Which way forward? - confused between FP, ANZ & me

Hi everyone,

First post...so here goes. I've been lurking on these forums for a little while now, reading, learning, being encouraged by all the generous members ideas thoughts and comments. Thank you.

A bit of background. Just over a year ago when our first daughter was born (second due in Dec 07) we found a Financial Planner to get things in order for us. We got the insurances sorted, super on track and , and a small managed fund set up for our daughter. The arrangement with the FP is that they have an annual fee of $2500, and any commissions they receive reduce that $2500 amount. If the commissions exceed the fee, they start paying us money. So we figured it was fair - they were unlikely to recommend something that made them money...since they had a cap on what they could receive.

Recently I received a $20k pay rise which meant we suddenly had an increase in disposable income. I asked the FP what we should be doing with this (bearing in mind we'd told him we'd like to start a property portfolio). He told us to put it into a high interest account/offset and he'll talk to us about it in 6 months time at our next review. I didn't want to wait 6 months so I thought I'd go and see a FP at the ANZ where up until recently our PPOR mortgage was (moved it to ANZ One Direct a few months ago for a better rate). I had an appointment at the new Investment and Margin Lending on Collins St in Melbourne. They said they can show me how to put in place a structure which will allow me to purchase one or more IPs now, as well as a small geared Share Portfolio. The aim was to purchase high growth IPs, hold on to them for six or so years, then sell them to pay off the PPOR (or keep them if our plans had changed by that time).

However, in order to do that I was required to move my PPOR mortgage back to the ANZ. Why?, I can only presume it means more business for them. I know ANZ One Direct will allow access to the equity in my PPOR so I don't need to move my loan back to the ANZ to move forward building a property portfolio. I do like the idea that there's someone who will 'hold your hand' along the way though. Someone who can show you how to structure the cash flow, minimise our tax by -ve gearing etc.

I did point out that I'm not too happy with ANZ holding all my loans and the issues around that. They told me not to worry since cross collaterisation was a thing of the past since the Uniform Consumer Credit Code Legislation came in. What do you make of that?

So at the moment, I've got my FP who says wait until December, and ANZ who say we can do everything but you have to move your loan back. I'm stuck in the middle thinking we can do this ourselves without these guys.

Is this a case of "just do it", make an appointment with a Mortgage Broker, get stuck in and learn from experience?

Thanks in advance for any comments, inspiration or any general direction!

Cheers,

:confused:
 
A lot of different issues here, but:
However, in order to do that I was required to move my PPOR mortgage back to the ANZ. Why?, I can only presume it means more business for them. I know ANZ One Direct will allow access to the equity in my PPOR so I don't need to move my loan back to the ANZ to move forward building a property portfolio. I do like the idea that there's someone who will 'hold your hand' along the way though. Someone who can show you how to structure the cash flow, minimise our tax by -ve gearing etc.

I did point out that I'm not too happy with ANZ holding all my loans and the issues around that. They told me not to worry since cross collaterisation was a thing of the past since the Uniform Consumer Credit Code Legislation came in. What do you make of that?

Cross coll still happens, but only if you let it. Just because one bank holds all your mortgages doesn’t mean it has to be cross-colled. However, if you’re not comfortable cross colling and/or moving all your loans to ANZ, don’t. I don’t see why you need to use the ANZ One Direct to access equity. Just refinance your PPOR with another bank, then put the excess amount towards the deposit for an IP. Keep the paperwork in order. While having someone hold your hand is important, you can get that from a mortgage broker or other experienced property investors. How do you know the ANZ guy knows IPs? Does he own any?

They said they can show me how to put in place a structure which will allow me to purchase one or more IPs now, as well as a small geared Share Portfolio. The aim was to purchase high growth IPs, hold on to them for six or so years, then sell them to pay off the PPOR (or keep them if our plans had changed by that time).
That ‘we have a secret structure’ thing is usually just a hook to use their products. Let’s be honest. There are no trade secrets in banking. Any new product can, and is, automatically copied by every other bank out there. The only difference is in things like lending criteria, and you need a broker to compare these for you.

If someone told me that last bit, it would tell me that they don’t really understand the objective of investing in IPs. Why sell to pay down PPOR debt? You lose the future gains on the IP. Decreasing PPOR debt by selling other assets is a newbie mistake. Given that you’ve told them you want to invest in IPs, they should have told you ‘buy the IP, then recycle the PPOR debt using offset accounts and refinancings, and buy more IPs’. That’s what I mean when I asked how do you know the ANZ person knows IPs?

A geared share portfolio may be a good option, depending on your risk tolerance. I suggest reading a few books about shares and property first.

Is this a case of "just do it", make an appointment with a Mortgage Broker, get stuck in and learn from experience?

You definitely need to talk to a mortgage broker. Especially one that is experienced with investors and are investors themselves.

You may also want to think about the following:
1) Why set up a managed fund for your daughter? She has to pay tax above a very low threshold while she’s under 18. A family trust might be a better option, especially if you plan on having more assets later on?
2) Super: I’m assuming you’re fairly young. Do you really need to lock your money away for over 30 years? If you have the discipline you might do better investing outside of super.

I obviously don’t know all your circumstances, so don’t take the above as advice, but it’s something to think about.
Alex
 
Thanks Alex, Lee

I'm 34. The managed fund is in my wife's name as she doesn't work. The managed fund was about 'doing something' from the day our daughter was born. Otherwise she'd be 15 before we got around to it!

Super certainly is something I have control over and could divert some of that into property as I'm self employed.

I've read a few books by Somers, Yardney, Fitzgerald. I think I'll be making an appointment with one of the MBs on here.

Apparently the ANZ guy does own 7 or so properties, but I got that 'used car salesman' vibe. He's very pushy and has been trying to 'close the deal'.

Thanks for the comments....it's always nice to know you're thinking along the right lines by have someone validate your ideas.

Cheers
 
I'm 34. The managed fund is in my wife's name as she doesn't work. The managed fund was about 'doing something' from the day our daughter was born. Otherwise she'd be 15 before we got around to it!

I can understand that bit, but if you're making plans for investment you might want to think about a family trust. Really thinking ahead but it's likely that your children might have no income for a little while after they hit 18. That's a tax gold mine.

Super certainly is something I have control over and could divert some of that into property as I'm self employed.

It's unlikely you can use super for residential property, or at least it's pretty difficult, since you can't borrow in a super fund, and buying residential IPs with no debt doesn't give the best returns. You'd have to accumulate enough money in the super fund to buy it outright.

Apparently the ANZ guy does own 7 or so properties, but I got that 'used car salesman' vibe. He's very pushy and has been trying to 'close the deal'.

I would have serious doubts about anyone who tells you to sell IPs down the line to pay off the PPOR.
Alex
 
The Melbourne property market is booming right now, so procrastinating may be costly. If you feel confident in your knowledge on property investment, I'd move ahead as I don't think prices are getting any lower in the foreseeable future.

If One Direct can allow you to access your equity for a deposit and you want to continue using them, then do so. From a certain point of view, branches, direct internet loans and mortgage brokers are in competition with each other and they all provide very different services.

It sounds like the ANZ branch does want to cross collateralise your PPOR and new IP. The comment about the UCCC removing cross collateralisation is complete rubbish. It will cover the primary loan against your PPOR, but it doesn't cover any loans for investment purposes, which would also used as security.
 
It's unlikely you can use super for residential property, or at least it's pretty difficult, since you can't borrow in a super fund, and buying residential IPs with no debt doesn't give the best returns. You'd have to accumulate enough money in the super fund to buy it outright.

Sorry Alex, what I meant was that I don't have to pay the 9% super payments or the additional ones I'm making since I'm self employed. I could just take that as taxable income and direct that cash into property rather than into Super.
 
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