NAB Portfolio account - ATO trap?

[Tom Alaka]

I've posted this to the Property Finance forum but thought it may be relevant to ask here as well....

Im reviewing my structure, and a NAB banker is suggesting the National Portfolio account to me.

The website states that it is 1 LOC which all property is secured against, with up to 12 sub accounts, inclusive of offsets, LOCs and loans. All for 1 fee of $595, no transac fee. Sounds ok so far.

Apparently each sub account will have its own account number. But are we talking about distinct accounts here?

The website below doesnt really shed much light on the matter:
http://www.national.com.au/Personal_....html?ncID=ZBA

If I have a few non IP accounts, and then all my seperate IP accounts, will the ATO still consider that this is all 1 account?

Will I be penalised for funnelling all revenue into certain sub accounts only?

Confused

 

[Peter 14.7]

Possibly.

First how much effort is it to keep the records per property clear? It may be onerous.

and

Will it attract questionable characters like No/Low Docs has
which in turn brought the ATO sniffing?

Yes to both would be a big no to me.

Peter 14.7

 

[Twitch]

I assume the loan is secured at the account and not sub account level, therefore if you use multiple properties to secure the LOC it's a case of x-coll with all the downsides that come with it.

 

[Rolf Latham]

Hiya Tom

Generally, this type of product isnt a tax issue.

The LOC aspect per se may be depending on how you use it.

ST George have had the same product for well over 5 years, and NAB have copied it pretty much, even the name :O)

Id be more concerned about giving all my blood supply to dracula to look after. Best if you dont cross all your securities.

Yes its convenient, but in the long term its not the right thing to do.

ta
rolf

 

[austini]

... Id be more concerned about giving all my blood supply to dracula to look after. Best if you dont cross all your securities.

Yes its convenient, but in the long term its not the right thing to do.
ta
rolf

I agree with Rolf. Even though we have all our loans with NAB I make sure none are Cross-collateralised. I feel this gives you more bargaining power. Have re-negotiated a better deal on our loans a few times over the years I always made a point of highlighting how easy it would be for us to take our business elsewhere due to no crossing of securities. It's a bit more admin I suppose but in my mind its well worth it for the leverage it can give you.

Cheers - Gordon

 

[T33]

I think one feature of the NAB portfolio facility may be a tax issue.

The facility allows you to set up savings account as a sub account which is100% offset against loan sub accounts. One of the benefits promoted is the mixing of trust finances and personal finances.

My understanding is NAB allows you to set up a savings account under the name of your corporate trustee. This corporate savings account can then be fully offset against loans in your personal name under this portfolio facility.

My gut feel is that this could be a tax problem i.e. company providing offset benefits to personal name.

Any thoughts?

 

[Peter_Tersteeg]

I agree with Rolf. Even though we have all our loans with NAB I make sure none are Cross-collateralised.

Hi Gordon,

As a matter of policy, NAB cross collateralise any securities they get their hands on. It doesn't matter what loan structure you've got it under. The portfolio loans however are by far the worst.

 

[austini]

Hi Gordon,

As a matter of policy, NAB cross collateralise any securities they get their hands on. It doesn't matter what loan structure you've got it under. The portfolio loans however are by far the worst.

Hi Peter, I'm a bit confused by your statement. All my loans with NAB are separate to each other whether under the Trust's or personal names. That is, one loan with one secured property. The same goes for the LOCs. So basically if I want to take our business to one or more other banks the process is relatively straight forward. Of course I'm not referring here to such things as "all monies" clause or RMDs etc (no RMDs on Trust loans as I refused this) but just the ability to move elsewhere with relative ease should I find a better deal.

I'll admit I'm a layperson not a mortgage broker but I thought my simple structuring would give me the ability to do what I have mentioned above.

Cheers - Gordon

 

[Tom Alaka]

Thanks for your posts everyone. Ive emailed the NAB with some concerns, and asked for alternative strucutres.

 

[plgwa]

Tom

There is nothing wrong with what you are doing. The whole idea is to clearly seperate personal expense from investment expense and using a portfolio loan or something similar is an easy way to do that.

Dont get to caught up in the detail.

By the way. There's nothing wrong with having loans cross collaterised. You cant do it any other way with some banks. At the end of the day you can discharge one or all anyway. ie if you want to sell a property you can. If you want to refinance you can.

The advantage of having considerable borrowing with one bank is that you can achieve considerable discounts on your lending. eg a 0.8% discount on $1M is $8000/yr.

Not bad!

 

[Rolf Latham]

Hiys PLG

8000 is a great saving no doubt .......

But, what is the REAL cost. Your interest bill on a buy and hold portfolio is biut one thing to consider.

Cross coll can in some instances prevent you from moving forward , and cost 40 to 80 k on that type of portfolio.........................cross collaterlisation is like mercury.............its not a problem till it becomes one, thence its often too late.

ta
rolf

 

[plgwa]

Rolf

8000 is alot! Now double it. 16000 a year... thankyou very much!

I have a number of properties cross collaterlised with one lender and up until I reached my serviceability limit I was able to top up my LOC's at any time which I have done a number of times.

Additionally I can sell any of my properties without penalty or fees to remove them as security.

I've looked at this issue in the past and decided it wasn't a problem but maybe you can convince me otherwise.

Cheers, Paul

 

[Rolf Latham]

Hiya Paul

If you do a search on this site you will see what challenges there are.

The core one is that while everything is hunky with you and the lender all is fine.

Go over their line, either in terms of serviceability, or lose an income, fall marginally into arrears, etc etc etc you have painted yourself onto a corner.

The issue here is that see it every day........................disaffected clients come back with ........ I didnt think they would do this..................well, Im afraid they do. Some lenders will drown you rather than give in.

If we are talking about 3 properties crossed worth 300 k then hey yes, its probably not much of an issue. But if you have ALL your portfolio crossed with the one lender, clearly, from where I sit, one is giving that one lender way to much rope. Just because one is not yet a casualty of such challeneges doesnt mean it might not happen.

From my selfish point of view, Id want to be a lazy broker toooo, hey Mr client one app, 10 properties, look Mr Client we can even same you some fees........

Cross Coll in 90 % of cases is only for the benefit of the lender.

There are time where you can make it work to your benefit, but they tend to be limited types of transactions.

As I say to my clients, its their call.

ta
rolf



ta
rolf

 

[plgwa]

Yes I see your point and certainly agree that you should limit the number of properties with any one lender.

 

[Tom Alaka]

Hi

Just got some more info regarding the NAB Portfolio loan (from NAB itself):

- if you sell or otherwise dispose of a property, NAB will revalue the
properties if the last valuation is out of date ( im not sure what the dates are yet) or you want it to. Valuations conducted by the NAB are at no cost if using the internal valuation managers

- no exist fees on this product.

- appears that the NAB will only loan to 80% of the value of each property

- no fees for opening or closing subaccounts

- no fees for the entire Portfolio facility closure

Im still fence sitting at the moment and will be investigating options further.