Forum Replies Created
Much obliged Terry.
I’m cautious and don’t have great appetite for debt at the moment. But the experts are touting it the best way forward. My current bank is not one to let up in taking more security than it needs, and I hate paying hefty LMI.
Back to reading more of your posts on LMI; and the legalities of avoiding one by finance through different sources.
Enjoy reading your newsletters, Terry, and wouldn’t mind confirmation on the LMI issue.[blush2]
CT
Thanks John, your calrification helps indeed.
I agree we need good advice from appropriate sources. This issue of negative gearing from a hybrid DT setup had me puzzled for a while; I’m glad to hear pointers from valued forum contributors – their generosities are much appreciated.
From here, there is another issue with structuring finance to minimise the cut the bank takes as collateral to perpetuate the process of wealth creation. Can anyone give valuable suggestions?
CT
Just one point, Carpenter. Try not to lead on you’re using any yardstick for your search.
RE agents are keen to “tailor” properties to you, and the reality usually does not stack up to their selling pitch.
Research rental demand stats in your area(s) maybe worth the trouble.
Cheers
CTTerry, the doomsayers have some valid points as the affordability issue is quite glaring in the current climate of uncertainty. I have to admit we owe it to ourselves to act responsibly to see our way clear of mass hype and chaos.
Properties are lumpy and one cannot get out as quickly compared to stocks (or shares). Three points are clear from the article;
1. the need to have a plan (including an exit strategy) for evaluation
2. set a stop loss similar to stocks (depending on risk profile)
3. allow enough cash buffer and not to over extend in creditThen we are no longer hamstrung by Greed and Fear . Take back control and ownership, heed the warning from the experts, and act accordingly to reduce debt. Opportunities to invest in quality assets (be it stocks or properties) may arise soon enough. We’ll live another day, if not thrive along the way.
CT
Thanks heaps Terry for the privilege. I understand it all boils down to the wording of the deed and the unit holder eventually buying up units to enable further borrowings.
You’re right in pointing out the detrimental effect of having finance in the trustee’s (in this case a company) name – any initial negative income is then quarantined in the trust. Even though tax issue shouldn’t be the forefront of our investment priority, it is a cost that can be minimised if the setup is done correctly.
If only veteran forumites are more willing to share their knowledge and experiences in this area. Then again, I completely understand why some are cagey …
CT
Thanks for the opportunity to join in this thread. I’d be grateful if anyone can explain the added issue of negative gearing in situation where a Hybrid DT is set up to invest in property for the purposes of distributing income and asset protection.
I gather it can only be done if the loan is under the name of the individual (beneficiary to the trust) with the highest tax bracket. If the Hybrid DT (company as trustee) owns the first IP, how then can individual access the equity through finance from the first IP to fund a subsequent purchase? Is it where personal guarantee (put up personal collateral) comes in?
Or am I looking at it all wrong in terms of in whose name the mortgage should be in. I heard some property experts use the K.I.S.S. principle and just buy and finance in personal name – saving setup and ongoing compliance costs, as well as precious time finding the ‘right’ legal and accounting experts to help.
[glum]Sorry for the long post, but would love any answers from people who walk the talk.
CT
Fantastic news!!
On a personal front, I do not give up easily when others see it as “it’s too late”. My lawyer (Malaysia) is chasing a reculcitrant tenant for rent in arrears. Small fee but well worth the effort.
CT
My, I thought we are here to learn through forum; I didn’t think this was the place to stir up emotions or be condemned by personal opinions.
No problem on fee for service at all. Far from it, the concern here is that accountants have to earn their dues. I was deliberate in giving him the benefit of the doubt as he has served us well in the past by setting up business structures and created wealth.
The accountant knew I was there to discuss setting up a Hybrid DT but failed to deliver any followup (other than saying it was very complicated and time consuming for him to understake my desire) and charged a fee without reference to outcome of the meeting.
Is it right to pay for time and not get any answers to my questions? NO – To be honest, how do you know anyone has your best interests at heart by going on wavelengths or vibes? But, like Terry said, when it comes to property investing, most accountants lack the knowledge to even start advising. They are so wound up in compliance issues to keep their heads above waters.
Good knowledge on accounting issues, wealth of experience and a great customer support (referral generated if the topic is complicated) are core issues when it comes to accountant shopping.
CT
Wealth4Life, I don’t watch commercial TV channels for that reason. I do listen to the wireless, no point for guessing which one …
The sad thing is the Blame Game continues even at the political level. Costello’s points-scoring on Howard’s government diddling the public on his electoral promise on interest rates remain low during his term – He knows the economy is not under Howard’s spell, but spin he will to the public.
Geez, I can see Keating chuckles and quoting his famous line again ….. History repeats itself, but this time it will hurt more than last. Costly lessons indeed for those who failed to notice.
CT
I have been where you’re from, QL.
Just seen my accountant for advices on setting up a hybrid trust and negative gearing. He ended up in and out of the office and reception juggling three clients at one time. Finally, came back 10 minutes later and said it could not be done. Then, I pulled out an article by Dale, he clarified that it was possible but he had little time to help setting it up – I read it as “I’m not interested in your complicated structures, I have more easy clients to see.” My loyalty is misplaced… time for a change.
That’s not all, the bill came at $132 for an hour of “nothing” outcome.
Sighhh… thanks for the advice I’m already inclined.
CT
The Great Divide is a sad fact, but no one says it has to be the only way. It is so unsexy to tell the truth like it is, minus the sensationalism (media the culprit in particular).
Until the politicians and educators see it crucial to teach Personal Finance at school level to aid understanding of building wealth locally in oneself, it is not possible to see clearly the big picture – living in an economy sustainable for growth and prosperity. The Great Divide is just a Zero Sum Gain – we all lose as we’ll pay for decision we did not make – the interest rate.
If we are educated that overnight success is not attainable, there will be less of a boon for illegitimate gurus to expound “secret to success” through seminars. The fundamentals are taught and thus empower all individuals to make sound decision for themselves. How many times we distrust professionals lacking fiduciary duty of care? Their integrity is glaringly obvious to trained eyes; usually they are the people who have genuine interests in helping others to succeed (building their business around that is sustainable).
I’d like to see my children intelligent enough not be taken in by greed perpetuated by misplaced interests of the professionals (credit providers, financial planners, property gurus, managed funds etc. etc.). Now before anyone jump in – Maybe I’m not sophisticated enough to reap the reward on other’s misfortunes, then so be it.
CT
I could not agree more with LifeX on educating yourself along the way before making a calculated decision on which Financial Planner is worth their fee.
It is not just the right asset mix tailored to your specific needs to plan for wealth creation strategy, but also looking in depth the asset protection and estate planning to fully appreciate them all.
I do not condemn all FP; although there are some bad apples out there exist only by ripping people off by showing them ‘safe and sound’ recommended managed products whilst feeding fear on our lack of time and knowledge to take action ourselves. Most prospectus can be manipulated to suit the purpose.
If you look hard enough, like I did, you’ll find one. They stand out from the generic FP like a sore thumb. Integrity is something FP can’t buy.
Having said that, I have yet to meet with the FP, as I am heavily investing in educating myself to ask the right questions when I do see him. Why waste precious time and money for information you can get from books? I’ve got plenty of suggestions on great books from this forum alone.
All the best alotti.
CT
Well said kattan. You explained the very conservative approach bank (the big C) takes on the current uncertain economic climate. Their motto is – someone else can have your business when it looks bad in their book on exposure risk.
Perhaps it’s time we took a breather to check our sums if it stacks up in the light of possible interest rate hike another percentage point some time done the line. Heck, the bank must have factored that in.
CT
Dee dee, your scenario sounds more complicated than the initial thread first intended.
Expenses on maintaining IP should be tax deductible if you can substantiate them with good record keeping. Some can be written off in the year it is incurred, some should be depreciated over a number of years. Speak again with your accountant.
As for changing name on mortgage, you need to check with your finance provider. It should be straight forward if they come to the party.
There may be a need to change the title on the property as well. It is an off market transfer using appropriate forms (Transfer of Land) with the Office of State Revenue and may be the Land Title Office for stamping.
Advice from the expert is necessary before you proceed. I think if you ask terryw nicely, he may be able to give pointers in this area.
CT
Sorry to hear this happened to you, World Changer.
It takes courage to speak out, and do something about it. Have you considered lodging a legitimate complaint of breach of duty with their finance industry ombudsmen over there (assuming they have one similar to us)?
I hate to see others tripped up by the same broker while filling his coffer. If you can encourage others in the same position to come forward to take a class action, using a no-win no-fee litigation lawyer (again assuming they have one), it may be worthwhile action to take.
Thanks again for making it known to us in the forum. Hope you can get some kind of justice.
CT
Hmmm, the scenario is a bit too hypothetical Foundation, thanks Celeste for the sums, for it to be real.
Are you saying it’s a zero sum game? The losers are paying for the others gain… ASIC would raise its head on RE practice of this kind, won’t it? No one has come out crying foul as far as I know. Banks have their hands in it and would not be seen lending this kind of money for venture capital.
I guess interest rate hike is a common monetary policy to tighten loose spending. Like it or not, in the current climate, the Reserve Bank has had its finger on the pulse and demonstrated good discretion so far on interest rate. Besides, we live in a global economy, there is a constant shift of wealth from one nation to another. No bust is looming from my radar.
CT
Munno, I’m still green in investing topics. Although I know the basics I cannot tell you where to go for valuation. Do a search on this forum may be a start. Ditto as well to pointers for making PPOR to IP.
My accountant asked me to steer away from property investing as there are better alternatives. Make sure the accountant is knowledgable in the area. As they say, horses for courses.
As for brokers, maybe seek terryw in this forum, he’s got heaps of leads.
All the best
CTFoundation, loved your graphic economic analysis, albeit fun and twisted, on ‘consequences’ of leveraging for wealth creation. Leveraging for scarce resources (depending on individual asset selections) is creating good debt.
Isn’t it the bad debt the culprit? The graphs have not distinguished the two. Readily available credit for instant gratifications to the average persons pull us all into temptation. But I’d like to think not all of us succumb to it.
It a sustainability issue here; do we do nothing and hope the dire mess of the nation as a whole gets better? No, it’s a pessimist approach. Yes, I hear you loud and clear, you’re a realist.
I would be interested in your suggestion of any solution that can make a difference to servicing unprecedented debt level we as a nation face.[chill] (Of course besides raising the interest rate).
CT
Good on you Munno for taking actions.
I guess going down the path of option 1 suit you as long as you’re getting good advice from accountant etc.
Has a valuation been obtained for the old PPOR before making it IP (refer to ATO site on the issue)? A quantity surveyor may come on handy for claiming depreciation to make the yield more attractive.
Lenders are just the necessary finance vehicle – use them to your advantage. The value of a good mortgage broker can not be underestimated; and they do not normally ‘directly’ charge you for their advice in leveraging strategies. Ask and you’ll get.
It would then be wise to do the proper due diligence and run the advice through your accountant, and a legal advisor, for structuring a wealth creation plan from there, if you have not done so already.
Wishing you well.[thumbsupanim]
CTHi all,
It’s quite thin in information in this tread as we’re finding out. Kindly elaborate if there is any Tenancy Agreement(s) signed here, Gerry G.
I’ve no local (Melb) experience in subletting rooms to property for investment. I’ve experience as a student tenant OS (Malaysia), there is usually a TA in placed for a head tenant to take reponsibility of rental remittance of the building to minimise hassle of collections from individual tenants. Bonds are stipulated for security, an exit clause is too important (all too often overlooked) to leave out in TA in this scenario.
In the end, the quality of tenants you get hold the key to your success. Using a property manager may be a good idea to separate yourself from tenants’ issues while maintaining control on the decision outcome. They come in handy to source tenants for rooms when available as well.
Anyway, what do I know …. still learning the ropes.
CT
