hi

I think you misunderstand a bit. Your broker is doing you a dis-service if you set it up like that.

This is how I would do it.
Loan 1 $437,000
Loan 2 (new split secured on PPOR) = $560k x 80% – $437k = $11,000

Loan 3 $230k (IP 1)
Loan 4 (new split secured on IP 1) = $370,000 x  80% – $230k = $66,000

Net result = $77,000 available equity at 80% LVR without cross collateralising the two properties. No LMI payable.
Interest on loans 2, 3, and 4 should be deductible if the funds are used for investment purposes.
This achieves what you want to do and is more effective than what your broker is suggesting.

With the funds from the 2 new loans, which can be LOCs or IO loans with redraw, you can use this as 20% deposit on IP 2.

Net result is 3 properties, all stand alone, no crossing and a tax effective structure.
I would just add a 100% offset account attached to loan 1 (PPOR) to store all spare cash and for rents and pays to be deposited into. I would also suggest you use a professional package to avoid loan fees and app fees etc.

Subject to serviceability you could get something up to around $308,000 without paying LMI.

creative!

Not really. There are a lot of accountants around, but I don't know any good ones down there. maybe gatherum-goss accountants.

If you borrow 100% like that it will mean the properties are cross collateralised. This will cause problems later.

The best bet is to set up another sub account on your main property. Take the cash from there and then use as deposit for the next one. That way 105% of the loan for the new place is deductible and both properties are not crossed and stand alone – and you can go to different banks for them if you wish.

They would be depreciated over a number of years, but only claimable when the property is available for rent.

Yes, that is exactly what happens.

You can't always have your cake and eat it too!

If that happens you can add a person or substitute a person. Usually this can be done without having them to be a director. A shareholder, or beneficiary of the trust could offer a guarantee, for example.

Hi Ryan

I just spent 20 min typing a reply, and it disappeared!

in Summary, …..

The director of a company can be liable for company debts in a few instances, such as company tax which isn't paid, debts incurred while the company was insolvent, or some other illegal acts. Generally the buck stops at the company. It is a legal person separate from the people behind it.

A guarantee, in relation to loans, is basically when someone offers to repay the loan if the borrower cannot. What the lenders are concerned about is the company/trust being an empty shell if they repossess the property and there is a shortfall. They want someone substantial which they can chase for any shortfall.

Giving guarantees hurts serviceability because giving a guarantee is pretty much the same as getting the loan itself. Imagine if you borrowed for 10 properties v guaranteed the loan for 10 properties. You must still be able to service the 10 loans either way or your guarantee is worthless.

Lenders require the trustee to guarantee the loan as they are the legal owners of the trust assets and they are the person running the trust. If the trustee is a company then they will want the directors to give the guarantee. This is why it is best to have 1 director so as to limit the guarantees being given. If the property sinks the directors go down with the trust/company. That is why it is good to have 1 spouse who is not part of the trust or company at all.

Beneficiaries of the trust are sometimes asked to give guarantees. This is to be avoided at all costs and one way of avoiding it is not to specifically name anything, besides yourself. They can still be covered as beneficiaries indirectly, eg 'Spouse of X', 'children of X' (people under 18 are not asked to guarantee though).

Yes, an entity should be created before it is able to enter into a contract. I think there are exceptions for promoters of companys who can enter into contracts before the company comes into existance, but you don't want to risk being charged stamp duty twice (once on your signing and then on the deemed transfer from you to the company).

Units are easily transferred, but stamp duty may apply, depending on the State you are in.

Tax variations won't assist with the banks as most have their own forumulars and take this information into account anyway.

When you use the equity in property A just think of it as borrowing from property A to fund property B.