Appropriate Finance Structure for Guy New to IP

[Aristos]

Hi All,

I've just emerged from a long financial coma and am on the path to educating myself to actively participate in ensuring my future wealth health

I've been lurking on this forum the past month and a bit and am now in danger of suffering from information overload.
The forum is quite an eye/mind opener and I want to congratulate the founders and active participants for providing such a magnificent portal of knowledge sharing. Well done!

Through this site and reading furiously over the past month I've come to a point where I've decided to make a move; but, how to structure the finances? I obviously need to reread Jan's book ' More Wealth...." and others, to better understand the mechanics so I can best apply them to my personal circumstances. But, if I can indulge in the forum's experience with a little background of my current situation and my short to mid-term goals I'd be most appreciative of your collective advice, whatever form that may take.

1. I have an IP in Perth on which there is a 225K mortgage. This was my PPOR until I relocated to Canberra 4.5 years ago.
This property is conservatively valued by myself at 500K (awaiting formal appraisal - hopefully next week).

I have been renting in Canberra since moving here but now that the family has decided to remain; at least until two of the children have completed high school, we have decided to buy. I've been changing rentals once every 12 months (talk about being unsettled...yes, I've apologised to the kids).

I am looking at properties in the range of 450 to 550K in a suburb that has consistent capital growth, excellent prospects as a rental area (that is, low vacancy rates) and infrastructure is being developed to sustain and cater for the population.
I mention that as my strategy would be to buy and hold.

2. My short term goals are:
a. A PPOR as an anchor for the kids e.g. the intangibles that a family home brings;
b. Loan/s structured to maximise cash flow and minimise IP costs against taxable income;
c. Develop equity in PPOR for further IP acquisitions.

3. My mid term goals are:
a. Acquire another IP within 2 to 3 years of PPOR purchase.

4. Financials - the bit I'm reticent to publish
a. Approximately 10K available for purchasing costs (too little)
b. Approximately 125K taxable income

Is anyone willing to advise options for structuring finance to achieve the above?

In as much as I currently understand them, hybrid family trusts seem to be an attractive structure considering that my strategy is to buy and hold, build equity, buy IP etc until I have sufficient IP income to choose when, what and how I wish to contribute my time.
I guess that's everybody's goal

I thank you for taking the time to read the above.


Regards,

The Aristos

 

[Rolf Latham]

Hiya Aristos

Welcome

I think you are being a bit hard on yourself ! Youve done quite well under any circumstance.

Lets assume that you will buy for 500

Convert the current 225 loan to IO.

Take a 120 k IO loan (20 % and approx costs) from the perth place

Put in a 55 k LOC ( Line of credit) into the Perth place as well (this isnt for this purchase, use either as a buffer or gear into a income fund that I wont cover here)

The get a 400 k Interest Only (or principal if you are a tradionalist) loan with 100 % offset.

Park your 10 k in the offset to save interest.

The rest of this post is only a suggestion, get proper financial advice PLEASE.

Take 40 k of the 55 k loc and gear this at 50 % or so into a quality "income" managed fund. Capitalise the interest on the LOC and the margin lend and place the income into the offset.

This strategy will allow you to kill the non deductible debt more quickly.

Oh, and I almost forgot. In Canberra, Mr Ed of

www.loansapproved.com.au

will look after you well. He post here and has an awesome reputation. I hear rumours hes a nice guy too



ta
rolf

 

[TheCamel]

and infrastructure is being developed to sustain and cater for the population.

are you sure this is in canberra ?

 

[grossreal]

hi Aristos
I agree with rolf in regards to the off sets try to get these organise each time you get aloan
they are a very effective way of have cash there at no cost in real terms.
I would get advice from someone in your area not sure about ed or If he is a good guy but I have seen his posts and seems so.
you need to structure from the start and to do that you need someone that will sit with you ( unless you already understand trusts, companies etc and you don't need the help) and work out the structure for you and your goals and they are very different for everyone.
try to remember that the structure is the foundation to investing and need to be set right from the start to your requirements and from there you can move forward you are in a lot better position then alot of investors so I wouldn't be to hard on yourselve either at this stage I would work on getting advice and set the structure next so your question is very apt at the moment and to do that you need to find an accountant that knows these structures in your area.
good luck
ed,dale,coastymike, all are very familiar with them so they maybe able to help

 

[Aristos]

Thanks for the advice Rolf and GrossReal, appreciate the education.
I take your point Camel....it certainly is a stretch, perhaps infrastructure is inappropriate when used in the Canberra context

Regards to all.

 

[johny]

I am quite new to this site and have to agree with the well constructed question from Aristos and the suggestions to date. Great site

cheers