Forum Replies Created
Matt,
Do you want an accountant to work in the business, management reporting, systems and processes, budgets and strategic plans, cash flow etc or do you want an external accountant who does tax returns, business lodgements etc?
They tend to be two very different skill sets.Let me know as I know a number of accountants and firms that may assist.
GregDangermouse,
The main purpose of a trust is for asset protection. If you are a business owner or a director of a company and there is any likelihood or risk of being sued personally, a trust should be considered or at least move/have assets in your spouse's name.
Secondary for many is the ability to distribute income if the trust is generating profits and thirdly there can be some estate planning benefits.Be cautious of professionals advising on products they get paid for. I have seen examples of a separate trust being set up for each individual investment property owned as their accountant said it was the best way to go.
In terms of lending, most lenders are very comfortable with discretionary (or family) trusts, many won't deal with hybrid trust or may restrict the LVR's if they do. The ATO has said they are looking at the use of the hybrid trust so be aware of the implications of that.
Trusts can and do have their place in the owneship structure for multiple property investors. When the costs of holding more properties in personal names becomes expensive or when tax benefits of holding negatively geared properties has been reduced to a marginal tax rate of 15% or lower or you are purchasring positively geared properties, consider using a trust structure then.
I hope this helps.
GregThe CBA person has been aiming at brokers for a long time, I'm surprised that CBA still deal with any brokers based on her views and I'm somewhat more surprised she is still employed in her position. Brokers are their clients but CBA do not seem to understand the concept of customer service yet extending that far.
I agree with Jamie, brokers are first line responsible for getting the documents together, checking that they make sense, they service, fit into policy and are consistent and look correct (not fraudulent) and provides sufficient notes explaining what and why for the loan.
It is always a source of frustration to brokers that the branch channel can get loans approved so much faster than we can and I am very sure (as backed by the comments made in the article and others based on the NAB experience) that the branch channel has a similar issue with application quality. I am also sure most experienced brokers are far more knowledgeable and qualified than the vast majority of bank staff.
GregRenel,
Specifically to your question, in most cases all an investment loan needs to have is 30 year term, 5 year interest only, either variable or fixed rate (or mix) and internet access. No bells and whistles, no associated credit cards, etc.For some investors, they may need an offset if they do not have a PPOR.
As Richard said, 2 of the lenders mentioned are available to brokers, you would need to see if they are on the broker lender panel (often an issue for the aggregator credit rep model). CU's tend to target the OO market and often require you set up direct salary debit which may not suit an investor and they tend not to be as competitive in the fixed interest rate area as they do not have the pricing power/credit rating to access cheaper funds. The interest rate will also depend on LVR, dollar amount and property type. Brokers can often negotiate for better pricing deals if the loan is large enough and meets the market that a lender is targeting, you may not be able to get that through these lenders.
As to whether a broker will know is a different issue, like any other profession, there are some excellent and knowledgeable brokers, some who are investors themselves and know what is required. There are also some that just operate as bank agents, using only one or perhaps two lenders and are just paper processors. Most brokers just focus on the owner-occupier market and have little knowledge of what is required for an investor, so do your research and ask the questions.
Other comments made above are valid, do your research first.
Good luck with it.
GregLiz,
To buiild a multiple property portfolio, you need to make sure you have the finances structured in order for you to be able to borrow the funds needed. As Terry suggested, a start would be to establish a separate loan facilty against your existing PPOR and it is kept separate and only used for investment purposes. Whether it is a LOC (for flexibilty) or a term loan depends a little on how soon you are going to require the settlement (of the IP) amount and whether you use a debt recycling strategy.More important is the cross security issue and whether you are looking at future revaluation and refinance strategies. If you are, then use a different lender each time (as much as practical). After all, they are simple IO investment loans until you have paid off your own PPOR. You use each lender is a structured way, using the lowest servicing lenders first, then work your way up depending on the number of properties your goal is.
You use that settlement amount from your existing PPOR new facilty, whether it is 10% or 20%, then for the majority of the funds required to pay, obtain a term loan IO from a new lender. The security is separate, the interest rate for a term loan is generally 0.1% (or more) lower and you have the flexibility of locking the rate ir it suits your needs.
The Lomas positive cash flow approach can suit some investors some of the time but like anything else, it will not suit all investors all of the time. Make sure you get ownership sorted out first to benefit from lower margnal tax rates if it is a positively geared purchase.
Good luck with our portfolio.
GregChief,
The property manager I use for my properties is Mitchell Property Management Group, thats all they do and they do it very well.
03 9686 6688.
http://www.mitchellpm.com.auGood luck, a good property manager is worth gold to an investor.
GregRichard,
I agree, we do this as part of the on-going service to clients, more than earning the trail commission (if applicable).If you can do it in 2 hours, you must be very efficient with your processes.
Greg
Richard,
As a general process, for new clients as owner occupiers I usually charge a fixed engagement fee which is refunded in full on settlement, mainly to sort out the shoppers from the serious clients but also as an indication of professionalism and commitment. For returning clients, I do not charge this. For investors wanting a full strategy mapped out, I charge a fixed fee for the strategy and rebate the up front commission if they use me as a mortgage broker.A client with a $20k increase, I would generally use the same lender unless there were issues (servicing perhaps) or significant cost differences. Depending on the lender, I may not get paid at all for that.
A client wanting a product switch, depending on what they want/need, again I look at overall cost to them and will generally offer 3 to 5 different lenders as well as their existing lender and they chose.I think a bit like Terry, what Michael appears to advocate sounds strange to me also. I have trouble understanding from a licencing point of view how you could operate like that, under a credit rep model, very few aggregators will permit off panel lenders and if you have your own licence, the work required to go into investigating other lenders or other broker offerings is daunting.
I expect a BA (is there such an animal?) is still a credit assistance provider and needs to be licenced. It looks as if the term BA came from the US and adopted here.
Looking at both the Vanilla Loans site and Borrower Agents sites, they both seem to be able to spin a story but I am unsure on the sustainability of their models and the accuracy of some of their 'facts' or perhaps assertions.Perhaps there is a way to negotiate with lenders so the customer gets a lower rate in lieu of commissions or that the aggregator is happy not to get their cut or perhaps happy to handle commission refunds to clients monthly. I can't imagine many clients comfortable paying an upfront fee of $2k in return for deferred commission or even a lower rate.
GregTerry,
I sometimes get clients coming to me from other brokers who only have ever offered one lender to them.
In talking to a number of different aggregator BDM's, the same story comes across, there are brokers that only deal with one or perhaps two lenders.
NCCP withstanding, until MFAA / FBAA / whoever or even aggregators themselves step up and say this is not good enough, we will have the perception that some brokers are simply sales people for lenders. They do us all a disservice.However lenders strongly encourage this behaviour with their volume incentives, or gold class, or white knight classifications (as you can see I am not one of them) to just use the one lender, then I am not sure it will change.
Call a spade a shovel (or a borrowers agent) will not do much either, the unscrupulous will simply change their name or logo.
GregJenny,
While I am a CA, I do not see much difference as you can get good and poor with either branch of the accounting profession. The CPA tend more to small private practice and the CA tend to be employed more in large companies but they both have post graduate qualifications.
If you are looking for accounting and tax advice, check who their clients are, what areas do they specialise in, are they property investors themselves and ask some specific questions to see if they know their stuff.I have been to accountants (so I can refer clients to) and asked – revalue an investment property and refinance a loan, use the additional equity as a deposit for their PPOR – is it new loan deductible? You will be surprised how many do not know basics like that.
Good luck
GregOne of the issues with mining or remote towns if it is an investment property and you are into revalue and refinance strategies is obtaining a decent valuation. Comparable sales are often difficult to obtain and values can drop significantly in a short space of time.
Good luck in investing.
GregTim,
I did attend Bill's latest boardroom seminar. I have been going to his seminars for some years now, he is an interesting speaker with some good ideas. It appears he has closed down his gold and silver business and the green deals and just concentrating on offering one on one type advice for a cost rather than trying to do a lot of things.
He seems to have moved to purchasing H&L packages that he says he can obtain at discount prices, both land and build and then investors hold for 12 months or so and sell to generate an cash flow return.
It is a big move away from what he has previously advocated, partly due to finance availability and the market itself but what he claims and what he can deliver may be two different things. I had a client attend, was given prices for a H&L at Point Cook (Vic) that they said was good value but the client did independent research and found he could have purchased cheaper in the area from the same developer and builder.
It makes you wonder. By all means do your own research.
Good luck in investing
GregSteve,
There are second tier lenders that offer service, full offset and reasonable rates, unlike the Big4.
ING is one, AMP is another which has no fees on either offset or loan account and at 6.64%, a good deal.Homeside offer some innovative lender deals (broker channel for NAB) with lower rates for lower LVR's, down to 6.47% < 75% or at 90% 6.67% but with $10 a month fees.
If you want an offset account that is easy to use, keep away from CBA. Of the other Big 4, I prefer ANZ for service and rates.
Good luckAmy,
I f you have already purchased the property and unless you have a nomination clause, it may be too late to put it into the trust without incurring stamp duty again.Accountants love putting people into trusts, why – because it is more fees and work for them. It is not always in the best interest of the clients. If asset protection is critical, use a trust, if it is not, then why incur the additional costs yet?
My general view is that until your tax benefits are used, I would purchase in individual names. For the median type negatively geared property (as most capital city properties are) then 2 to 4 properties tend to utilise any tax payable and then you would consider using a trust. You have used your personal tax benefits so using a trust will not disadvantage you in the short term and there are longer term benefits, such as potential land tax (depending on state) and income distribution.
I agree with others above that if it is a positively geared property you are purchasing, use a trust.
Good luckI agree with Scott, the property manager pays all my investment property bills and send me a monthly statement as well as a detailed annual statement that slots neatly into my tax return requirements.
Good luckA simply solution would be to have your parents get a loan or line of credit established based on their own property and income and then just lend you the balance of the money you need, which you repay. Why go to a more complex structure?
Alternatively they could go guarantor, either equity or income or both.
Good luck
GregEd,
I have used BA's before and I have a small number who I refer clients to in Melbourne, ones that tend to specialise in the investor market. Each have their own knowledge and strengths and areas of speciality. I match the clients needs to the BA's but also suggest that they talk to two or three others at least to see what the fit is like for them.I am not keen on a one stop shop. The concept is very sound that they all work together and it makes it seamless but it can also lead to a poor overall result and service. You are not using other independent professionals who can put up a hand and say, there is something wrong here.Good luck
GregTerryw,
I agree, you need to take care in setting this up. The issue should not be whether the interest on the LOC is deductible but you are paying off your home loan sooner. The purpose is still critical.The initial setting up of this LOC and the amount needs to be in line with what your needs are, so the higher amount the more flexibility you have as long as it is not so high as to limit future borrowings. In the private ruling you mention, it seemed that the linked loans were the issue where to increase the LOC the taxpayer had to reduce the home loan, perhaps keeping the overall facility the same but changing the mix.
The use of an Offset combined with this may have made a difference. Interesting times.
Good luck
GregAman,
The one thing you should consider doing if you can is to also establish a separate LOC secured against your PPOR. I normally recommend a minimum of $120k for each median priced IP you are looking to purchase. The end number will depend on your borrowing capacity. This is a stand alone LOC just used for investment purposes, being the deposit for the IP and any investment expenses. Say $50k to $90k is used for the deposit, the balance is to meet investment expenses and be a safety net for you. It could be a 2 or 3 year buffer depending on how channel use the funds in and out.You use the LOC to pay for any investment expenses including the interest on the IP loan rather than the Offset. You use the Offset only for private expenses. In this way, you will increase your Offset faster and reduce the interest expense (or principal) relating to your PPOR loan.
Good luck
GregAs a PPOR purchase, I would try to minimise the debt and certainly minimise any MI costs.
If it was an investment property, I would do the opposite.If a 1 bed flat is in a good location, suits your needs and you can borrow < 80% then it should not be an issue obtaining finance, especially for an owner occupier. The real issue on small units <50m2 is when you want to borrow > 80%, the MI's do not like them nor do most lenders either. You can get 80% finance for as small as 38m2 but the lender selection is limited.
For a PPOR, it is about lifestyle. If it suits you, more than likely it will suit similar tenants down the track.Good luck
Greg
