Wrappees generally try to cashout as soon as they can, -getting finance with standard lenders at much cheaper rates.

Also it is generally cheaper to rent than purchase for everyone – not just wrappers. So most people are looking at getting into the market and getting a hold on some of that capital growth.

Terryw
Discover Home Loans
North Sydney
[email protected]

Major regional centres may still be OK, but watch out for the smaller towns.

I think you should not be buying based on yield alone, make sure everything else stacks up.

Terryw
Discover Home Loans
North Sydney
[email protected]

As far as I know, no banks will lend for wraps, so you might as well go to a specialist lender such as the above.

Terryw
Discover Home Loans
North Sydney
[email protected]

Another point.
If your loan on your PPOR is currently small, then you might be paying tax on your rental income as this will probably be cashflow +ve.

But your new PPOR is likely to have a large loan and hence, you will be paying large amounts of interest which is not claimable.

Terryw
Discover Home Loans
North Sydney
[email protected]

The trouble with trusts is the income is discretionary. One year you may get some, the next could be different.

I guess it is the same with employment though, you could get fired anytime.

Terryw
Discover Home Loans
North Sydney
[email protected]

Some tough questions there!

1) It is very easy to change trustee’s if your trust deed allows it. but this could have major implications such as
a) changes to the loans (loans are in trustee’s name)
b) could result in stamp duty payable again in certain circumstances (see http://www.cleardocs.com and your state revence office website)
c) if the ATO considers it changes the beneficiares then they may class it as a resettlement of the trust and hence CGT and stamp duty may be payable on assets.

2) property owned by a trust is not your asset, so if you are sued personally it MAY be safe. If a company is sued, the liabitity is often restricted to the company and not the directors/shareholders unless they have done something wrong.

3) Anyone receiving a distribution froma trust must pay tax on that money at their relevent tax rate. ie it is added to their other income. if they do not have other income, then the first $6000 is tax free.

Distributions from a company are a bit different. usually the company has paid tax on its profit, so you are not charged tax again on this income, unless you have a tax rate more than the company rate of 30%, when you would pay the difference as extra tax. If your inocme in lower, then you may actually get some tax back.

4) I think a trust is way more flexible as it allows the income to be distributed to the lowest tax payers first (amoung a large range of beneficiaries). Company profit must be distributed to the shareholders in accordance with the shareholding percentages. Athough you could just pay money to basically anyone as some sort of fee as well.

5) It is very easy to borrow using a trust. the trustee must guarrantee the loan, and the loan is assessed on the trust income and/or the trustees income. The trust deed must be supplied to the lender who will have their ‘legal’ people review it (and may charge a extra fee of $100 or so). If a company is trustee or if just borrowing in a company name, then the directors must give personal guarrantees and loans will be assess on their own personal income etc.

Some lenders are no insisting on taking a fixed and floating charge over companies as well. This is like a mortgage over teh company assets. This is a pain in the arse as it causes problems when going to different lenders for subsequent loans.

Lenders may also insist on the trustees/directors in getting independent legal advice so they fully understand what they are getting themselves into. So extra legal fees may be charged by your solicitor for the explaination of this – $100 approx.

If you are planning on buying many properties, it is wise to consider having just one trustee/director. Many banks have maximum exposure levels per client (especially for low docs) and if a husband/wife go in as joint trustees, the limit is half of what it would be if they went in with one trust each.

6) Companies are more comlpex to operate. There are many rules relating to companies with extra reporting requirements (and costs) related to ASIC.

7) I don’t know about investing overseas, but would imagine you would need a company or trust registered in the country you are investing in.

The ATO will also want to tax you on your world wide income.

ps. I am not an accountant, so don’t rely on anything i have written.

Terryw
Discover Home Loans
North Sydney
[email protected]

That is a fair amount of equity. If you could get a LOC, you could possibly buy a property for cash, do a quick reno and then mortgage that property at the value (rather than purchase price), releasing 100% (or more) of the money you put in originally, and then do the same thing again.

Terryw
Discover Home Loans
North Sydney
[email protected]

There may be a few ways to increase debt in a way to keep the ATO happy.

eg. You could sell you share to your spouse. They would have to borrow money to buy your share (increasing the deductible debt). They money your spouse pays you would be tax free (as from main residence) and this could go towards your new house. You may even qualify for exemption of stamp duty as you are spouses!

Another method invloves selling your house to your turst. Stamp duty would be payable, but the whole debt would then be claimable (ie including increased loan amount) and you would have all the benefits of a trust. And no agent’s commissions.

Terryw
Discover Home Loans
North Sydney
[email protected]

Having no job is not a barrier to getting a loan.

You could get a ‘no doc’ loan on your Newcastle property to 65% of the LVR = $156,000 approx.

Use this as deposit on a new property in Sydney based on a 65% LVR loan. You could buy something around the $380,000 mark.

But you must be sure you can service these loans. Renting the newcastle one will help.

So you could get a loan if needed. You just have to decide which strategy.

1) Sell Newcastle and purchase in Sydney
2) Keep Newcastle and purchase in Sydney
3) Keep Newcastle and Rent in Sydney
etc

I Think Sydney prices are absurd, but I can’t see them comming down (except maybe units). Sydney has show great growth long term in the past and may/probably continue to do so.

Terryw
Discover Home Loans
North Sydney
[email protected]