Hi,
We need our finance sorted today and thought we had found a great loan product but then when we went to do the application last night they said that they can’t put the loan in our company name (who is also trustee for our trust). So she referred us to her business banker but they can’t offer the same package.
The title will be in our company name which is all ok but is it ok to take out a loan in our personal names even though the house is technically owned by the company? I’m not sure if banks question it but my primary concern is whether the loan and the interest and all the other expenses relating to the loan will be tax deductible? I’m assuming it would be and have called our accountant but he’s not called back yet so thought next best thing would be to post the question here.
Hoping someone can offer some thoughts or experiences on the matter???? Please [blush2]
Kim
Kim Anand
[email protected]“Money Can’t Buy you Happiness but it Does Bring you a More Pleasant Form of Misery”
You should be able to borrow in the company name and go guarantor yourself.
If your broker can’t help drop me an email explaining where you are located and I may be able to suggest someone that can help seeing as you are in a rush.
Cheers,
Simon Macks
Residential and Commercial Finance Broker
***NODOC @ 7.15% to 70% LVR***
[email protected]
0425 228 985Comments may not be relevant to individual circumstances. If you intend making any investment, financial or taxation decision you should consult a professional adviser.
Hi Kim
Sounds like you may have been to westpac?You must have a hybrid discretionary trust??
Many banks have a problem with these because the title is in a name different to the loan. Some that will do it include: St G, Macquarie, Bankwest, ANZ (sometimes).
Which bank are you with?
If you hybrid is properly set up and the loan is properly set up most accountants are of the opinion that you can claim the interest against your personal income as you will be borrowing to buy income producing units in the trust.
If you take out the loan in the company name, then you will not be able to claim the interest, but the trust will.
Terryw
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Yep its Westpac.
We spoke to our accountant and because we were going to distribute most of the profit from this particular deal to my husband anyway, it doesn’t work out to be too bad to buy the house in his name only apart from the fact that we won’t have the same benefits in relation to asset protection etc.
We do have others which we need to sort out now that we know Westpac can’t do it in our company/trust name without going business loan…….given the profit margin for these other developments, there’s no way we can buy them in our own names [blush2]
Kim Anand
[email protected]“Money Can’t Buy you Happiness but it Does Bring you a More Pleasant Form of Misery”
Hi all
I buy my properties using a discresionery trust, the titles are in my name but my accountant said make sure all other doc’s ie offer/acceptenance are filled out saying I am acting as the trustee for the trust. ( all parties need to be aware I am acting on behalf of the trust)
As for the loans I get the loans from the bank and lend the money to the trust, I have a generic Loan doc (from my accountant to document the loan) still acting as the trustee
So for all accounting purposes the trust owns the properties and it owes me not the bank the loan monies. All the expenses go thru the trust for the properties. I do not have a company I operate staight from the trust.
I have justed signed off on my 1st tax return and all is sweet.
I piece of advice get a good accountant – ie one that actually gives you advice on things b4 you ask.
Any one in Perth I give you the name of an excellant account (note I have been a senior bookkeeper for 30 years I have encountered many accountants in that time and know a good one when I talk to him)
celesteCeleste
Hi all
I’m in the process of getting the structure and finance right. I’ve made an appointment with accountant, atm there is mix info from this thread.
From what I know, a discretionary trust quarantines losses for negatively geared IPs until such time that trust makes profit again. So it does not help most people creating wealth through buying assets for growth with low yield.
Terryw stated that:
If you take out the loan in the company name, then you will not be able to claim the interest, but the trust will.
Does it mean one is better than the other, in situation when you borrow for growth (-CF) investment strategy? The company claims interest deductions as expense but individual can only claim net loss from tax clawback…. Help, I’m confused.
For asset protection an individual acting as trustee can be vulnerable in our increasingly litigious society. A trust set up that way can be sued and the trustee made accountable. I hope I’m wrong for celeste case.
Putting both hands up here to say I’m incompetent in this territory. I appeal to the veterans here in this forum for some directions. I know we’re here to learn and mitigate exposure risk in investing, good advice is a starting point before anyone jump in and sign any documents.
CT
Hi CT
With a hybrid, the individual usually claims the interest, and the trust claims the rest.
With a normal discretionary, the trust claims all expenses – which is often more than the rent, so a loss results.
I think hybrid discretionary trusts are very good for negative geared property as negative gearing can be utilised. This may not be a problem with +ve cashflow properties, but there are still reasons to use a HDT for these too.
With a hybrid you may have access to the refinancing principle. I don’t fully understand this concept, but it is somehow possible for the trust to borrow money to buy back the units, and for the interest on this borrowing to be deductible no matter what you use the money for.
A trustee may be liable for the debts of a trust where there is a shortfall – not good if the trust is sued. That’s why having a company as trustee is preferred. But having assets in a trust is still better than owning them in your name.
Terryw
Discover Home Loans
Parramatta
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Thanks heaps Terryw.
I read something along that line in Smart Investor mag, this gives me some confidence to ask the right questions when I (and spouse) meet with the accountant for drawing up a plan to accommdate the investment. Boy! It’s definitely a steep learning curve for me.
I’m in Victoria and have looked at banks, brokers, and the others (MembersEquity Bank). Banks seem a little arrogant, one general broker says to borrow 100% with LMI using our equity in PPOR, the No Doc borker says to borrow 70% no LMI with the help of ABN, while MembersEquity looks great from where I stand.
Can you say is one better than the other in terms of cost minimisation? The 100% LVR seems a little daunting for me. Sure, it multiplies one’s gain the higher the leverage, isn’t it one step forward, two steps back when costs are taken into consideration. I was told I ‘put the cart before the horse’ for my invalid mindset of creating wealth. Should I listen or RUUUN.
Much obliged if you can help again,Terryw. [exhappy]
CT
CT
Just be aware not all accountants understand trusts, and even fewer understand hybrid trusts.
With the loans, the cheapest is often the best, but not always. Depending on what you wish to do, it may be better to avoid the non bank lenders as they have LMI on all deals, and this could prevent you from getting No Docs down the track. Plan carefully.
It is best to keep each proeprty stand alone – if you plan to buy more than 2.
And, don’t worry about the 100% lends – all you lends will be basically 100% as you have to get the deposit from somewhere, whether using equity, borrowing against an existing property – unless you are the type of person who has paid off their home loan and has $100,000 sitting in the bank.
Terryw
Discover Home Loans
Parramatta
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Terryw, I’m grateful for your posts.
My persistent questioning may put me in the broker’s ‘hard to please’ basket; he has not answered my concern on LMI. I have to watch not to trip myself up in the process of getting finance in terms of my credit profile. Btw, I don’t have idle $100K, I can assure you that it’s a dream i’m working on making real.
It’s good forewarning to us all to be aware of the pitfall of cross securitisation and to ensure loans are stand alone at best we can.
My partner have a normal discretionary trust for his trading business set up by our accountant many years now. He serves us well and I should give him the benefit of the doubt. From there, we’ll decide if he is capable of understanding our needs.
Thanks again Terry for the privilege.[thumbsupanim]
CT
Thanks for the replies everyone.
I’ve had some forum brokers provide some really good info but i’m still kinda stuck.
We ended up buying the property in my husbands name because the profit was going to be distributed to him anyway so didn’t work out too bad in the end.
But we’re still stuck in the same position where every broker we’ve spoken to has indicated that without holding an ABN for 2 years, we’re not able to get a LowDoc 80 from one of the conforming lenders. There must be someone out there…i mean, 9.5 people out of 10 that we’ve spoken to have told us that noone will lend LowDoc 80 to us with our ABN not being 2 years but we managed to get it although we had to give a little by buying in our personal name but thats ok for that small development…………..so i’m hoping the same goes for this hurdle we’re experiencing. We want a conforming lender who will lend 80%LVR LowDoc to our Company (ATF for our Trust) at a reasonable interest rate.
A couple of brokers that i’ve been in contact with through the forum said that 1 option is to settle on the land with a non conforming lender and pay that higher rate for hopefully only 3-4 months until we get council approval, then refinance on the new improved value with another bank which is an option for us but i’d like to have exhausted all other possibilites before we go down that track.
Anyone out there who has a solution by any chance????? [confused2]
Any advice would be MUCH appreciated as always [blush2]
Kim
Kim Anand
[email protected]“Money Can’t Buy you Happiness but it Does Bring you a More Pleasant Form of Misery”
Kim
You say that you managed to get a loan without holding an ABN for 2 years but correct me if i am wrong it was through Westpac?
This is not a case of the Bank accepting a lodoc deal on less than 2 years ABN but merely a matter that they don’t check.
You will not find a standard non securitised lender offer you 80% lodoc if you ABN is not > 2 years. Certainly a securitised lender offering nodoc or lodoc will do it.
If you are being encouraged to go down the path of a non standard lender and then refinance some months latter I would watch the early repayment penalties or DEF.
Cheers
Richard Taylor
Residential & Commercial Finance Broker.
Licensed Financial Planner.
Ph: 07 3720 1888
[email protected]Richard Taylor | Australia's leading private lender
Hi Richard ,
Yes you are correct…….Westpac don’t typically check the ABN status.
I will enquire about the DEF should we need to go down that path because they can certainly dimish the profit very quickly…i know RAMS DEF/early exit penalites are astranomical!
Thanks for the reminder Richard
Cheers
Kim Anand
[email protected]“Money Can’t Buy you Happiness but it Does Bring you a More Pleasant Form of Misery”
Kim,
You will find that Westpac’s DEF will be lower then RAMS. As RAMS usually charges a percentage of the loan amount as a DEF, typical rate at 1.5% within the first 5yrs.
I have researched Westpac quickly and it seems Westpac doesnt charge any DEF on their Low Doc, however, just ring Westpac and clarify what the DEF/penalty will be.
Regards
Joshua McEwen
Finance Broker – WAhttp://www.prestigeloans.com.au
Brokers Lic 1297
Licensee Brett ChristieI am away at the moment, but from memory, ING can do low docs without the 2 year ABN requirement. Another is possibly Adelaide Bank.
Terryw
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Hi. I assume you are aware that you would have no hasle getting a Lo-doc 70% LVR form a conforming lender? What some people do if there is no other option is get a non conforming loan form someone like Bluestone, and then refinance either with them or someone else once you have reached the ‘2 year mark’ with a good payment history. It’s a shame that for people having a go as self employed you get penalised with loans, but once you have a bit of rquity/finance and the ABN for the two years you will be up and away……. Until then it is often a case of either 1) Chill or 2) Pay an extra couple of % interest. Anyway, all the best.[strum]
I completely agree with you V8ghia….i don’t know why or how the 2 year ABN rule came about but its a real shame because we really do think we’re doing well for ourselves but the 2 year rule is making things 100 times harder than it needs to be.
Our development timeframes are only 12months and thats from the point of signing the contract to the houses either being sold or ready to be placed on the market as a finished home/development site so to refinance in 2 years is not possible for us.
Low Doc 70 would be our last resort but we were just hoping someone would give us a break and bend the rules for us [blush2]
What makes the whole process harder is hearing different bits of info from different banks/mortgage brokers……we go to 2 different branches of the same bank and they’ll tell us 2 different stories and requirements….same with brokers, some say one things almost impossible to do and others say they might be able to work something out for us. Because finance isnt our strong point, it just makes the whole thing a little bit confusing for us but you know what, hubby and i have taken a huge learning out of this and we wouldn’t have learnt what we have had we not been in this kinda desperate position….so we’re grateful in a way and we know that the money will be there at the end of the day even if it means that we may have to go down the path of a less than desirable loan but thats ok. Sorry for babbling on…i’ll stop now!
have a great weekend everyone [exhappy]
Kim Anand
[email protected]“Money Can’t Buy you Happiness but it Does Bring you a More Pleasant Form of Misery”
Hi All
I forgot to say that I buy renovate and sell 1 bed apartments, so far profit, profit, profit.
I cannot think what I could be sued for at this stage, when I expand into to developments I may need to restructure ie. set up a company or something for more protection.
Celeste[blush2]
Originally posted by anandinvestments:I completely agree with you V8ghia….i don’t know why or how the 2 year ABN rule came about but its a real shame because we really do think we’re doing well for ourselves but the 2 year rule is making things 100 times harder than it needs to be.
Our development timeframes are only 12months and thats from the point of signing the contract to the houses either being sold or ready to be placed on the market as a finished home/development site so to refinance in 2 years is not possible for us.
Low Doc 70 would be our last resort but we were just hoping someone would give us a break and bend the rules for us [blush2]
What makes the whole process harder is hearing different bits of info from different banks/mortgage brokers……we go to 2 different branches of the same bank and they’ll tell us 2 different stories and requirements….same with brokers, some say one things almost impossible to do and others say they might be able to work something out for us. Because finance isnt our strong point, it just makes the whole thing a little bit confusing for us but you know what, hubby and i have taken a huge learning out of this and we wouldn’t have learnt what we have had we not been in this kinda desperate position….so we’re grateful in a way and we know that the money will be there at the end of the day even if it means that we may have to go down the path of a less than desirable loan but thats ok. Sorry for babbling on…i’ll stop now!
have a great weekend everyone [exhappy]
Kim Anand
[email protected]“Money Can’t Buy you Happiness but it Does Bring you a More Pleasant Form of Misery”
I’ve had many clients that have been knocked back by their own banks, and then I have gotten them a loan with the same bank. Got one at the moment with St G. He went to his location branch and they said no. But he is settling with St G thru me next week. I don’t know why this happens, but it happens a lot.
The same with brokers. Each broker has different levels of experience. Some don’t invest themselves, others are just ignorant of certain products or policies. There are various software packages out there, but they do not help in these sorts of situations. Experience helps a lot in knowing where to place a loan.
Terryw
Discover Home Loans
Parramatta
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Hi
I am a real non conforming one. I didn’t qualify for any bank loans (and knew I wouldn’t) but have gone with a non mainstream lender. Am happy with result. Set up ABN overnight – purely to get No Doc loan and only needed to have it 24 hours. Interest rate is 7.8% which is higher than average – but at least I got a loan and I know I will be able to justify additional interest paid in the long run. So the 2 year rule did not apply – but I definitely needed to have an ABN. It took a little longer to get my ABN number from the tax office than envisaged (i.e. 1 week) but other than that hunky dory.
Markat
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