at. Can you get upskilled to move into that next role to make more money? Can you start your own business? Can you get a second job? They're all the things that I would focus on. And I know they sound boring and all the rest of it, but it's like the number one mover is increasing income, increase capacity, increasing capacity image. You can go and do more investing, doing more investing. And you're going to be richer, being richer. Put a smile on your face most of the time. Kevin, Jack, what if the bucket company is paid from the unit trust? Is it the double 30% tax pool so far covering the scenario? I think what you mean is the units of your unit trust are owned in a company. No, the 30% minimum tax is only on discretionary trust. It is not on unit trust. What lenders do you need to go direct to bank with structure rather than? and through a broker, a combat, for example. Everyone thinks combat doesn't do lending inside of trusts. They do. You just gotta go direct to bank to get it. So there you go. Can you buy a farm in an SMSF and live on the property and rent it out to super fund? Unfortunately, you cannot. Bathests, purchase under ION, but new rate show, residential, so looking into that. Yeah, you just wanna see if it's been rezoned. If it's been rezoned, obviously that's a big win, which means you may be able to subdivide. But essentially what you wanna do if it's IU1Zone, you would just look at what is the minimum lot size in IU1Zone. You just check your video something and we'll tell you. And you'll be able to see if you can subdivide. Katie says, "Thoughts on sticking with resia "of a commercial considering tax changes. "EJ picking my next move currently own "only rock outright plus one investment." Yeah, I mean, residential is great because you need to let's capital, consistent growth over long term. But you obviously wanna do something by an asset that you can add a second dwelling to to increase the rental income or buy something you can subdivide. So just don't just buy something, which is passive. Jack, where do you see rental years moving? Treasury projections of $2 per week versus market reality. Treasury's projections were written on the back of a napkin at the local RSL IRA, can you know, rents are continuing to grow. So it's a double-edged sword, it's good because rents grow, and obviously it makes it easy to hold properties with higher rates, but it's bad for inflation. And inflation is annoying for rate rises. So rental yields will continue to move up. Helen says, "We have three properties "of housing cans and two units and certainly a three-better "and a one-better, the one-better, "feel is not growing in value. "They've had it for 10 years and hasn't doubled in value. "What should I do? "Probably sell it. "I would not hang on to it, that's for sure." Why doesn't the partitioning strategy work in other states outside of New South Wales? It works in some states. I'd like to use New South Wales as an example. But if you do some research whether it works in other states, I know that Victoria Rick can work in as well. Do you, when your team helped manage the build in a YAM or HEF strategy, do you help us with? Yes, we do everything. So with the YAM or the HEF, we build up the strategy, we do the finance, we do the structuring, we choose location, we then go buy the asset, we then run all the feasibilities, we then manage the approval process, we then build the thing on your behalf with our construction business. Once it's completed, obviously the valuations and the finance again, and then we rent the things out and manage them on the back end. So there's not one thing that a client has to do outside of signs of documents. Ballpark figure, what's the average cash on cash returns per year for HEF and YAM? YAM, sorry, you meant HEF and YAM. So YAM is cash flow return. We're not looking for capital appreciation, we'll be building the second dwelling, all that one is good. The main reason we're building it is so we can get five, five and a half, six percent gross rental yield, and we can hold them for a long period of time. Cash on cash return for HEF would be probably a dollar 80 to $2 return. Like you're getting like 100% on your money. Cash invested, obviously. We're looking for a 20% return on cost. I don't have property currently in my builder and I have 200 grand personal plus business capital, what's my next move? Go buy a property and add value to it. You're a builder, you use your skills. Negative curing was removing New Zealand. A few of us now that we've just known again, how much is the chance that that same thing happens here in Australia? There's a high chance of it happening. You don't wanna gamble on that, right? So between now and then, how do you make money? Bridgesh, I bought an old house five years ago in Spears Point grade spot. Under a company structure, I plan to demolish it, build a high end duplex living one side, sell the other, what key factors should you keep in mind? Because you've bought it now in a company structure, if you live in one side, you can't have it as your owner occupied property. It's now when you build them and you subdivide, they are both owned in that company structure. This is why that partitioning strategy that I mentioned is so important. If you did that with the partitioning strategy, company and your personal name on the front page of the contract, once you build and subdivide, you personally could own one and the company could own the other, the one you own personally could be your owner occupied and get exempt from seizure team. But the way that you've set it up currently, you can't do that, unless you sell it out of the company, which completely defeats the purpose. SMS commercial is at worth buying in sub 1.5 bracket in Metro. Not if you don't need to right now. I would personally generate more capital before you go into commercial. But inside of super, again, if it's gonna take you a long time, potentially. So it's worth exploring. How do you identify and compare opportunities across the country, do you buy an upcoming growing areas? Only established areas. We buy the same areas every single year and we have done for the last six or seven years and I have done since I started investing 11 years ago, 12 years ago, whatever it was. Same areas. The only thing that changes is how much you pay for the property every year. Every year it's more expensive. That's the only thing that changes. But we don't change locations. All right, have fun, be good, and make sure you put your socks on before your shoes and be good to your mother. All right, guys. Orofwa. Ciao for now. Bye.