How I got from just a PPOR to multi millionaire retiree in 5 years using only OPM.
- Thread starter keithj
- Start date
Hope it's ok to continue with this brilliant thread. Hope I use the "QUOTE" feature correctly.
Hi Pat,
Short answer is Yes. I have IP loans against my PPOR (which is in my name) that I pay interest on. However, since I loaned those $$ to the trust (for income producing purposes) it pays me interest (from it's txn a/c), and I subsequently pay interest from my personal account. So all loans are deductible. From an accounting POV it's a book entry at the end of the year.
So in summary, the loans for IP within the trust are paid directly from the trust, and the personal equity drawdown loans are paid via my personal account. And, yes it's all c/f +ve enough for me to live off....the LOE is the cream.
Cheers Keith
Hi TAG,
At first I bought in my own name, subsequently in a DT. I did have concerns about being sued back then, so a DT insulated the assets. Now, I feel that an 80% LVR mortgage is sufficient deterrant.
If I could start again I'd make sure I used up all my personal (& partners) land tax threshold in each state before buying IPs in a DT.
Cheers Keith
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Hi Keith,
That’s an aspect of asset protection that I had never considered.
Are you able to expand on this? If someone if having a crack at you’re assets, do the debts go with them?
Thanks - BJ
Ditto!
I bought my first (and only so far) IP in a HDT, and now I have no personal threshold so am stung with $7500 in land tax every year on that IP. Certainly chews into my cashflow big time.
Cheers,
Michael.
Hi BJ,
Short answer is Yes.
IF I get sued successfully, then the creditors would probably go for my family home first, then IPs. The bank has first claim to anything that they have a mortgage over. If you think about it, they'd be crazy to lend cheap money over assets they don't have first claim over.
Since the banks have first claim over the title (and all solicitors know it), then -
- Firstly, I'm less likely to be sued as I have no unencumbered assets .... a $20 title search will show that my property assets all have mortgages over them.
- and secondly, if I am sued then the bank gets paid first, then REA selling commission, then solicitors costs, and finally the claimant. So there would be v. little left of the 20% of my property assets that the bank doesn't have first claim over.
It is 100% guaranteed that the bank has first claim.... no court cases, for fights with insurance cpys, with a lot less than 100% chance of winning.
I have drawn down equity from PPOR & IPs & loaned those funds to a trust. However, those loans aren't repayable on demand, so although they would be recognised as a personal asset that probably can't be easily accessed by a claimant. Talk to your accountant about converting those loans into a gift at short notice, if you did that the loan is no longer a personal asset.
Looking at it another way - land tax costs me around 1%pa of my gross IP value. Is there a cheaper way of getting 'asset protection' insurance ?
I think the burden of land tax outweighs the benefits of using trusts primarily asset protection of IPs. The other benefit of trusts is income streaming... all shares (where >90% of income is generated) are in trust.
Cheers Keith
Hi Keith,
It's great to see a continuation of this fantastic thread.
It relation to the above I would have thought that that the "not repayable on demand" would carry very little weight in a court of law. From what I understand "gifting" (and then only well before any litigation ever arose) is historically the safest option. But of course once you Gift loaned funds to the trust you can no longer claim interest on the borrowings in your personal name against related interest income from the trust.
And more recently the outcome of a particular court case (Richstar I think) has caused confusion and disagreement between professionals about how robust the asset protection a Disc Trust now is. Some suggest that the claimants can now step into the shoes of the appointer(s) if it is you and/or your spouse (or someone you are considered to have control over) to take control of the assets.
However I'm comforable with the advice that as long as your assets in the trust were accumulated well before any trouble arose, there are no loans to the trust in the risk persons name and you have not been doing anything wrong then there shouldn't be too many problems.
In some situations perhaps rather than gifting directly to the trust, gifting to the low risk spouse and then have the spouse loan the funds to the trust could be a possibilty?
Cheers - Gordon
Perhaps it’s better to have the trust take out the loans (drawing on the IP equity) – then it wouldn’t be necessary to gift and loaned funds to the trust and loose the tax deductions. Am I on the right track?
Is it possible/sensible to use a PPOR or IP in your own name as security for a loan that’s in the name of a trust?
To put these questions in context, I’m looking for an asset protected structure within which I can build a portfolio of income producing managed funds to eventually fund my own IP and lifestyle expenses.
Regards - Ben
Great post Keith. Thanks
Some very wise words of wisdom, especially on the lessons learnt part.
Gratz.
I don't think Keith would be too worried about the "moment"...short term up's and down's are all part of the journey...
R
This forum has vast resources for those who want to educate themselves but this is the best thread I've ever come across!
Keith, thanks for sharing your success story.
Interesting points on structure for investments, I was looking for advice on setting up a trust but had a bad experience with professionals who tried to sting me for some really mediocre bits of information, my conclusion was then that I didn't see too many advantages of a trust in my situation. But reading your posts gave me a new perspective. I just need to find a good solicitor and accountant (forever hopeful) and ask more specific questions.
I am in the situation where I can access quite a bit of equity that I could invest in shares (while I'm aware that the next couple of years may not provide spectacular growth in that asset class and further losses cannot be ruled out) as I believe Australian assets will keep outperforming most of the world and that probably applies to the ASX too. Although I currently own only two properties, one being my PPOR and one IP that is occupied by one of my close family members. I have two separate line of credit accounts for them.
I was looking at buying an income producing managed business using the equity while I'm waiting for IP yields to improve but sofar haven't found a suitable one. Your post showed me that shares could get me the same result I was hoping for. I never owned shares before as the thought of having to learn about countless businesses was too daunting but in the last two years I've learned a lot about financial markets through currency trading (I know, I know...LOL...but it seems like I'm finally getting better at it).
So I'll be making fresh enquiries and probably set up a DT inititally for investing in shares and perhaps for more IPs later down the track.
P.S. wow, some people made the moderators go berserk with the eraser
Keith, thanks for sharing your success story.
Interesting points on structure for investments, I was looking for advice on setting up a trust but had a bad experience with professionals who tried to sting me for some really mediocre bits of information, my conclusion was then that I didn't see too many advantages of a trust in my situation. But reading your posts gave me a new perspective. I just need to find a good solicitor and accountant (forever hopeful) and ask more specific questions.
I am in the situation where I can access quite a bit of equity that I could invest in shares (while I'm aware that the next couple of years may not provide spectacular growth in that asset class and further losses cannot be ruled out) as I believe Australian assets will keep outperforming most of the world and that probably applies to the ASX too. Although I currently own only two properties, one being my PPOR and one IP that is occupied by one of my close family members. I have two separate line of credit accounts for them.
I was looking at buying an income producing managed business using the equity while I'm waiting for IP yields to improve but sofar haven't found a suitable one. Your post showed me that shares could get me the same result I was hoping for. I never owned shares before as the thought of having to learn about countless businesses was too daunting but in the last two years I've learned a lot about financial markets through currency trading (I know, I know...LOL...but it seems like I'm finally getting better at it).
So I'll be making fresh enquiries and probably set up a DT inititally for investing in shares and perhaps for more IPs later down the track.
P.S. wow, some people made the moderators go berserk with the eraser
Great job Y-Man, in moderating the above post. I dont suppose we can go one step further and ban the poster all together. The above post removed any element of doubt in my mind, that his sole purpose on this site is to flame.
At least Yld matters and even hired goon present alternative views that are backed up by thought and reason, but this guy is only out to provoke.
At least Yld matters and even hired goon present alternative views that are backed up by thought and reason, but this guy is only out to provoke.
Hi all,
I agree with the great job done by the mods, Y-man in this case. It is what keeps this forum a respectable place.
I disagree about banning the poster. Even though I think they were being mischievous on this and other occasions, the question raised may not have been understood by some.
My answer may also have been in an inflamatory manner, but how the equity could double component, is an aspect that not everyone understands.
bye
I agree with the great job done by the mods, Y-man in this case. It is what keeps this forum a respectable place.
I disagree about banning the poster. Even though I think they were being mischievous on this and other occasions, the question raised may not have been understood by some.
My answer may also have been in an inflamatory manner, but how the equity could double component, is an aspect that not everyone understands.
bye
Hi Keith,
It looks like I bumped your thread into the path of a big nasty troll – sorry about that. I suspect, however, that you’ve too much class to worry about that.
I’m still quite interested in your thoughts (or anyone else’s) on trusts and asset protection in relation to the questions that I posted.
Sincere Regards - Ben
Hi Ben,
AFAIK a trust can't take out a loan on a personally owned IP. It can only borrow against assets that IT owns. If you give me addresses of your unencumbered IPs I know a trustee that will give it a try & report back
.My view of asset protection is that an 80% LVR mortgage with the drawn down funds loaned or gifted to a DT will give a sufficiently high level of protection for me. Austini could probably contribute a bit more... ya there Gordon ?. Maybe ask your MB if it's possible. The gifting/loaning from you to a trust is simply a memo in the file & 30 seconds on Netbank.
Loaning to a trust doesn't lose the tax deductability, it's only when the gifting happens that the deductibility problem arises. And that would be the lesser of 2 evils - either get sued, make sure it was gifted at a suitable period in the past, and then lose deductibility, or lose the capital immediately to the guy that's suing you!
And thanks to the mods for tidying up the thread.....
Cheers Keith
Howdy,
I don't think I can add any more than Keith. I only have a layperson's working knowledge of Trusts. In fact after all the confusion over HDTs in recent times I try not to think about trusts nowadays and stick to keeping things simple and just focus on finding good investments. The accountant's who occasionally pop into the forum such as Mry and Coasty would certainly be the ones who may be able to offer other possibilities. But its a busy time of year for them now.
The simpliest way that I know of is to do as Keith has outlined above by drawing down 80% LVR mortgage on personal assets and loaning the funds to the trust. I have seen other ways from the likes of NickM from Strategic Wealth Management but they are more involved and it would be best to seek professional legal advice.
Cheers - Gordon
PS: Hey Keith, in relation to shares have you been doing any bargain hunting lately? Even with the possibility of earning downgrades there appears to be some real value emerging in the market for the long term income investor. However I'm referring to Industrials mostly as the only exposure I have to LPTs is a small allocation to SLF which was purchased very recently.
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Me again,
Actually I just remembered that a couple of years ago when I was more interested in trusts I vaguely recalled posting on another forum something about protecting the PPOR and just found the post. Some of this may be relevant to the above question. The same ideas I assume would apply to IP in personal name.
Here it is:
"Over time I have heard of a few strategies for protecting the family home using trust structures. I'm going from memory here so my recollection and understanding may possibly be incorrect. OF course none of this is advice.
1. Use your PPOR as security for purchase of IP in trust. Basically just uses cross collaterisation which normally most experienced investors would avoid but it is useful in this case. I think this might be similar to what was asked above in that the PPOR is offered as a 3rd party security to the bank to secure the loan in the name of the trustee.
2. Borrow against PPOR and gift funds to trust. The trust takes a registered mortgage over the PPOR and loans the funds back to PPOR owner.
3. PPOR purchased in own name but funds borrowed from trust. The trust borrows funds from bank using PPOR as security. Bank has 1st mortgage and trust has 2nd mortgage over PPOR."
Gee just goes to show that I must have drunk too much beer over the years as if I hadn't found the above post I would have never recalled any of this knowledge.
Cheers - Gordon
PS: Now my head is hurting again and I've run out of beer
Actually I just remembered that a couple of years ago when I was more interested in trusts I vaguely recalled posting on another forum something about protecting the PPOR and just found the post. Some of this may be relevant to the above question. The same ideas I assume would apply to IP in personal name.
Here it is:
"Over time I have heard of a few strategies for protecting the family home using trust structures. I'm going from memory here so my recollection and understanding may possibly be incorrect. OF course none of this is advice.
1. Use your PPOR as security for purchase of IP in trust. Basically just uses cross collaterisation which normally most experienced investors would avoid but it is useful in this case. I think this might be similar to what was asked above in that the PPOR is offered as a 3rd party security to the bank to secure the loan in the name of the trustee.
2. Borrow against PPOR and gift funds to trust. The trust takes a registered mortgage over the PPOR and loans the funds back to PPOR owner.
3. PPOR purchased in own name but funds borrowed from trust. The trust borrows funds from bank using PPOR as security. Bank has 1st mortgage and trust has 2nd mortgage over PPOR."
Gee just goes to show that I must have drunk too much beer over the years as if I hadn't found the above post I would have never recalled any of this knowledge.
Cheers - Gordon
PS: Now my head is hurting again and I've run out of beer
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Recently we've had a few of those 1 in 100 year events that we have now and again.... banks down the most since the 1930's, LPTs down by over 50% in a v. short period. IMO there's value out there, but right now there's too much negative stuff about....
- highest IRs for 12 years
- highest CPI
- sentiment towards everything is v. poor (except maybe resources & energy)
- consumer confidence lowest since the last recession
- and of course the headlines reminding us how bad things are
Right now the world looks like it's coming to an end, high energy costs, credit crunch, US economy stuffed, even rising sea levels and an impending ice age (or is it global warming this week?), the list goes on.....
...so it's a great time for cashed up value investors, probably even better than 2002/3. But it looks like it will get better.
IMO significantly falling POO and IRs are the switch that needs to be flicked to change the current D&G into a more positive mood. My view is that if you can endure the pain for longer than the majority, then the environment will adapt to cater for that majority. EG the RBA will lower IRs eventually when inflation is under control, and POO will fall when demand falls either through alternatives or more efficient/reduced consumption.
And you mention, there's likely to be earnings downgrades (espec by LPTs), so the reporting season (starting next month) may be a turning point.
So far I've resisted the temptation to buy more income streams.
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