Using your LAQC to benefit your relocation plans

Question from Jitesh updated on 13th December 2006:

My wife and I live in our Wellington house that is almost paid off. We intend to move to Auckland where we are not buying for another 6-12 months. Also, this house would then become a rental investment property. 1. Is it possible to sell our house to a newly formed LAQC, owned by both of us? We would prefer to change ownership at the point of renting out. i.e. the LAQC will make a profit for that period that we do not buy another house, and we would like to have majority of LAQC ownership on the lower tax bracket. 2. Is it possible to take all equity of this Wellington house and loan it to the LAQC, interest free for that 6-12 month period until we do not buy another house? 3. When we do buy our next house to live in, we would like to release the equity from the LAQC for the new house. At this point, the Wellington LAQC will take out a mortgage for this amount.

Our expert responded:

It is possible to sell your home to a newly formed LAQC. Something to take into account is whether or not this property will work as a rental. In other words, if you went out and bought the property today, paying market value for it, would it stack up as an investment property? In my experience, homes rarely make good rental properties because your reasons for buying them are so different compared to buying a rental property. Then, it's measuring your opportunity cost of having your funds invested in this property versus buying another rental property that might work better for you. Assuming that the home will work as a rental property, the next thing to consider is how the shares in the LAQC should be owned. If you were the major bread earner, it would make sense for you to own most of the shares from a tax point of view, rather than merely setting up the share ownership as 50/50. When the LAQC does buy the house from you at market value, it would take out a small mortgage to replace the existing mortgage you have personally. The end result will be that you have lent to the LAQC your equity. When you are ready to buy a new home, then the LAQC can go and get a mortgage to repay you the funds that you have lent it.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.


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