All Topics / Finance / What lvr for 1st IP in discretionary trust

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  • Profile photo of ekghmgekghmg
    Member
    @ekghmg
    Join Date: 2010
    Post Count: 10

    Hi all,
    I have spent a bit of time of late setting up a family trust and getting finance available to it. My question to you all is, for those of you with a discretionary family trust- what LVR did you go for for your very first IP within the trust and were they only +ive cash-flow?

    I am aware of the tax implications of loosing negative gearing through using a trust but I have set up with the long term benefit of my family and am trying to weigh up how I should structure my 1st few investments within the trust with the knowledge that regardless what happens I will be tipping in whatever funding I don’t get from the bank.

    I would be interested to hear from those who ate pioneering their investments for their family (so far even before making a purchase it has been a lot of work and a steep learning curve)

    Thanks for your time,
    Eamon

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Eamon

    I appreciate your concern but remember structured correctly you can still borrow 100% lvr when buying in a DFT it is just a matter of how you do it.

    Regretfully as you mention the losses cannot be cliamed but there are reasons why you would take the lvr to that level especially if you still have non deductible debt by way of a PPOR.

    i purchased my first property in our DFT in 1994 and we paid cash for it having come over from the UK with a swag of pounds and a good exchange rate. In saying that most of my other IP purchases were geared to 80% initially so i dont think that is a problem.

    One consideration is to ensure your financier understands structures and doesnt charge a loaded rate or high set up costs for running the Trust through their legal department for scrutiny.

    Even with a Corporate Trustee there is no reason why you should pay any  more than you would if you were buying in your own name.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of ekghmgekghmg
    Member
    @ekghmg
    Join Date: 2010
    Post Count: 10

    Thanks Richard,

    I have set up a standard interest only loan in the name of the corporate trustee secured against one of my other properties (in my own name) effectively accessing the equity built up in that property.  I have been stung with a negligible  "vetting fee" from CBA to review my off the shelf deeds, a bit annoying but I am getting the same discount rate as all of my borrowings. 

    Anything I buy will effectively be 100% LVR on this basis, but was just working out whether I should use a lot or a little of these funds to pay for the deposit & holding costs so as to show a theoretical positive cash flow from the new property when looking on a standalone basis.

    I estimate within the next 18mths I will be able to pay off my PPOR.

    I know a lot of people say oh you should only have positive cashflow in a trust, but I have a vision for my future and my kids & beyond and figure somebody needs to start somewhere…

    To quote an old commercial – it wont happen overnight, but it will happen.

    Thanks,

    Eamon

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    You won't lose the tax deductions, they will just be deferred to be offset against future income when the property eventually becomes cash flow positive. So I believe you will still be better off using borrowed funds to pay for 100% of property costs plus all of the buying costs. If I were you, I would leave all of the cash in an offset account attached to your home loan as the interest on this debt is not tax deductable.

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Luke

    Unfortunately the MISA offset account that CBA offer is not fully transactional so is probably not suitable for such a strategy however i agree with you interest only with 100% fully transactional offset is the way to go.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of luke86luke86
    Participant
    @luke86
    Join Date: 2010
    Post Count: 470

    Good point Richard, I didn't pick up that the loan was CBA.

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