Moving existing IP into a trust – yes or no?

Hi Tim, as you know, moving into a trust will “trigger” CGT as well as other costs. I was on a similar situation a few years back, I bought my first 4 IP’s under my own name. I just kept them and made sure the next ones were under the right structure for me, my plan, etc. (trust).  Dont worry too much about this IP being under your name, make sure you see a good accountant to set you up with the right structure that fits you investment plans and use that “lazy” equity to purchase more IPs.Happy Investing

Can somebody please explain what is lazy equity.

Lazy Equity can also be used to describe money that is not working as hard for you as it used to be,.. for example,

you buy a house for $200,000 that earns $16,000 rent per year so that is a 8% return,…. how ever 3 years later your house is now worth $400,000 but you rent has only gone up to $20,000 per year so you are now only earning 5% return on your property, so your return on equity has been dropping because on that extra $200,000 of equity you now have your are only earning an extra $4,000

Hi Janie

If the property is your current PPOR with a view to turning it into an IP later I would make sure that the loan is an interest only loan with a 100% offset account attached to it.

Might cost a little more upfront in LMI premium with some lenders however over the long term it will be well worth it.

Congratulations….. It's great that you have started early I bought my first house about 5.5years ago when I was 20 also,…

as I was saying earlier it is best not to pay of your investments till after you have paid of your family home because interest payments on your investments are tax deductable where as personal assets aren't,…..

so if you have 2 loans one for a car and one for your investment,… even if the were both 8% interest the fact that you can claim the interest back on the investment loan means that after tax the 8% interest is really probally about 4.5% but the car loan will still be 8% so it is best to pay of all the personal debt first,

Even if you have no personal debt what I would recomend is placing your investment loan on interest only with an offset account an any funds you would normally be paying off the loan accumulate in the off set account,.. that way in 5 years when you want to purchase your own home you can redraw the money from the offset account for your deposit so you have maintained you total amount of tax deductable loan, and minimisised the amount of non tax deuctable home loan.

YES PPOR stands for primary place of residence or personal place of residence,…

Yes you should be able to switch the loan to Interest only quite easily,..

An interest offset account is basically an account that is linked to your home loan and any funds in the offset account saves you interest on your homeloan,…. eg,. If your loan is $200,000 and you have $5000.00 in your offset account you will only be getting charged interest on $195,000 rather than the full $200,000 for every day the money is in your offset account…… most banks have offset accounts NAB definatly does,…. make sure you can get a 100% offset account though, as that means the money will offset 100% of the interest as some products only offset a portion of the interest.

None of the banks are either good or bad,… the main thing is to find the finance products that best suit your needs, and will lend you the amount you need a good rate. 

once the offset account is linked to your loan you will still have to make your normal payments onto the loan whether that be priciple and interest or interest only, but you have the option of storing any extra funds in the offset account to save interest.

If you still want to feel like you are paying your loan off you can transfer your payments to interest only,  which will reduce your payments but instead of spending that extra money place the differance between what your payments are now and your new interst only payment into your offset each month,… also any money that you don't need for a week or so you can place in there to save interest.

As I said earlier it is a great way to get all the benefits of paying off your loan, but because you haven't actually paid anything off your priciple you can withdraw the funds and use it on a personal item suchas your own home and your loan is still classed as tax deductable,…. but if you actually paid the money directly off the priciple then withdrew money from the loan and spent it on a personal item then the portion of the loan used on the personal item would no longer be tax deductable.

As for moving existing properties into a trust, it can still work out worthwhile if you have a large home loan and a small loan on the ivnestment property with heaps of equity. Selling to a trust will effectively allow you to convert non-deductible debt into deductible debt. You then need to compare the interest and tax savings with what the transfer costs will be.