Can anyone tell me how I go about setting up a trust A/c to use in handling an Investment Property?
1/ How much will it cost initially and on going fees?( It would be as simple a trust a/c as would be needed I reckon, with only my wife and 2 young children to be involved).
2/ As long as I can show that I could service the IP loan, is that all that is needed after supplying initial deposit from equity in PPOR.I ask this as I have approached my lender where I have my home loan, and as I am at 91% borrowings, they said I would not be able to get into an IP at this stage (I have not asked them re buying in name of trust a/c would allow me to buy IP).
But my understanding with using a trust a/c setup is, that I could actually go ahead and buy an IP with our current loan servicing ability of mine and my wife's wage, provided I can find an IP that is at least, slightly negatively geared to hopefully a positively geared IP if there is any about.Any feedback re above would be appreciated.
Regards
Mick
An accountant or solicitor can set up a trust for you, costs range from $350 to $1000 depending on how much advice is required and how complicated the setup is. Ongoing costs for a trust with individual trustees can be $200 – $500, dependent on how much work is involved.
If your current borrowing is 91%, where are you going to get the deposit from? If the bank won't lend to you and your wife in your own names, then they won't lend to a trust that you control. A trust borrowing, with no other income,. would require a personal guarantee from you and your wife.
Thanks for the repy Dan.
I thought I would be able to use the 9% equity I have which is about $38000 for the IP. we have been putting money into our home to increase the value and thus equity, but real capital gain is not there yet as we have only been here for 18 mths, but are expecting a kick in prices here soon (Mudgee) with all the mining activity going on. My wife and I have about $1500/mth spare cash to go towards and IP.
I know that if using a trust, I or both my wife and I would have to go guarantor to the trust for loan servicing, and with the spare cash that we have (after a combined income of gross $195000/yr) I thought that, that would be more than enough to show we could qualify to get into an IP with the limited equity that we have.Thanks again for your repy
Mick
The morgage broker gurus will be able to explain this better, but the equity you have in your PPOR would not be enough to use as a deposit. Most banks will now only lend to 90%, some lend to 95%, so that only leaves a maximum of 4% from your PPOR to use as a deposit, including stamp duty and mortgage insurance.
This is assuming you have no other savings?
Thats right Dan. You will only be able to borrow a certain % of both properties – usually up to 90 or 95%. So I think Mick has to keep saving and/or wait for some growth to kick in.
Using a trust won:t help in this regard.
A trust is easy to set up – You could draw up a deed yourself or do a verbal declaration of trust – but you will want something that is professionally done and this will cost you around $1000 plus you will need some advice on how to use it, get TFN, ABN etc. You may even need a company to operate as trustee and that will cost another $800 or so. Then there may be stamp duty on the trust – this is $550 in NSW now, but may be nil in other states.
Running costs may not be much more than you are paying now. Most accountants charge a fee per property so adding properties in your own name adds to the fees – a trust with a few properties would cost around the same as an individual with a few properties. It may be a bit more if it gets more complicated later on.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
Thanks for the info Dan and Terry. I will just put my head down and save for a bit longer and hope to get into something early next year.
Cheers
Mick
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