I have reasonably good equity like many whose property values increased. But I am cash poor. I want to buy another investment property. In a reasonably good area I will experience negative cash flow/gearing. Lets now assume for say a $500,000 property I have a short fall of $10,000 per annum and lets also assume the capital increases in value say 6% or $30,000 then in the long run it's a worthwhile investment.
But as I am cash poor at the moment is it a good idea to fund the $10,000 shortfall from equity or via an equity access account? I know I would be paying interest on this $10,000 coming out of my account but is it worth it in the long run???
Thanks
Striker
Email MeJames, a bit hard to put any useful input into this one without a bit more of the picture. Your other option (if you have any taxable income) is to reduce the tax that you are paying to help cover the shortfall. Alternatively get a LOC and fund the shortfall from the LOC – use it only for this property so that all costs are claimable.
Its common and tax effective to do this. But obtaining a loan for it won't be easy.
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
This is one strategy that Michael Yardney makes a lot of references to…
As referenced by Terry, the 'concept' may be a lot easier than the 'application'.
Terryw & matt
You both say it is difficult to go about doing this. I assume you mean obtaining a loan won't be easy as it will be 100+ % finance. But with sufficient equity or by using like an Equity Access Account / LOC could this not be easily possible?
Striker
Email MeNo, it is the income requirement. Equity is only one consideration.
No, or few lenders are going to lend to you if you cannot demonstrate you have the ability to pay the loan.
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
Or post July 1 No lender is going to lend you money where you cannot demonstrate you have sufficient income to service the debt.
Richard Taylor | Australia's leading private lender
Hi Richard
Do you think the reverse equity loans for oldies will be still around?
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
James,
I have many clients using equity normally via a LOC secured on their PPOR, to use to fund the deposit of an IP and also fund the cash shortfall. My view is you need about $120k per median priced IP ($450k mark) in a LOC facility to be comfortable, with $80 to $90k used for the deposit and costs and the remaining $30 to $40k as the safety net and to use for debt recycling.You need to be able to demonstrate income for servicing purposes to obtain a loan but I presume you have sufficient income, just not necessarily have surplus disposable cash after lifestyle expenses.
I am not sure on Richard's comment post 1 July, I doubt ASIC has the man power to police this and I doubt the lenders give much of a damn anyway, if they have funds to lend, they will find a way to lend.
Terryw, I do some work with seniors and the reverse mortgage is a very useful product for many. To borrow $20 or $30k on a RM is a whole lot more cost effective than downsizing even with the recent NSW government stamp duty concessions. No other state has these. I think the lenders already go too far with their sign off requirements from financial planners and lawyers. I haven't found any comeback from clients having to get legal sign off but I have had with financial sign off. People don't want to pay $500 + to a bloke who wants them to put their borrowed funds into a managed fund for them.
We shall see if the government takes a sledge hammer approach as they do with most things resulting in making the product impractical and the end result being seniors who best option is to take a RM, have to continue struggling or sell and downsize at a far greater cost.
Greg
Hi Terry
Very good question.
I get many referals from one of the Major Banks asking me to go and provide the client with a Financial Advice Statement in relation to their Reverse Mortgage.
I think come July 1 this style of loan would certainly have to come into question as the clients PPOR is definately at risk and this is the backbone of the Responsible Lending obligation.
Richard Taylor | Australia's leading private lender
Greg
ASIC wont need to audit every Broker as this responsibility is being taken by the License Holder.
If you are a Credit Representative you can expect regular Audits from the Licensee as his / her neck is on the line.
Certainly my Aggregator is offering this option however i understand that many are leaving Brokers in limbo to plough the legistlation and paperwork themselves.
Richard Taylor | Australia's leading private lender
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