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Ill give my 10 cents worth on commission as an active marketer of residential investment property.
The back story…
I have been a small developer over the years and generally budget say $25,000 for the marketing and sales commissions of my developments… its pretty standard practise in the industry (I also used to fund development projects).
So.. other developers often have 2.5% of the purchase price up their sleeve… built into the feasibility of the project to market & sell it.
I take my share of that and pass a marketing referral fee along… its just business… as long as the property holds up to an independent valuation I don't see its an issue at all, its how I feed my 3 young children.
In any event I would use the following variables to help me decide and rate them against each other 1-10
Yields above 4.9%
Easy affordability
Independent land valuations
Independent rental evidence
Very strong rental demand
High levels of owner occupancy
Local infrastructure
Local transport
Local employment opportunities
I would make sure the loan funds come from separate lenders as well so they cannot claw back from both in the event something goes wrong.
I am happy with the tax opinions I have regarding the product and would suggest people get their own Private Binding Ruling from the ATO for their own circumstances if in doubt.
Terry,
Still cant see it in the hard copy brief that I have but bmaybe I have the version pre downgrade of LVR.
Will be interesting as I know we have a number of 75% commercial deals in the pipe with Perpetual as the Trustee, maybe again before the downgrade, will keep you informed as to if or when they blow up.
I have recently read a PBR (private binding ruling) from the ATO which allowed the capitalisation of investment debt as a short term measure to fund the repayment of OO debt.
In other words all income into the home loan and all costs including interest on investment capitalised and yes the interest on the interest allowable.
You would have to get your own PBR ruling but my 'suits' have all said that as long as you follow the precedent all should be OK.
All you are really doing is converting you non-deductible debt into deductible debt very quickly and of course saving a pile of cash in the process.
If its all east coast property you could roll both into a 'Cash Flow Manager' loan essentially almost halving the repayments required, the other part of the loan is capitalised which you may choose to do until you and hubby are back together?
Email for the spreadsheet and info to see how it works if you want.
The Cash Flow Manager Loan
Where you are at 80% lend but would like access to 10% of your equity to help manage cash flow then this is a lending solution.
Simply speaking, the Cash Flow Manager Loan capitalises a portion of your interest payment onto the loan itself above the 80% level and continues to do this over 5 years. The interest rates are a little higher, however, you are freeing up cash flow in exchange for this. It takes pressure off the budget as you hold your property portfolio and watch it grow. There is a risk fee applied up front (similar to a mortgage insurance fee) which can be added to the loan as well, however, this is in essence little different to the mortgage insurance fee that would apply normally.
Here's an example of how the loan works. Interest on the Low Docs Cash Flow Manager is currently 8.45%, however:
In Year 1 – pay 4.20% and add the remaining 4.25% to the loan balance.
LVR is now 83.2%
In Year 2 – pay 5.45% and add the remaining 3.00% to the loan balance.
LVR is now 85.8%
And so on up to 90% LVRYou can roll this loan capitalising pattern back to the starting point once in the five year cycle thus extending the time that the strategy will give a positive cash flow.
We all buy things to enjoy, whats the use of working or investing if you dont. I personally dont beleive it all should be about the $$. It's called investing in your joy.
If I were in your shoes, had a long term view and depending of course on your particular circumstances I would roll the OO property in a Cash Flow Mortgage (only if you needed to from a $$ point of view) and go and buy the unit.
If you want the spreadsheet to see how the numbers work + some tax opinions on the product email me.
Most long term investments other than 'true' +ve cash flow rely on the hope of some rise in markets over 7-10 years so I dont believe this is an issue.
Of course you are taking a gamble on rising markets over the longer term. Personally I use a 5% long term growth objective when crunching numbers and any more great any less I knew what I was getting into and have several back up plans.
I find it interesting that some people think a concept like 'cash flow mortgages' dodgy when the same concept has been used and continues to be used by almost every property investor I meet who have the ability to have lines of credit to handle any -ve cash flow they may experience.
I would imagine even some of the posts above have used equity before to fund a shortfall?
Cant see that written in the ammendment anywhere (just checked)?
Do you know something I dont?
I know when we were looking to get our funds we were shooting for 80% on commercial as well as resi but only got 75% on both.
ah, if I only knew at 17 what I know now…
get into Mortgage Broking, there are plenty of good deals out there but finding the money and knowing how to structure yourself for tax, that is where the money is in my view.
I would suspect that yes funds contributed from the partnership are deemed as a loan and hence can flow back without triggering extra tax.
I use partnerships for several of my entities, most of which are partnerships between two family trusts and this is how we treat injected monies.
recent changes the Super Legislation now allow you to essentially gear your SMSF to purchase both residential and commercial property using instalment warrants.
I have access to funds at 75% LVR for both if anyone interested.
This may be a solution but pleaseeeee make sure the Trust Deed is complying for this purpose as this really is the where most people come undone.
50% split your way on each settled deal moving higher as the monthy volumes increase. Cost about about $500 to process each deal using support staff and the rest up for grabs.
I have several of these joint ventures on the go and have the capacity to handle large volumes,l would suggest you email me personally and have an offline chat.
If you are not being led towards a 100% offset they are not a good broker, it preserves the tax deductability for future use and when you crunch the numbers can often give you a 0.7% discount on the real cost of the deal
ie. say offered 7.9% variable, using an offset can usually generate 0.7% actual savings on the rate or in other words make the real rate you are paying 7.2%
From a Financial Planning point of view I could not recommend any loan that did not have a 100% offset attached and be what is called a fully 'transactional' loan ie. use it as your bank account and pay all bills etc.
Hope that helps.
Problem I see with all those trusts mentioned is they have a vesting date i.e. an end date and therefore a CGT trigger for someone (maybe you will be dead but someone!), imagine the Capital Growth and subsequent tax on a 50 yera property hold that you are forced to sell because your trust is at an end!
I use a hybrid DT with no vesting date (thats what I beleive you are looking for) so I perpetually pass on my assets to the next generation without triggering a Capital Gains Event.
Its a long term tax planning view but one that I feel is very undermanaged. Also handles all the asset protection, -ve geared bits you need.
Also, I do not hold more than 3 properties in each trust depending on size for further protection.
Hope that helps.
Jasmin,
Centrelink look at the net rental loss of you IP and add that back into your income stream to asses as taxable.
i.e. Interest + costs etc say $20k on your IP
Rent $10k = you lost $10k on that 'business that year'
CL will add in $10k into your taxable income to assess which means an adjustment to your FTax for sure.
If you are going to do it the numbers need to be right so that you come under the FTax B threshold etc.
Send me the numbers you are working with if you need a hand.
I am an originator for these types of loans and have a view from both sides, no type of structure involving equity being used to handle repayments suits anyone but agressive investors hence…
1. if you look at the structure of the Cash Flow Manager loans they are not at all disimilar to obtaining a Line of Credit to 90% LVR and using this LC to handle approx. 1/2 the repayments. As per the comment above I am comfortable using a LC for this purpose but many of my clients dont want the hassle of managing it and choose the Cash Flow Option because it is set and forget.
2. if you use the spreadsheet available (email me for one if you like) you can see that over the 5 year period if you get no growth at all you now owe 90% instead of the 80% you started at. A break even point would be between 4%-5% growth.
3. I use them and like them, they have allowed me to restructure many -ve geared properties to provide money in mine and my clients pockets allowing us to get on with our wealth creation instead of worrying about day to day cash flow.
4. Yes there may be an issue if markets slump, but this is always the case when gearing heavily and no matter how you have done it the risk remains the same.
All in all its a good product for some people, not for others, no different then structuring a Line of Credit yourself except for the set and forget aspect
