Dear Readers,
Due to a divorce, I have been left with my unencumbered house (my principle place of residence) that was previously held in a trust. As it transferred to me in my own name, I was told that I would have to pay CGT "if" I sold. I have no debt and no income.
I was being advised by my accountant that if I intended to invest in property, I needed to 'secure' my PPR within a Secured Debt Strategy (it looks to me like I am told to cross-collateralise?).
I have created a basic Company structure and my own trust, yet am very confused as what type of entity I can put my house in, so that I may begin to invest in property. If I transferred my house into my trust, I would have to pay CGT (which is beyond my means!!)
I read in Steve's book (From 0 to 260+ Properties in 7 years) to avoid cross-collateralising (Chptr 10).
Suggestions would be greatly appreciated!
Hi Bluebird
Firstly sorry to hear about the divorce this is never nice.
Nothing suprises me these days when so called Professionals hand out advice on an area they probably have no knowledge of. The PPOR is in your own name and I would keep it like that as you are quiet correct any change in the ownership structure will trigger a stamp duty liability.
I am assuming that your new investment properties will be purchased in Trust using a Corporate Trustee as this appears to be structure set up by your Accountant however you really want to try and avoid where possible cross collateralising the securities.
Whilst the loan secured on the property will be in the Pty Ltd name with as Guarantor being a Director and Trustee there is nothing to stop you keep the line of credit on your own PPOR total separate.
This day and age buying with a Corporate trustee will cost you more in interest and set up costs as financiers deem the structure as slightly more risk and do not offer the same rate beneftit as they would if it was a personal trustee.
However in saying this a good mortgage broker should be able to strutucture the loans for you to maximise your savings and minimise your security risk.
Richard Taylor | Australia's leading private lender
Duplicated
Richard Taylor | Australia's leading private lender
Dear Mr Taylor,
Thank you for your reply.
I have another question that has come about from your response.
My interpretation of "…there is nothing to stop you keep the line of credit on your own PPOR total separate" is that I am able to create a property portfolio without structuring it within entities(?) by using my PPoR too? If so, how do I protect myself (ie: my PPoR) from litigation (and therefore potentially losing my house) if something occurs on a property that I am tenanting?
Is there a formula that I can obtain (or that I have overlooked in Steve's books?) that shows how I can work out the costs involved, for buying properties within entities, with nil income?
Once again, any comments are appreciated.
Hi Bluebird
Feel free to call me Richard all my friends do lol.
Unless you have cash to put in to cover the deposit (and you will need one buying under a Corporate structure) and to cover the stamp duty ect then there is no way to funds the deal without using a line of credit or similar (Before anyone tells me that you can use Vendor Finance i would point out this restricts your choice of property and still have to fund the purchase costs.)
If you have a nil income then the only way forward it to use a Nodoc style loan product and these are virtually gone.
Maximum LVR under Nodoc would be 65% these days so you would need 35% deposit +.You have to remember that unless the property is self financing meaning the rents received is greater than the interest payable and other expenses you wil have shortfall and you will need to fund this from your own income. If you have no other income you have a problem especially when the market is not so active.
Richard Taylor | Australia's leading private lender
Dear Richard,
Thank you for your time and advice!!
No problems pleasure.
Let us now if we can help further.
Richard Taylor | Australia's leading private lender
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