Millionaire through gut instinct, but now having trouble

[bianca]

A little knowledge can be dangerous..
After realizing that I had actually already made it with property last year, through very basic "by the seat of the pants" strategies, and just plain hard work, i thought I would get totally involved with the next stage..getting wealthy, well..more wealthy by studying all the forums and reading book after book. It has given me lots of ideas.. and there are so many opportunies out there that I am excited! So excited that I phoned the bank, got a $350K LOC at the ready, and have spent a month trhowing money back and forth from account to account, not sure of ANYTHING anymore...HELP.. MY ACCOUNTANT will make sure I die a horrible, painful death, fi I dont fix this mess.( Internet banking gives you a real sense of power! money from here, money to there, and back again like aireal ping pong)

What am I supposed to pay from the LOC? Rates? Body corp fees? deposits for other IP's?Furniture packages?Electricity/ PABX connections? Pay Tv for IP"s?
1)We have a partnership structure set up where all our wages rents share divs go into and personal expenses get paid from.
2)Interest for all our Ip's also get paid from the partnership account.. Am I supposed to dip into the LOC to meet any shortfall, and transfer it back to the partnership account?-there are a few neg geared loans that do have shortfalls which our wages dont cover. I dont intend to use the LOC for any personal funding.
3)What about the interest for the LOC? It gets automatically debited from the partnership.Did i get it right? Is this what is called "capitalised interest?"
4)Last question--how does that LOC ever get repaid? By selling an Ip?By Tax refunds at the end of the year?
5) Does anyone care how big the debt in the LOC gets and how long for? I have 4 properties I am wanting to buy.
6) What is the point of using the LOC for your deposits, if the bank will lend you the full amount anyway? Is this a strategy or what?
Sorry guys,(and gals) i am not blonde..realy.NITE ALL, hope you can put me out of my self induced misery...i realy hate not not being able to get my head around something!

 

[nomadic]

G'day Bianca, i've had similar anguish in the past in regards to the best way to utilise a LOC. I made a post about this awhile ago and i think the consensus was that it wasn't kosher, but here's what i do:

1) Not sure about the partnership structure, but i have a LOC in my name with some family members where the rents gets paid into and the loan repayments come out of. It is strictly for IP's and managed funds with no personal stuff going through it.

2) See #1. I also have some -ive geared loans so my LOC makes up the difference between the rent and the loan repayments. Instead of dipping into the LOC and transferring into your account, maybe set it up so that the loan repayments come from your LOC.

3) My interest for the LOC gets taken from itself, so i guess it's capitalised in my case.

4) My LOC never gets repaid, but hopefully one day it will. In the meantime it is used for servicing the shortfall. Remember that the interest on the LOC is tax deductible if only used for investing. If you sell an IP or get a tax refund, you're better off oputting it towards non deductible debt such as your PPOR mortgage or personal expenses.

5) Having a big LOC is a concept you need to get your head around as long as it's good debt, i.e. tax deductible. The more good debt you have the wealthier you are! I reckon the guy who owes $2m must be wealthier than the guy who owes $20k.

6) Most investors use LOC's as a deposit to avoid cross collaterisation. Otherwise the bank will either take your IP and another property as security or request a deposit. The deposit should come from your LOC. This is also a form of gearing. The less money of your own that you put into the deal, the more geared you are.

I hope i've got these answers right as i'm also on the learing curve! Please correct me if i'm wrong.

 

[see_change]

Biance

Putting this thread together with the one about Mackay , I'd suggest you take a big breath and slow down untill you have everything sorted out and you can answer all those questions before you go off and buy anything more.

I think all the info you want is on the forum.

See Change

 

[bianca]

Thanks nomadic.

That is what I had in mind, except that i had read that the ATO is a little suss about the capitilized interest. So, if the interest is paid out of the partnership, and then " reimbursed by the LOC, is this still regarded as an investment payment or is this regarded then as a reimbursement of personal debt, which is not claimable? Hmm might have to go and visit my accountant, although i like to be prepared, because he is a little on the conservative side.
Thanx for the concern see change. But it is because of the stagnation of the past few months, that I am ready to rock and roll again! Mackay still has numerous bargains, not found on the net but i am actually venturing more your way! I have reaad most posts on the forum, unless they are archived, but could.t find any where they tell you exactly how to go about it, in laymans terms.So i am not being lazy!!!
back to my query--is it better, for me and not the accountant, to assign various smaller LOC's to each investment loan, or keep one big one to just use for the lot? Thanx all...

 

[WBG Redcliffe]

is it better, for me and not the accountant, to assign various smaller LOC's to each investment loan, or keep one big one to just use for the lot?

Thats a great question and I am in that boat to a lesser extent. I will be watching to see what the answers are.

WBG

 

[thefirstbruce]

Sounds like you need an accountant more resonant with your goals.
Dale Gatherum Goss who posts here is an expert accountant in trust structures and has a seasoned wholistic approach to wealth creation. Although in Melbourne, you might consider a couple of trips a year to one of the capitals to get more comprehensive setup and strategic advice.

 

[nomadic]

1) So, if the interest is paid out of the partnership, and then " reimbursed by the LOC, is this still regarded as an investment payment or is this regarded then as a reimbursement of personal debt, which is not claimable? Hmm might have to go and visit my accountant, although i like to be prepared, because he is a little on the conservative side.

2) ..back to my query--is it better, for me and not the accountant, to assign various smaller LOC's to each investment loan, or keep one big one to just use for the lot? Thanx all...

Hi Bianca, RE your first question, why don't you get your loan repayments made from your LOC instead of transferring the money back into your partnership. What is your "partnership"? Is it a savings account? If so, i think it'll be harder to claim the money you've transferred as the ATO will follow the money which in your case is being sent to your personal savings account.

2) I just have one big LOC and transfer the money to the different loans being repaid. I don't think there's much point having different smaller LOC's if they are all being used for investing purposes... but i could be wrong.

PS: here's the post i asked a similar question in and got a few replies:

"mixing personal $ with LOC: will ATO disallow deduction?"

http://www.somersoft.com/forums/showthread.php?t=20200

 

[bianca]

I read the posts nomad and i am still not 100% sure.
We have a company for our business. We have a partnership for our investments. We draw a wage from the company and this is paid into the partnership. All rents and other taxable income is paid into the partnership. The company pays tax and our wages in the partnership account are adjusted at the end of the year to ensure we remain above and below the correct threshholds. Our Ips have always made sure our tax payments were small.All Ip payments used to come from the partnership. However, our income this year is not very high due to taking a break, so there is no point in further negative gearing for the moment.
( I posted last september about our plan ..and we are doing it, hoorah,hoorah) But.. we still want to keep investing.
Therefore i have become this book and networm to figure out how to keep going, and setting everything up for when we go back to full on work--if ever! My accountant is freaking at the thought--debt levels...argghhhh!
Sooooo.
I got my LOC set up,seeing that everyone seems to be talking about it,and I am paying all IP expenses from this LOC, even though it seems as if i am now paying interest on all the expenses just for cashflow. But I need the cashflow this year, as wages are low, and rents deposited into the partnership cover and balance the Ip interest.

No private expenses are paid from the LOC under any circumstance.
However, there may be times where there is a shortfall for some Ip interest(holiday letting properties) in our partnership-the account where the interest for the Ip's is getting drawn from.That is when I intend to "reimburse" this shortfall from the LOC.
I guess my question is- is the right way?
And also, if we spot some bargains, do I pay the deposit from this LOC as well?
And when I pay the deposit from the LOC, do I just get the bank to finance the whole loan and repay the LOC with the balance left over after settlement?

You guys will be a lot quicker to answer this then my accountant.. he needs an appointment 2 weeks in advance!

 

[Les]

G'day Bianca,

HOW MANY investment properties does your Accountant have? (and, yes, I AM serious!!) Ask him !!! You won't even have to make an appointment - just give him a call and ask !!! And, if he wants to know "Why?" it is simply that any Accountant who DOES own residential investment properties is going to be a "full bottle" on how it all works - if they DON'T, where does that leave YOU???

I have "gone through" five Accountants - and ended up with one that actually OWNS IP's - and he KNOWS property !!! Go find one for yourself (by the way, someone else already mentioned MY accountant earlier).

But you've got to find one that suits you. Good luck with it,

Regards