Investment Structure - First Purchase

[tomred]

Hi All,

I am new to the forum but have been studying/reading for approx 12 months now and I am ready to buy my first IP. Unfortuately I have hit “analysis paralysis” and could really do with someone to point me in the right direction. My financal situation is :

· Not looking to buy PPOR just IP - I am 36 yo, single with cheap rent in an area I like (too expensive to buy here) so PPOR is not a priority for me right now. (I have investments overseas which I will use to buy a PPOR when I cash them in)

· I have $70k in cash - $60k for a deposit, $10k for purchase costs etc

· Looking to buy IP for approx $250k-$300k, 80% max LVR

· On current salary can save approx $30k p.a.

From what I have read it seems very important to get my loan structure set up correctly from the start as this can lead to problems further down the track. My questions are:

1) I am hoping that if my 1st IP increases by 10% over next 18 months (a further $30k equity) and I have by then saved approx $40k, I will have $70k to put toward my 2nd IP....and repeat this process every 18 months or so.

I want to get my loan structure correct from the start but can't decide what is best (I do know I am against X-coll)......anyone got any pointers ?

2) I am undecided as to whether I should invest through a trust/company/or as an individual. Given my situation as described above does anyone have any thoughts on this - I have read a lot of pros/cons on this and have again hit “analysis paralysis”

3) Still looking for a good accountant in Sydney CBD / East…someone who knows property – any suggestions ?

4) Question (3) but this time for a mortgage broker

Thanks everyone.
Ryan.

 

[wobbycarly]

Hi All,

I am new to the forum but have been studying/reading for approx 12 months now and I am ready to buy my first IP. Unfortuately I have hit “analysis paralysis” and could really do with someone to point me in the right direction. My financal situation is :

· Not looking to buy PPOR just IP - I am 36 yo, single with cheap rent in an area I like (too expensive to buy here) so PPOR is not a priority for me right now. (I have investments overseas which I will use to buy a PPOR when I cash them in)

· I have $70k in cash - $60k for a deposit, $10k for purchase costs etc

· Looking to buy IP for approx $250k-$300k, 80% max LVR

· On current salary can save approx $30k p.a.

From what I have read it seems very important to get my loan structure set up correctly from the start as this can lead to problems further down the track. My questions are:

1) I am hoping that if my 1st IP increases by 10% over next 18 months (a further $30k equity) and I have by then saved approx $40k, I will have $70k to put toward my 2nd IP....and repeat this process every 18 months or so.

If you want to keep your LVR at about 80%, you will not be able to draw the whole $30k. e.g. If you purchase $250k @ 80%, and pay costs in cash, you will have a loan of $200k. Say the property increases by $30k to $280. 80% of $280k is $224k. So you could draw $24k ($224k-$200k), not the $30k you anticipate.

But... good strategy. And you will have to consider how you get that $24k/$30k out without x-coll...

I want to get my loan structure correct from the start but can't decide what is best (I do know I am against X-coll)......anyone got any pointers ?

Get a 100% offset account against an Interest Only loan and pay everything into the offset account. So even though you'll be building up cash, you'll reduce your interest. Then when you want to draw the cash out, you won't contaminate (mix investment and personal spending) any interest bill for tax purposes.

2) I am undecided as to whether I should invest through a trust/company/or as an individual. Given my situation as described above does anyone have any thoughts on this - I have read a lot of pros/cons on this and have again hit “analysis paralysis”

Depends on a lot of things, such as income (probably fairly high if you can save $30k pa), personal situation (you mention single), and your occupation (high risk of litigation means asset protection should be a priority), but probably your own name would be good to start to maximise tax deductions.

3) Still looking for a good accountant in Sydney CBD / East…someone who knows property – any suggestions ?

4) Question (3) but this time for a mortgage broker

Thanks everyone.
Ryan.

Can't help with the last 2. But we're in Geelong and our MB is in Surfers Paradise, so you don't necessarily need one locally. Few MBs on here that I'm sure would be happy to help, or can recommend ours.

Good luck.

 

[tomred]

Thanks Rob, really appreciate the response

are you happy with your MB in Surfers ? (ie do you find it ok not to ever meet him/her). If it works for you then no reason why I can't do it Do you mind passing on their details? It would be good to use someone that has been recommended rather than pick someone "blind" so to speak

Cheers,
Ryan.

 

[wobbycarly]

Thanks Rob, really appreciate the response

are you happy with your MB in Surfers ? (ie do you find it ok not to ever meet him/her). If it works for you then no reason why I can't do it Do you mind passing on their details? It would be good to use someone that has been recommended rather than pick someone "blind" so to speak

Cheers,
Ryan.

Asset Financial Services (http://www.assetfinance.com.au/) in Surfers are great. We actually do meet them once every 12-18 months when we go there on hols or to visit IPs. But when it comes time to do "the business", fax, email and phone are fine.

And to give you an idea of the level of service we receive, I twice recently spent an hour on the phone with one of the directors talking through some options and we didn't even go ahead with anything. All the staff we deal with there are investors.

However... I would probably prefer someone locally if I was doing it again, but these guys know us so well now I'm not going to change.

 

[josko]

Hi Ryan, welcome to the forum.

Rob has given you some good advice and I agree with the Offset. Don't mix up your Investment cash with personal use and try to avoid X-Coll where possible.

One thing at a time though, so set your first IP up properly with the Offset and then worry about the next one once you get a feel for the whole process.

Regards JO

 

[tomred]

Hi Jo,

yeah I agree, but bewing a newbie and want to be sure that i do the right thing with the first IP and not live to regret it in a few years. I/O with offset seems the way to go

Thanks for your help guys - now to find a good accountant !!

 

[Terryw]

I too would suggest you just get a IO loan with a 100% offset. It may pay to do some sums on getting a 90 or 95% loan, pay the LMI, and put the rest in the offset as this will mean you will have more cash available for when you want to buy the PPOR.

You can then start saving all your spare cash up in the offset account. At $30k pa your property will quickly become cashflow positive. Therefore it may be wise to investigate using a discretionary trust. The major downside is that you may pay more land tax, but this will vary from State to State.

 

[coastymike]

Why not use a NSW land tax unit trust. It receives the land tax threshold the same as individuals and companies.

You can also transfer the units to a self managed super fund at a later stage if that is a strategy you would like to adopt.

You can also adopt the refinancing principle and take advantage of converting ordinarily non deductible debt to deductibe debt.

Interest to purchase the units in the land tax unit trust is fully deductible.