Hi,

There will be others with broader mortgage working knowledge than me, but, I'll have a crack at giving you an answer…

1) Yes, there will be interest on the $100k drawdown (which you might be able to capitalise or else pay for out of the drawdown rather than paying cash). There will also be interest on the loan for the IP.

That is, I'm assuming you will use the drawdown on your PPOR to pay for the deposit on the investment property (IP) and have a separate loan (say 80%LVR) for the balance?

2) The rent will normally be paid to a rental manager (who will have a trust account), and you can direct them to pay it to whatever account you nominate (cheque account, loan account etc)

3) The shortfall can comes from the LOC, or from other means… but it must come from somewhere! Clearly, if there is a shortfall you are buying for growth, so do your sums carefully and test your assumptions thoroughly!

4) I'm not sure about this question as a LOC will usually be in debit (you owe the bank), whereas an offset account is usually in credit (the bank owes you). Perhaps someone with specific mortgage product knowledge could let us know is such a beast (that allows a debit LOC when the loan is drawndown, and a credit 100% offset when the account is in credit) exists…???…

Hope this has helped. Thanks for your post.

– Steve McKnight

Hi,

You can definitely bank US checks into an Aus bank account with the majors (NAB etc)… I've done it many times. The banks hit you on fees, clearance times and with an unflattering exchange rate though.  I'll keep looking for an answer for a US account, but the issue is having verified ID.

The trick in applying for an ITIN is having the right reason and supporting ID. You can't just set one up… that's why Tommy needed to get a letter from the County Tax Collector to support the application. I'd like to see the looks on their faces when he asks for 300 letters!

Further light reading on the ITIN can be found at:
http://www.irs.gov/pub/irs-pdf/iw7.pdf

Happy reading,

– Steve

It really is starting to look like a bubble. In the last board minutes, the RBA mentioned that the motivating factor in increasing interest rates was growth in house prices. This will surely add fuel to the fire of further increases in months ahead.

Still, even if we are in a bubble, will it pop (like Steve Keen predicts), or will it deflate?

My vote is for it to deflate as, unlike the US and Spain (which are often quoted as a basis to expect prices to drop here), we did not experience a boom in buildingi n the mid-2000's like they did.

One thing is for certain though… the growth in prices is not sustainable, and these figures are as alarming as they are amazing.

The real danger is if people borrow against this new 'equity'. Keep an eye out for the return of 'equity mate' ads on TV!

– Steve

Hi,

They are a cost incurred in earning assessable income, so I should think so.

More info can be found at:
http://www.ato.gov.au/individuals/content.asp?doc=/content/00113245.htm

If loan establishment fees can be claimed, then surely break fees could also.

Check with your accountant though.

– Steve

Welcome to the forum.

A couple more suggestions for you:

http://www.news.com.au is a good Aussie news site
You can also set up a google news feature with hot words

Depending on where you land there might be good local investor groups you can join. APN in Vic is one.

All the best for the move across.

– Steve McKnight

Hey Sean,

I went over to the States last November and started buying some US property.

I spoke to Wachovia bank about the possibility of borrowing money, and the short answer was that it will be very difficult until you have a credit history and a banking history.

You can go with 'hard money' lenders, but I wouldn't.

Another option is to set up a structure with someone from the US as a director or member, and then use their SSN / history to help the entity gain finance.

If I find out any other options I'll let you know.

Regards,

– Steve McKnight

Agreed – too much 'soft spam' is flying under the radar.

But you can help us! At the bottom right of each post is an 'angry' face. Click that and it will report the post as spam and we will investigate.

Regards,

– Steve

D,

Nice try, but that's not what I am talking about. In your situation you are getting to a 100% leverage situation, and this will be tough to get approval for because when lenders do their due diligence in the post GFC environment, I suspect it will be identified and knocked on the head.

Also, I'm not sure it would work out in the debits and credits in the underlying accounting.

To start off with, in the books of Trust A:

DR Asset (Property) $1m
CR Loan (You for lending in the equity / deposit) $300k
CD Loan (Lender) $700k

This is a cash transaction, so the journal above also indicates the cash outlay and source of funds, namely:

Cash In

Loan (You) $300k
Loan (Lender) $700k

Cash Out:

Property Purchase $1m

Now let's say you set up Trust B and want to buy another property on the same basis. Assuming you could get a 70% loan from another lender ($700k), where is the other $300k going to come from? While you can 'loan it form Trust A', it won't be a cash transaction because Trust A doesn't have cash to hand over (unless it refinances the property, but how much more will be loaned because it is already at 70% LVR?)

For example,

TRUST A

Dr Loan (You) $300k
Cr Loan (Trust $300k

<now Trust A owes Trust B>

TRUST B

Dr Loan Trust A
Cr Loan (You)

Overall Cash Position (Trust A &

Cash In

Loan (You) $300k
Loan (Bank Lending To Trust A) $700k
Loan (Bank Lending To Trust $700k

Cash Out

Property (Trust A) $1m
Property (Trust $1m

Cash Shortfall: $300k

As you can see, all you are doing is transferring the loan to you from Trust A to Trust B and there is no cash movement. This means that you are still short $300k of physical cash which is needed to buy the second $1m of property (Trust .

As mentioned, you might be able to refinance the property in Trust A (say, up to 80% LVR), but this would only give an extra $100k, you would still need to find another $200k from somewhere else. You couldn't even x-securitize the property in Trust A as it is at max LVR.

Overall then, and as I will outline at the upcoming get together, for this strategy to work you need:

a) A source of cash to provide the 20% deposits that does not rely on refinancing or other debt. In my case this money came from realised profits as I sold property, and from good cash flow businesses

b) You need to be able to demonstrate that you can service the debt.

c) You need a strong asset position

d) You need to source a lender who knows and understands what you are doing.

Terry makes a good point about residential lenders. I deal principally with business bankers who operate with more advanced structures and situations. But business banking is not for the elite… it is open to anyone (or can be if you can write a business plan!).

This has been a technical answer, and sorry if it has put some readers to sleep or frazzled them with accounting, but it sets out the nature of the transaction and the source and use of the cash needed.

Regards,

– Steve

Hi,

The essential point made in the book is not to 'hide' the fact that you are a guarantor, but rather to acknowledge that a guarantee is not a debt.

I am yet to find any evidence that lenders treat a guarantee as the same as a personal debt. Instead, what seems to be happening, is that lenders are taking a much closer look at serviceability in general, and asking more questions than before.

For example, when they do a credit check, any companies that you are a director of will be revealed. These days, lenders will now be likely to ask for financial statements of those entites to check your overall solvency.

In conculsion, after speaking to multiple mortgage brokers and internal bank contatcs, I can summarise by saying:

1) Since the GFC, lenders have become far more attentive to detail, and ask far more questions about loan applicants.

2) Nonetheless, the multi-trust structure outlined in the book remains valid, albeit that more questions may be asked. In particular, a guarantee is not the same as a debt, but different lenders will asses that guarantee differently.

3) The key determinant is (and has always been) demonstrating serviceability – that is, how will the loan be repaid? This speaks to your income and asset situation, and the stronger the better.

4) In light of the new post GFC lending environment, it is important to ‘select’ the right lender as different lenders have different appetites to risk and investor profiles.

I continue to use this structure across multi-lenders and am yet to strike a problem. That said, I am only borrowing 80% and can demonstrate strong serviceability.

Regards,

– Steve

Lewis O'Brien.

03 9888 6388

– Steve