beware as accountants cannot advise on land tax as it is state law and doing so would be providing legal advice for which they would not be covered by insurance. This is the case also when they set up trusts.

In WA a trustee of a discretionary trust could get a separate land tax threshold to land they hold beneficially (not as trustee).

That is true, there are many advantages with cheaper properties, others include being able to sell and minimise CGT as you can sell one property per year and spread the gain.

I think the name of the game is to make as much money as you can rather than make a job. Expensive ones might have low yields bu they can result in more money. One of my clients purchased for $2mil and sold for $3mil less than a year later. No 50% CGT discount (they were silly there) but still would have made $500k+ plus in one year. Beats owning multiple cheapies in my book.

You have to consider whether such a property is a good investment. Just because it is high yield it doesn’t mean it is good.

It will still tie up serviceability and equity and you could be investing in something else with higher returns – there is an opportunity cost.

Regional areas do seem to be growing though so there may be some capital growth. But is this a short term thing or not?

Also having say 10x $200,000 properties will have 10 times the issues of 1 x $2mil property. Think of all the broken hotwater systems, smoke alarm checks etc.

twhiteho wrote:

that a lender is only allowed to let you borrow up to 30% gross of work salaries at their determined interest rate. Ie you may have a 3.99% on the loan but the assessment may be on 6% and they may allow you up to 80% of the IP income.

Its a bit more complex than this but very rough this is the case. Lender calculations are hidden behind the scenes though. They will also use living expenses worked out on the higher of what you are spending or one of the spending indexes.

In most cases borrowing capacity is only 6 to 8 times the borrowers pretax annual income. If you earn $100,000 pa you would be limited to $700,000 – very rough

Don’t believe everything you hear is the first thing.

Second thing is that lending tightened up significantly in 2009 when the NCCP Act came in and again in around 2017 when APRA started trying to cool the market down by curbing lenders. So ask the people when they acquirered their properties.

If you have already tapped out it might be too late, but if you had companies borrowing you could have extended further by not being the borrower but the guarantor.

And some non-bank lenders will have easier servicing so has your broker tried the firstmacs, resimacs, pepper and liberty?

And it is not how many you own that counts. You could sell your main residence and buy 16 more cheap properties potentially. But this may not be a good move.

There are low docs still out there, but you will need to declare an income still – and pass serviceability. If the income is too low you will still not service. You will also have to supply limited evidence of the income which might be bank statements, bas or accountant letter or a combo

wan0151 wrote:

Won’t that drastically increase the monthly repayments though?

Yes

There are hundreds of ways to improve serviceability. You should speak to a broker aboutt specific things that might work for you.

One simple one is to go PI on all loans and extend back to 30 year terms.

wan0151 wrote:

do the banks consider my annual income as $524k

Not really. They will have a complex calculator which takes into account a percentage of your salary income and generally 70% to 80% of the rent.

wan0151 wrote:

Would they also count any depreciation claimed on the property and any tax claims on the tax deductible investment loan towards my annual salary?

These days I don’t think any will take into account depreciation, but some will take into account interest being deductible.

wan0151 wrote:

If so, it would be possible to keep purchasing property year after year for a similar price.

You coudn’t keep borrowing to buy similar properties because you would soon hit your serviceability limit.. But there are ways to extend it

wan0151 wrote:

a) When you say to carefully select the director of the trust, should it be the personal with the highest annual income? What are the other important factors to consider?

All the other legal issues. Being a director is potentially dangerous and burdensome, but not being a director means loss of control.

wan0151 wrote:

b) What do you mean when you say ‘avoid using certain lenders’?

Each lender has a different policy to other lenders so some will be good for what you are after others will not be good.

wan0151 wrote:

c) When you say ‘once borrowing cap reached, then set up a new company to either act in its own right or as trustee for a different trust’, won’t lenders for the 2nd trust see that the director/s of the first trust (director/s would be the same for the trusts) have given personal guarantees for the assets held in the first trust? I thought guarantees are essentially looked at as personal borrowings for serviceability?

A trust is not a separate legal entity, but a company is. So the debts of Company A are not debts of Company B. If company C borrows money the debts of Company A and B are not taken into account. But most lenders will look at the borrowings of the personal guarantors, as the company has no income. Guarantees given by the directors will be considered the same as loans for serviceability for most lenders, but not all. Some lenders will disregard personal guaratees as long as the borrower is paying their own way and the guarantor is not needed to fund it.

wan0151 wrote:

Lastly, if you have maxed out your personal burrowing capacity by purchasing real estate, will establishing a trust and having a company act as trustee still allow you to burrow more since it’s the company’s debt and you’re not personally liable?

Since the lender is basically base the serviceability on the guarantor’s income, if they have already reached borrowing capacity then they or a related company will not be able to borrow any further – its too late at that point.