We are a 35 yr old married couple who both earn $62,000 pa. We owe $180k on our home (val: $430k) and $256k (val:$350k) on our investment property (I know negatively geared). We have recently seen a financial advisor who has encouraged us to borrow $100,000 to invest in a property trust. The ‘tax-free’ income from this investment serves to pay off our home loan more quickly. Is this idea ‘consolidating’ or is this just another hurdle in our way.
I would also like some advice about dealing with a new financial advisor, who has been recommended by our new accountant. How do I know that he is good and has our best interests at heart? Should we see a solicitor if we are concerned?
AXJ
Firstly, the financial adviser should receive a very healthy upfront commission and good trail commission from getting you to invest in a property trust. This is also a great long term investment for the adviser. The accountant will also usually receive a kick-back. All this should be disclosed in the documentation provided to you.
Disregarding the tax free income from the investment, what is the impact of the interest on the borrowed funds? Do you need the additional negative gearing? I don’t see many property trusts guaranteeing to pay more than the going interest rate on loans.
I guess the adviser would be making recommendations based on your risk profile which should have been determined prior to any advice being given. This is a low-risk investment strategy.
I think some proper loan and account structuring, if not done already, would help pay your non-deductible debt off quicker as well.
Robert Bou-Hamdan
Mortgage AdviserHi AussieXJ
The Australian Financial Planning Association can be found at http://www.fpa.asn.au
They have several articles that may be helpful including
http://www.fpa.asn.au/images/userimages/services/sixsteps.pdfBefore you do anything, get another 2 opinions. Try a proeprty focused financial planner like Steve Navra http://www.navra.com.au
Terryw
Discover Home Loans
North Sydney
[email protected]Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Be wary of financial advisors as they recieve a commission on what they sell to you. They don’t recieve commission on giving you proerty advice.
I used one when I was younger and found that all they plugged was shares. She don’t me that I was wasting my time investing in property.
They also tend to lean towards Listed Property Trusts etc. where they get a commission instead of buying actual property where they don’t as jewel outlined.
Robert Bou-Hamdan
Mortgage AdviserThanks for the advise. The PT claims to guaranttee 9% return on $100k which would go straight onto our loan along with the rental income of our investment and our reg payments. We would have a line of credit that pays our investment loan. We would claim this interest as it is for investment purposes.
Does this sound clever, risky but worth it or just dumb.AXJ
All sounds good to me except claiming the interest on the LOC to pay your investment loan.
I am tipping an ATO ruling in the very near future to clarify the confusion regarding that structure.
Robert Bou-Hamdan
Mortgage AdviserI am with Robert a 0.5-0.7% saving off your home loans and the correct structure with regards to the loan format will save you so much more than the promise or sorry GUARANTEE of 9% P.A.
And what happens when the Company does not perform does the Financial Adviser cover the shortfall. Remember will your FA be around when you come to retire.
The best financial adviser I have come across has been myself with a little DD and market awareness you will outperform any of the so called experts.
Cheers Richard
richard at castlewhite.com.au
Email me for details of our Qld wrap CD which gives you a full Installment Contract.Richard Taylor | Australia's leading private lender
Richard, until they have set fee for service as a requirement for all Planners, I think it is near impossible to find an impartial one. They get paid huge upfront and trailing commissions from a variety of different suppliers.
I have a mate who is a Financial Planner (and handles some of my insurance needs) and he charges fee-for-service. I admire his choice!!! He advises, I select, he sets up and I pay. Everything is disclosed at commencement. It is nice and easy.
Robert Bou-Hamdan
Mortgage Adviser[cap]
Hi AJX,Not sure exactly what details your advisor is talking about with the “property trust” ..more details might help. [blink] But I’d advise caution until you’ve had other independant advice!
However, What about sellng the investment property, realising the $100K or so equity and using whats left after costs and CGT to reduce your tax inefficient home loan.
You could then take out a loan against the equity in your home for the purpose of purchasing a positive income property, thereby reducing the drain on your income and allowing you to pay down your home loan that much faster.
Alternatively you could simply keep the realised equity in an offset account (offset against your home loan) and purchase Positive income properties without having to cross colateralise against your home.You have probably thought of these b4…so please excuse me if there is a glaringly obvious reason why this won’t work…
all the best and let us know the outcome..Best Regards,
Rosepink
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