Hi there, wondering if there was anyone out there that can recommend a one-stop-shop for advice…tax minimisation strategies, loan structure, etc etc My husband and I are time poor and don't particularly want to have to visit all the experts separately…but maybe this is unrealistic!!?? About to move on IP#2 and new to this area.
Consider online/ email/ phone consultation….it may be more cheaper, simpler and can do it at your own leisure and time.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Hi, why not just throw up a few individual questions when you feel like it ? Your likely to get some response…..and we all benefit. Good luck.
ahah yes that would work too Lalibella
Mick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Yes I'm beginning to think face-to-face is now old school! Part of me still likes the idea of meeting with the experts face-to-face…these are big decisions after all!
Anyway, i did post a week or so ago. I had a great response however the thread went dead and I didn't 100% understand the method behind his answer…as good as his suggestion probably is. I'm new to all this so the lingo, technical stuff becomes rather overwhelming!
My current situation is this:
IP 1 (was PPOR) – current value approx $380k, owe $255k, $15k in advance on the mortgage. Currently running an off-set a/c (at $20k) with no fees or major restrictions. We have only just changed this to pay interest only to maximise our tax benefit. Has always been negatively geared but potentially positively geared within 2-3years if rents continue to rise rapidly.
IP 2 – looking at buying a property in the Bathurst/ Orange area in the next 6 months. Have established a budget of $210k including set up costs. Husband looking to renovate (is a builder) to improve rental return and be positively geared within 2 years. High yields in this area, lower cap growth but due to husband's ability to add value at minimum cost we should come out ok! Will use equity in IP1 to avoid mort ins. The block is over 1200sqm and potential to subdivide, build and sell (or rent) is there in 5years+.
We're currently renting from my husband's employer on significantly reduced rent, hence no PPOR.
So, my question is. How do we structure our loan/s? Off-set, LOC, etc etc etc We are happy with our lender – a CU, and not really looking to change. Unless someone can show me a better deal! We've always been impressed with their rates and service.
I'm new to all of this so please forgive my ignorance! Feel free to ask questions.
Amy
Amy i dont know your full financial but what i will do is give you a few unbiased pointers.
1. If your happy with your CU – stay with them,…most CU in term of rates tends to be the same., if the rate your getting is under 7% then i say stick with them since your happy with their service etc..Service > rate ( as long as it’s not over priced)
2. Your current structure is fine. KISS – keep it simple.
3. IP2 – now this is where loan structure is very important. Essentially you would want ot borrow the funds for the renovations as well ( tax advantage ) and not use any of your own cash (pre-tax money) towards the IP.
Here are the problems:
a) Banks do not like owners builders!!
b) Which part of Orange are you in? ie postcode? if your in a rural area with population less then 10,000 you may have a problem as wellHere are the 3 possible solutions, which one you choose will depends on the rest of your details, ie which tax barrack you are in, Long term strategy, How much for the renovations, type of renovations and lender.
1. Redraw your $15k overpayment out and place into offset account, it will give you flexibility if times are tough. Apply for a top up or refinance with lender up to an 80% LVR and do it as an split loan, this will give you $40k to work with
2. Apply for LOC – this is the easiest one around your problems., you have access to the funds when ever you like and for what ever reason you choose, only disadvantage is the rate is higher around 7.5%
3. Apply for an standard loan, but get a quote done with a unrelated licences builder for the same job- fixed price….submit this to the bank as approval ( be aware some bank will do control funds and this will defeat the purpose, so lender choice is important)Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
That sounds like gr8 advice thx! I’ll fill in some of the info gaps 4u. Total loan of $210k includes $15k for immediate reno’s. CU have approved this amount. Husband is a builder but not his day job anymore so no issues w/ the lender. Thx 4 the heads up on population. We do fall in the under 10k bracket but lender hasn’t said anything 2date. Will check. Current IR is 7.14, obviously not that gr8 afterall. Does any of this new info change ur recommendations? Thx again!
Forgot to add that strategy is buy, Reno and hold. Tax bracket is currently 38c.
Hi Amy
Also got to bear in mind whether Michael, myself or any other Broker makes any form of structure recommendation it will depend on whether CUA will allow it.
Most lenders try and encourage you to cross collateralise your loans not for your benefit because it adds to the security position.
You need to remember that they are in the business for looking after themselves and the client is secondary.
With your given goals in mind for IP 2 i would question whether buying in your name /s is prudent especially when you have stated that subdividing, renovating to construction a secondary property is a real option. A DFT structure might be the ay to go but try and get CUA to understand why you want to go that route.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Your lender wont say anything about the population till the valuation comes in….Lenders are only experienced with the “lending part” they leave the details of the valuation to the valuer experts…If the population is under 10,000 this will be noted on the valuation file and the max LVR the lender “may” offer around 80% or less!
Which CU are you with if you dont mind me asking?
One thing i can say, it will sound harsh but it backed from years of experienced and dealing with not just bank staff but “sales” staff ( mobile, telecommunication, builders ) in general
1. Front line staff will say ANYTHING to get you over the line as long as it’s not “overboard” and “reasonable to them”
2. A lot of them are not as experienced as you think, they most likely been with the company for 1-2 years and don’t deal with a range of “complex questions” and have no idea how the another departments/process works.
3. Verbal approval is useless.So what im trying to get at is, make sure they note this down in writing that they are fine to release the funds for “owner builders renovations” and that the approval for $210+15K is “unconditional” ( so valuation needs to be done)
It may be worth while to consider a separate lender for this separate loan, for a CU to charge 7.14% it’s NOT bad…but can be better. and it will save you $300-600 a year… Loyalty doesn’t pay off these days, unless it’s replicated .
In regards to changing my loan recommendations, if the lender is fine with owners builders then just take up solution 1 and also apply for a standrad loan with $15k cash out.
Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
OK now i'm getting confused!
Firstly, I know little about trust structures but thought that they lost most of their residential investor benefits a few years back…I'd need to read up on this.
Secondly, the point about title deeds is another area of questioning I have.
* IP1 is in both names due to originally being our PPOR however has not benefited us as an IP and being neg geared. If IP1 becomes pos geared in the next few years obviously this will change. The cost of changing the deed to husband's name only was too much when we explored that option. This will be treated as our PPOR for CGT purposes under the 6 year rule.
* For IP2 we're unsure of how to do this – it's likely to be pos geared within 2 years so should I have 100% ownership or should we explore a % split as tenants in common? My income is zero by the way, and will likely be for the next 5 or so years. Then when we eventually sell, what CGT considerations are there re: deed? (maybe this is an accountant q(?)So, I'm asking for reiteration in lamen's terms
IP1 – Leave as is with IO payments and off-set a/c. Why bother with off-set for investment loan BTW? This works well for P&I loans but should I change this now that it's an IP?
IP2 – Create a split loan. Put the $15k money in advance in one loan and LVR 80% in other. We can avoid LMI on our conservative estimates this however need valuations done to confirm. Std variable loan.
I'm still not quite understanding the benefits of this structure entirely in my head…I'll mull over this more and hope that it crystalises!
Just to clarify, $210k is TOTAL loan amount including set-up costs and renos.
Our lender is State Govt Employees (SGE) – husband now a Paramedic (was builder). When they gave us approval for IP2 loan they said we could look at LOC as another option to off-set (as I specifically asked if this was available).
Considering a different lender for IP2 is something I'm open too given the potential savings. i definitely see the benefits of keeping the loans separate.
Yes, the interactions I've had with lending staff has been rather disappointing…I guess this forum helps to fill those gaps!
Thanks again.
Hi Amy
As long as the rate of interest for a loan offering an offset and the fees associated with the account are competitive and subject to the monies sitting in the account making the savings worthwhile I would certainly have an offset account on 1 of the loans.
Do NOT use a LOC as a substitute product.
You then look to create a sub account with lender on IP1 and these funds represent sufficient to cover 20% deposit (Or what valuation allows) acqusition costs and renovation amount. Separate loan with separate lender then taken out on IP 2 for 80% (or more if valuation on IP 1 is less than expected) of the purchase price.
If you believe that the property will likely be cash flow neutral or cash flow positive within a fairly short period of time why not look at purchasing the property in a Discretionary Family Trust structure. This will give you both the added benefit of Asset Protection as well as the ability to distribute the positive income to the various beneficiaries i.e children, lowest marginal tax payer first etc.
Buying the property in your name / Tenants in Common is an option however your husband would need to be a co-borrower and guarantee the loan anyway. DFT has more flexibility in case circumstances change in the future.
Hope this helps.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
All great advice…many thanks. Problem is with most of your suggestions I'm still not understanding the method behind the structure. This is your field of expertise but I'm being left behind. This is what ppl pay you to explain and rightly so
I guess this is why I'm looking for someone to meet with face-to-face so they can break it down for me…Is it possible I will run into problems with my CU in using the equity in IP1 to fund another loan elsewhere?
Trust structure sounds like it's worth the research…will look into it, thanks.
just letting you know, Most MB dont charge a fee…it’s a free service to the client- we get paid by the lender… similar to going to a bank – the staff is paid by the lender/employer.
The only different with MB is that YOUR th client and YOUR the one we work for
And no you wont have problem using the funds from your CU to fund it to a different lender.
Cheers
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Sorry i thought Richard was a planner, not a broker but indeed he is! OK. Well in that case, another lender for IP2 is a strong option. Just to clarify, do most lenders require 80% LVR to avoid LMI but a higher LVR to determine the amount they're willing to lend you? (i.e. some lenders have 95% or more LVR). I'm just trying to work out if we'd physically have to contribute a deposit if our valuations come in lower than expected…can we push the lender to a higher LVR for the loan amount? Am i making any sense?!
I know Richard is a broker…he might be a planner as well- i wont be surprised!
1. Yes there are lenders that offer 85% NO LMI and some offer reduce LMI up to 95% ( rate are pretty good as well 6.95- 7.1%)
2. If the valuation fall shorts you would just have to increase the LVR amount your borrowing for the short fall if you don’t have any spare cash, as long as the lender allows 80%LVR + ( some restriction applys to certain property)Regards
MichaelMick C | Shape Home Loans
http://www.shapehomeloans.com.au/
Email Me | Phone MeSame Banks. Better Rates. Served With a Passion.
Thanks again Michael! I'm gaining the confidence to negotiate on EVERYTHING with the lender
Thanks Michael Yes one of each.
Have to say the Broking is keeping me flat out at the moment with the demand for finance.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Maybe that explains why my local broker hasn't returned my email???!!! If you have any room, you can take on mine as well
Amy sure drop us an email and I will see what i can do for you.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
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