Choosing a vehicle for new rental

Kelly asks:
(updated on Friday, September 16th 2016)

My husband and I are currently looking to purchase our first rental property but we are not sure what the best vehicle is for owning it.

We currently are in our own home with approximately $200,000 of existing equity. We plan on getting 100% finance to purchase the new rental property (based on our existing equity) and, in a few years time, we expect to purchase a new property for us to live in and to retain our current house as a rental. Over time, we expect to be in a position to purchase subsequent rentals as well.

We want to make sure that we set up the best ownership structure now to ensure that we are able to get the best gains. Thanks for your advice to help us get started on our property investment journey.

Our Experts Answer:

In light of your plan to retain your home and convert it to a rental at the time you upgrade your residence, I would recommend you consider a Look Through Company (LTC) for the current purchase.

The company allows your home to be sold to the company which will buy it with lending. This frees your equity to be invested in your new home and maximises the available deductions for interest. If your upcoming acquisition is made in the company the structure will be all ready for the restructure of your home when that time comes.

This also means you will only have one set of books and one entity for the rentals. The LTC also allows losses ( if any) to be flowed to the shareholders so you can estimate these and consider your own income levels when determining the shareholding splits.

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