Forum Replies Created
It's not that cut and dry Dave. Hence the ATO won't make private rulings on products such as the cashflow mortgage. Anyone thinking of using capitalised interest needs to consult their accountant on their specific situation.
Regards
AlistairHi Carlin,
There is no problem with choosing not to use a broker, but your reasoning is floored. Most non bank lenders get their funds from the same source. Hence there is no real difference between products and especially not lending policies. A good example is Virgin Money, which is a cut down, rebadged Mac Bank product, Virgin Money loan officers sit right next to the Mac Bank staff in the same office. For the most part investors are best off using banks, to avoid exposure to mortgage insurers, pretty much all brokers have access to all banks (except Bank of Queensland).
The issue you are going to hit, is that to max out your servicing in terms of full doc loans, you will almost definately need to use more than one bank, to work out which ones suit your situation best you need an intimate knowledge of how each lender calculates your servicing capacity. Only a good broker will be able assist you with this.
Regards
AlistairWhat do you have against brokers?
The circomstances for cash flow loan is an advantage is where liquid funds are tight. Cash flow loans allow for reduced contribution and provide some gearing advantage by adding further interest capitalisation for legitimate tax claims.
The disadvantage compared to Terry's proposal is that cash flow loans do not allow for a starting LVR higher than 80% of the property value. The capitalised interest is allowed to increase upt ot 90% over 5 years.This is a roundabout way of stating there is no advantage. The cashflow loan is expensive, inflexible and does nothing that can't be acheived with regular lending products at significantly lower cost. It really annoys me as it seems to simply be a way of selling people an overpriced loan.
Regards
AlistairCraig,
Can you please explain in what circumstances this would be a better option than what Terry proposed?
Regards
AlistairHi Adam,
Do you needd to raise the funds personlly, or can it be through the business. If you can raise it through the business there are a large number of different sorts of loan that might suit you. In terms of LVRT agains tthe purchase of another business, typically you can borrow 50% of the amount, but the actual LVR would be heavily dependent on cashflow of the subject business and your current business.
Regards
AlistairI have worked with a number of people in the results program. As in any group there is a great mix of experience between individuals, and a lot of very different projects being entered into. I can say that I would consider the vast majority of projects that I have seen to be of at least good quality, and some have been exceptional. As a group, considering experience level, the people I have dealt with from the program are definately above average in terms of the quality of projects they are undertaking.
Regards
Alistair"They do offer greater flexibility in many cases as they don't suffer from the beaurocratic straight jacket that the big banks often operate under"
Hi Steven,
I'll be the first to admit that I know nothing about your business and you might be great. But generally with small secuitised lenders the funds come from one of very few wholesale funders, and all loans are mortgage insured, in most cases through one of the 2 major mortgage insurers. Hence, there is often very little difference between their credit policies or service levels, they simply have no control over them. I have come accross very few securitised lender that are worth using, and no small ones. If you are different please let us know, if you do have a point of difference in your offering I'm sure you will do well from sticking around here.
Regards
AlistairHi Matt,
If you use a LOC for this you will be sorry later, you will want to purchase a PPOR or use your money for some other non deductable purchase in future and it is far more tax effective to place as much cash as possible into these purchases. If you use a loan with a 100% offset then any additional funds placed into the offset account reduced the interest charge, but does not alter the loan amount, hence you can use that cash for anything without affecting the tax deductability of the IP loan. If you use a LOC and draw any money out for non deductable purposes you will be mixing deductable and non deductable debt, this will cause you problems in the future. It also seems you need to have a close look at how much cash you should put into the first IP, given that you want to purchase another soon after, depending on how much you intend to borrow against each, how much cash you have ijn excess of the 20% deposit and closing costs on the first IP and how quickly you can save for the second IP, you may be better off using higher LVR on the first one and paying some mortgage insurance.
Stella, you would be better off with an IO loan with Offset for your first account. Apart from anything else, its cheaper, but will also give you more more flexability in future.
Both of you seek advice from your accountants on these structures and not just take my, or anyone elses advice on how to set up your loans. It's an important thing that most investors neglect.
Regards
Alistair"This could go back and forward for ages …. Gerry Harvey became a billionaire by attracting people with cashback and discounting … 80% of brokers IMHO have trouble reconciling … their own credit card …"
I think its a worthwhile argument, but I also think we've both made our points, so i'm happy to leave it here. But i will add that Harvey Norman is not a discounter, they compete by offereing variety and also because they are very good at choosing stock that will sell (Gerry Harvey is an absolutely brilliant retailer).
I think its more like 95% by the way. I had a BDM tell me recently that a broker called her to ask what LVR means! Having said that, it is quite obvious that all the brokers that come on here know their stuff, if they didn't they would soon be shouted down.
Regards
Alistair"Another way to look at it Perry is volume makes money"
This is not necessarily correct, and it is also incorrect to say that these businesses do higher volumes than brokers who don't give cash back. There are a large number of ways to attract business in the broking field and devaluing your service by buying business is probably the least effective, quite frankly it stinks of desperation.
"we have had shocking service from full charge brokers, go figure"
Can't say I'm surprised, most brokers are useless. I bet you haven't used any of the regular brokers from this site.
"discounting is part of life like interest free store accounts"
Please note the performance of Myer, post their move down market, as compared to David Jones. Competing on price is often a poor strategy. As a customer you should look at value, rather than price, if you don't think a broker can offer you anything apart from processing your loan then its great that they pay you, they are still getting more money than they deserve. If you don't think that a good broker can add value to your investing either your needs are very basic or you have dealt with the wrong people.
Regards
Alistair"I do agree with Margaret Lomas' rants about LOC rather than taking out a standard mortgage with offset of interest option..this in order to be able to access any gained equity easier."
LOC's have uses, but typically you are better off with standard loans as they are less expensive. It is no more difficult to top up a standard interest only loan than to extend the limit on a LOC. For a PPOR a loan with offset is far superior to an LOC, not only because it is less expensive, but also because using the offset does not alter the balance of the loan therefore avoiding any issues with the mixing the deductable and non deductable debt.
"lots of changes happening to the broker market over the next 2 years – not many brokers pay you money back …"
No decent broker ever will. These brokers obviously place no value in their service, generally with good reason.
Hi Marc,
To start with, it is costing you money as LOC's are more expensive than standard loans. They also provide less flexability than a loan with an offset. With a loan balance of only $600K, it is not costing you a great deal of money, but it is still not optimum. My argument re Destiny is that they seem to have a blanket policy that crossed loans and LOC's are the way to go, the simple fact is that this is rarely the best structure.
I have a number of clients who have read her books and have had to discuss with them why I didn't think they should structure their loans as per her advice, I have also heard her speak a number of times and have been quite unimpressed. She seems to think buying properties without seeing them is a good thing, for example, I would not consider this good advice. Nor would I consider buying in some of the areas I have heard her spruik eg Elizabeth. I would not consider an investment in such an area low risk.
"If you don't know anything about Destiny or Margaret, or haven't read her books, then please keep your opinions to yourself until you know some facts"
I assume this was aimed at me. I know enough to express an opinion and the person who started this thread was asking for opinions. You, I and plenty of others have stated differing opinions, so I think it has been a good exercise. Also, you can say what you want about how great you loan structure is but, from wehat you have posted, it is costing you money for no particular reason.
Hi Debra,
If you are using lo docs please, for your own sake, don't cross your loans. It will cost you significantly in terms of mortgage insurance.
Regards
AlistairI must admit I haven't read anything by Margaret Lomas, but I have heard her speak and I have had clients ask me my thoughts regarding her ideas on debt structuring. The impression I get is that she is very good at promoting herslf, but there is not a lot of substance to her, in terms of her knowledge of either property investing and especially not debt structuring. The idea of puting everything into one LOC is, for most people, plain dumb. It is more expensive than using regular loans, less flexible than using loans with an offset, and cross collaterisation is rarely appropriate.
Regards
Alistair
The purchasers will be paying the GST when you sell, not you.
Hi Barney,
If you are registered for GST, you can clim it back anyway. If there is a problem with the money upfront, Westpac should be able to set up a short term overdraft to pay it for you.
Regards
AlistairYes, there are a few ways you can acheive that, subject to your income. Which is best would depend on your personal circumstances. Give us some more info.
Regards
Alistair