Investment Property pre-approval questions - confused?

Hi guys

My wife and I bought a property 4 years ago which is now our PPOR. Naturally we want to start building our portfolio so we've decided that we want to purchase a cheap property in rural NSW after doing a lot of research. I have to admit I'm hopeless with the topic of finance and tax so bare with me!

Now, we've gone to our bank (CBA) and spoke to the lender via video conference and whilst the lady was knowledgeable, we felt that the process was rushed and only when we got home that questions started arising.

1) Since our requested loan amount is only $75K, she told us only a 'top up' was required on top of our existing mortgage (as we have more than enough equity from our PPOR). So in essence, we are adding $75K to our current home loan.

Question: We were thinking wouldn't it be more effective if the 75K loan was treated as a separate home loan so that we could pay off the PPOR debt faster - and pay less interest altogether in both loans? Is a 'top up' more beneficial to them as they can squeeze more out of us?

2) I have a Trust account with my business as a trustee - I've read somewhere that if I purchased investment properties using this trust account as the name, it would have considerable benefits with land tax (amongst other things).

Question: What exactly are the advantages of this as opposed to our joint names? (I didn't think of this when the lady asked me and as a result we both just said to put it in our names 50/50 for the pre-approval process)

Any help appreciated!
 
Hi Dez

I see a few challenges

1. Dont to up the home loan. get a separate 20 k loan secured only to the home, and a 60 k loan secured only to the new IP.

2. Seek specific tax advice on the trust questions

ta
rolf
 
1) Since our requested loan amount is only $75K, she told us only a 'top up' was required on top of our existing mortgage (as we have more than enough equity from our PPOR). So in essence, we are adding $75K to our current home loan.

Question: We were thinking wouldn't it be more effective if the 75K loan was treated as a separate home loan so that we could pay off the PPOR debt faster - and pay less interest altogether in both loans? Is a 'top up' more beneficial to them as they can squeeze more out of us?

Topping up your existing loan with the CBA is a very easy process, but if you top up a non deductible mortgage (ie your existing home loan), you may find yourself missing out on many tax deductions when you purchase an investment property. Far better to set up separate loans as Rolf had described.

It will take a bit more work, but it's a lot more in your favor.

2) I have a Trust account with my business as a trustee - I've read somewhere that if I purchased investment properties using this trust account as the name, it would have considerable benefits with land tax (amongst other things).

Question: What exactly are the advantages of this as opposed to our joint names? (I didn't think of this when the lady asked me and as a result we both just said to put it in our names 50/50 for the pre-approval process)

There can be some benefits with trust and land tax, as you can use trusts to manage the thresholds at which various levels of land tax apply. You need to get specific advice on this.
 
1) You don't want a top up, what you need is a separate LOC loan. Viridian.

I am assuming you will use this $75k as a deposit and borrow 80% of the property purchased.

2) you wouldn't have a trust with a business as trustee.

You would probably be running a business through a company as trustee for a trust.

Trusts have many benefits, but you should not be letting that trust buy a property as it is too risky. If the business fails the property will be taken.
There will be no land tax benefits if buying in NSW, but you may be able to obtain tax benefits and asset protection benefits. Because you are running your business through a trust you could also obtain negative gearing benefits.
 
Thanks for the great replies. Yes, I had thought a separate loan was the way to go.

Hi Dez

I see a few challenges

1. Dont top up the home loan. get a separate 20 k loan secured only to the home, and a 60 k loan secured only to the new IP.

2. Seek specific tax advice on the trust questions

ta
rolf

Thanks for that Rolph. Could you provide an explanation for the split of 20K secured to the home and 60K secured to the IP? Just trying to see the advantage of going this route

1) You don't want a top up, what you need is a separate LOC loan. Viridian.

I am assuming you will use this $75k as a deposit and borrow 80% of the property purchased.

No, the $75k is the full amount for the house purchase (cheap rural NSW property) which will be renovated and rented out.

Does that change things?
 
A property only worth $75k in a very remote town (by the sound if it!) may struggle to be considered acceptable security for a loan.

So I would suggest a separate split (new loan) secured by just your home. I doubt you would want a trust set up if the property is in Nsw as you may then incurr land tax. Terry W is your man if you want to explore that further.

May be an opportunity to renegotiate your home loan too.
 
Thanks for the great replies. Yes, I had thought a separate loan was the way to go.



Thanks for that Rolph. Could you provide an explanation for the split of 20K secured to the home and 60K secured to the IP? Just trying to see the advantage of going this route

this method only ties up 20 k of your ppor equity

so if youd like to rinse and repeat, the model proposed gives you much more scope for further Ips ( assuming u want more ??)


ta

rolf
 
Back
Top