Ptn, You will have to check with an accountant about the units.

Many banks don’t like hybrids. The main problem is the title and loan are in different names with corporate trustees.

From memory, Bankwest have done 95% for one of my clients with a hybrid trust.

Do you need a company as trustee? You need to assess you risk tolerance. A company would protect you more if the trust has a problem and is sued. This can happen if investing in business or property, but not if investing in shares only.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

Hi Carlin

Sounds like your accountant hasn’t heard of hybrid discretionary trusts.

These are a discretionary trust with a unit component and effectively allow negative gearing to occur.

What you do is get the loan in the unit holders name, not the trustee (but they could be the same). The unit holder borrows money to buy the units, not the property. The unit holder then claims the interest on the loan. The trust makes a profit (cause the major expense of a loan interest is not there) and this profit is distributed to the unit holder. This will usually not be enough to cover the interest, so the unit holder has a loss which they can claim against other income.

Once the rent increases and the property would be positive geared, the trust could borrow money and buy back the units. This money would be for investment purposes, so the interest would be deductible by the trust, and you can use the funds to pay down non deductible loans.

Sound good?

If you accountant doesn’t beleive this is possible, it may be worth asking elsewhere.

There is an article in the latest Bantacs newsletter on these trusts. see http://www.bantacs.com.au

Even if you have no beneficiaries now, there will be advantages – such as the refinance principle (borrowing to buy back the units) and asset protection. And, circumstances change, so you never know, you may acquire some beneficiaries at a latter date.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

PTN, I think you may have misunderstood Dale GG? Maybe he was recommending a corporate trustee for your situation.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

I think they both use the same deeds. The difference is probably Dale has quoted to include a company as trustee.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

You cannot pre pay interest with a LOC. It needs to be a fixed loan. WIth a LOC the interest is charged monthly, so any payment made in one lump sum will just go off the outstanding balance, and then each month interest will be added – and capitalised if you do not pay.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

KF

These days many lenders will accept borrowed funds to be used as deposit. As long as you can service both loans, then no probs. Also many will not even ask where you deposit is coming from if hte loan is under a certain LVR.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

Sounds like a potentially good idea.

The initial sum is borrowed for the investment, but temporarily held in a savings account. So it may work. best to run it by your accountant. If they say no, try a few others too, just in case.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

salsachinita, it may be better to do as Derek suggested and buy your father out now. This will make things easier for you – especially if you are going to want to keep on withdrawing equity every few years. Maybe buy his share with a new trust?

There may be affects with your father’s pension (if he is getting one). If he isn’t retired yet, this may held him qualify for more pension down the track too – less assets and income.

But your dad may have to pay CGT now if you buy him out.

Stuart, think you meant appointor rather than settlor. Settlor is the person who gives the initial money to be held on trust (usually $10), appointor is the one (or more) who controls the trustee.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

One of the standard loans wiht a major bank is probably the way to go. eg Bankwest’s Lite Home Loan, 6.65% with about $300 in exit fees.

With brokers, we usually have to give back all or most of the commission if the client’s loan is repaid within the first 12 months.

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.

Hi

Usually, You would get the personal loan and on lend the money to the trust. You would charge the trust the same interest rate (usually) and would have to declare this as income, but this income would be offset by the interest on the loan you pay to the lender. So in the end, the trust claims the interest.

I don’t think you can personally claim the interest as there is no guarrantee the trustee will give you the income from the trust. ie no link between your expense and the expectation of obtaining an income or profit from it.

If it was a hybrid trust, that would be different.

Check this with your accountant.

ps. That is a big personal loan!!

Terryw
Discover Home Loans
Parramatta
[email protected]
Sign up to my mailing list.
Just send me a blank email, with “subscribe” in subject line.