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  • Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    hi all
    im in the process of creating a trust.
    my question is this
    if im setting up a trust for my first ip should i save for a deposit or use the equity from my.home
    if the point of setting up a trust is to protecy my assests will i be risking my.home if equity is being used

    second question for ip purposes do i borrow 95% and pay lmi or save 20& deposit toavoid lmi
    ps im aiming go for properties that either make me money postive cf or break even

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
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    Your first port of call in finance :)

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

    Hi Johann

    Happy New Year to you.

    Whilst you have a PPOR loan you would use savings as a deposit for an IP as you loose the Tax deductibility of the funds contributed. You would better off using equity and paying your PPOR down (or using an IO loan and putting savings in the offset account if you think the PPOR may 1 day become an IP).

    Also i would suggest you think about a 90% lvr rather than 95% on an IP.

    Credit scoring on 95% lvr is a lot tougher and whilst it is still achievable the LMI would make 90% + LMI probably the better way to go.

    Cheers

    Yours in Finance

    Richard Taylor | Australia's leading private lender

    Profile photo of xdrewxdrew
    Participant
    @xdrew
    Join Date: 2010
    Post Count: 479

    You are talking AFTER the GFC now JPcashflow,

    Ready credit is still dealt out based on MUCH higher standards than was applicable before the credit squeeze.

    90% is quite attainable, 95% for most people barring an extremely good and ongoing credit history is very much an uphill struggle.

    Most people think its all quietened down and its back to business. Its not. Its still very much that the banks are handing out money to very good clients and very reasonable risks. And anything that smirks of greater risk is now almost frowned upon. They tend to be doling out for 'more security' if they feel you are any slightest aspect of a risk component. Especially the banks. I have been with one conservative bank (for discretionary purposes its left un-named) as a regular client for just on 28 years. And despite my large asset backing and my sizeable cashflows and giving them reasonable security … they came back to me on a recent deal and asked for significantly more security. I told them where to go.

    Setting up a trust at this stage? Too early and an unnecessary expense. You forfeit the tax benefits of direct ownership which means you'll be paying a higher bracket of tax on any earning you get through the trust .. and you cant offset earned  income directly against your income properly. YES a trust is a great idea .. but you are cutting off your toes and telling yourself the shoes still fit. The tax offsets available to direct ownership rather than a trust far outweigh the initial benefits of having it in a trust structure.

    Investigate it further. There IS a place for a trust .. and there will be a reason for setting one up. You've got to learn WHY .. and then when. But at this stage you'll be cramping your income into a taxable box and getting it taxed at a much higher rate. Which stops you from getting to where you want to .. as fast as possible.

    Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    hi richard and xdew
    thanks for the comments when i bought my first ip four years ago i saved 30k in one year easy
    next house saved 40k and bought the home i live in
    i sold the ip and reduced my ppor loan from 270 to 110 in two years
    but its a bit harder to save since we moved out.and got.married
    know we can start saving hard

    so beat to use equity to purchase next ip
    but if my home is used as security for our bussiness it migjt be hars

    there are some great deals in melton, werribee and wyndham vale

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
    Email Me | Phone Me

    Your first port of call in finance :)

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    You would want to keep your cash for your non-deduction debt usually. Probably a good way to proceed would be to lend money to your trust by borrowing it from a LOC secured on your main residence at the same rate you are being charged. Any less would cause tax issues.

    If the trust does go down then you as the lender will probably only lose the money lent and not your house. if you let the trust use the house as security then it would be more risky.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of JpcashflowJpcashflow
    Participant
    @jpcashflow
    Join Date: 2007
    Post Count: 575

    thanks terry
    good adice thanks

    Jpcashflow | JP Financial Group
    http://www.jpfinancialgroup.com.au
    Email Me | Phone Me

    Your first port of call in finance :)

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