Right. Here is our situation.
PPOR (Nov 2007 – purchased in own names in PI loan)
Cost – $331K
Value – $386K
Mortgage – $318K
LVR against current value – 82%IP 1 (May 2009 – purchased in a family trust in IO loan)
Cost – $375K
Value – $480K
Mortgage – $337.5k
Current rent – $335 a week
LVR against current value – 70%Current family income = 90K (with 1 dependent under 2 yrs old)
Savings: $20K and growing slowly at $1K a month. We have access to some family money if needed.
IP 1 is negatively geared. We are doing another quick update on the IP in a few weeks and will increase the rent by another $15 a week. It will still be negatively geared though.
With a PPOR in our own names and one property in a family trust, our ability to purchase through the trust is limited due to the debt in the trust as well as existing PPOR debt in our names (we have to provide guarantees on the trust as it is not profitable at the moment).However, we are able to purchase a low-cost property via our own names. Can we take this apporach and then transferred that property to the trust later on?
- Will we face the same problem when attempting to transfer a new property to the trust, due to the trust being negatively geared at the moment?
- Are we better off holding the new IP in our own names for a while before selling off when the price is right? We plan to sell our current PPOR in early 2012 to upgrade, and understand there is quite a fair bit of cost involved in buying and selling just to lower current debt.
- Or it is better to do nothing, wait it out for rental and income to increase further? How are we to continue to add another property via the family trust?
Whether or not you use a trust to buy shouldn't have an affect on your servicing. However, If you are sitting on a $100K capital gain, sell the IP and pay down the loan on the PPOR or use it as a further cash contribution for the new PPOR once the current one is sold. You can always draw back equity for deposits to buy again.
There are a number of reasons to use trusts to hold IP's but one downside is that you can't pass through the -ve gearing benefits. In your situation, if you think -ve gearing is the way to go you should stongly consider if the benefits outweigh this disadvantage.
APerry wrote:Whether or not you use a trust to buy shouldn't have an affect on your servicing.Hi APerry,
When we went to the bank, they calculated our borrowing ability and said that as we already had a PPOR and guaranteed the trust loan, we were at our limit and so no more money was available. This was because as Directors of the trustee company, we had to show that we could service the trust loan in the event of a default.
daniellee wrote:APerry wrote:Whether or not you use a trust to buy shouldn't have an affect on your servicing.Hi APerry,
When we went to the bank, they calculated our borrowing ability and said that as we already had a PPOR and guaranteed the trust loan, we were at our limit and so no more money was available. This was because as Directors of the trustee company, we had to show that we could service the trust loan in the event of a default.
Whether you are guarentors of a loan to a trust or have taken out the loan yourself makes absolutely no difference in a servicing calculator. If the advice you received was that you could lend in your own name, but not in a trust structure then it is very unlikely that servicing is the issue. The only reason a trust could impact on servicing would be if a lender did not allow -ve gearing benefits to be used because they were quarantined in the trust, but this would have no impact on whether or not you could use a trust for a new purchase. The advice you received doesn't make any sense.
I agree with APerry. Trusts would not affect servicing. If you can afford in your name then you can afford the loan in the trust – nothing changes, same incomes are used.
It may also be worth considering selling the IP and paying down personal debt. Do some sums.
If buying in your own names and transferring to a trust later on = stamp duty + CGT + loss of asset protection.
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
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