I think this was a week or two ago and basically yep aussierogue (sounds like a spoof of Crocodile Hunter [] you are spot on. I recall there were comments like Melbournites paying $300K for inner city units with high vacancies that are worth much less etc. Ouch.

Friends bought in the 1-2 hours outside hobart range 6 months ago and have done really well though so again it’s just a case of doing your homework.

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Mel

Terry’s right – you’ve got to ask around. Why not ask the 10 richest people you know whether they use trust structures and if they say yes, ask them for their accountants name. As far as I know there are only three main types of trust – bloodline, discretionary and unit, with different purposes.

Don’t know much about Hybrid Unit Trusts – what are the key features? In the property investing arena I thought unit trusts were best used in conjuction with a discretionary trust. Eg you have one big discretionary trust, then different unit trusts for different purposes, eg Unit trust 1 for buy and hold cash flow +ve residential RE, unit trust 2 for short term fix and flick, unit trust 3 for development JV’s etc and the units of each of these were then distributed into the discretionary trust and then distributed to the relevant individuals – offers max asset protection and best LEGAL tax positioning of income and expenses.

Would love to hear others comments. Wish I was an accountant .. !

Happy Investing,
Mel

Most loans above 80% require the borrower to pay LMI and the amount varies by lender, loan size and LVR. To be on the safe side assume about 1.3% of the loan value, ie $1,300 per $100K loan, and as the other guys have said – it isn’t huge compared to potential gains so if the deal stacks up, do it!

There are lenders out there who will lend up to 100% with minimum 3 months genuine savings, eg St George, but you pay a penalty higher rate. Then there are lenders like ANZ and Suncorp who will lend 95% AND capitalise LMI, ie stick it on top of the loan amount, then there’s the rest of the crowd who’ll lend 95% and you pick up the tab for LMI at approx rate above.

Happy investing,
Mel
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Howdy,

Back on Brent & Richo’s concerns from what I have newly gleaned (ie no expert either!) trusts are a great way to borrow up to normal 80%+ levels where you have family members in the trust and directors of the trustee company, BUT the director who gives the directors guarantee on the loan does have their personal borrowing capability hindered, but the other parties to the loan don’t. Great for families where Mum & Dad throw in $50K and Jack and Jill Junior invest those funds at 80% asset lends into properties with the magical positive cash flow that doesn’t hinder anyone’s future borrowing capacity anyway ….. !!

That’s the theory I’m running with anyway, but as I said just a novice and learning lots, and keen to hear other people’s spin.

Happy investing!!
Mel

Welcome to the site![]

Um – depends. Personal is simpler, cheaper (you already exist!) and unfortunately more susceptible to loss. Apparently worldwide NSW is the third most litigous (spell?) state after California & Texas, and Queensland is sixth – food fo thought. Therefore, if you are v serious about accumulating property assets, and face it thats the name of the game … then talk to an accountant about discretionary trusts with two-dollar shelf company as trustee & you as Director – costs about $2K to set up. Upside is assets are seen to belong to a crowd hence while lenders will always have security on the actual bricks & mortar & can reclaim them for payment defaults, someone trying to sue you because they tripped over in your front yard or equally lame, the lawyers know they cannot prove you have direct ownership of assets held in trust & hence won’t bother trying to sue you.

The middle class dream is to proudly own a few properties, the rich own nothing & live in the lap of luxury – I pick option (b) !

Sory for being wordy -hope that helps.

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Mel

Hi Stuart,

Basically in scenario 2 with the offset a/c, the ACTUAL loan a/c balance never altered from $180K cos it’s I/O (but because there was $80K sitting in the offset a/c your repayments are calculated on having $100K loan only). If the ACTUAL loan a/c balance is decreased, eg through P&I or extra repayments, then you draw funds directly out of the loan and the tax man looks at the purpose for that redraw and if it’s personal, eg deposit for new PPOR, then you can’t claim it.

Make sense?

There are probably lots of other traps and methods too I haven’t figured out yet, but I’m learning heaps from this site.

Cheers,
Mel

Hi,

Also look under http://www.realestate.com.au under home price guide – postcode snapshops section. Gives you heaps of data about the area, can’t vouch for how up to date it is.

Happy investing,
Mel

I agree Peter – the other way is to have an offset account on an I/O loan where you throw all your spare cash and get it 100% deducted from amount owing (hence effectively interest rate return) but it’s freely available to pull out and use anytime.

Offset accounts also have a great tax advantage as per following example:

Have own home worth $200K, loan of $100K. Want to buy new O/O home worth $300K and keep current home as rental. If you refinance current loan back to $180K and use extra $80K as deposit on own home then despite the old home now being a rental, you cannot claim the interest on the extra $80k on tax as it’s PURPOSE is for your new personal home loan []. If you’d had the original loan on I/O and $80K accumulated in your offset account, hence you are only paying interest on $100K as per previous, then used the $80K to buy the new home then the full $180K loan on the first house is tax deductible.

Make sense? [?]

Mel
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Basically yep.

If you’ve got no other equity or cash as security, then putting up 5% shows the bank you plan to stick around and not lose your capital contribution thru payment defaults and a fire-sale of you property for hem to get out.

If you were set up in the right kind of loan (eg partly line of credit) you could do minor improvements to the property eg paint job, new kit kitchen etc, get it revalued at say $115K, then apply to have your loan increased to 90% of that ($103.5K) & providing you have income to service you can pull out the extra $13.5K and hey presto you have the $10K + costs for the next purchase & loan.

Also, try not to stick with the same bank either as often other banks will take your current commitment at face value, eg $800/month, whereas within the one bank they are obliged to add a safety margin of 1-2% onto actual interest rate and work out commitment based on that eg $800/month treated as $900/mth commitment with margin added, decreasing you borrowing power.

Make sense?

Mel

Hi Adam,

Wish I’d had your determination 10-something years ago !!

A lender called Liberty may finance you into a deal BUT you’ll need about 20% of purchase price as deposit & it would help to have a strong deal – ie strong +ve cashflow. Initial interest rate will be higher than everyone else too, but will decrease annually with good repayments & it gets you started.

Recommend you go thru a broker too as these type of lenders don’t really go direct to public, plus brokers should be able to help you set up correctly for continued borrowing if that “130” neon sign is your dream too!

Happy investing,
Mel