Yes, it is too good to be true!

These sorts of properties can have the following difficulties:
– Difficult to finance
– Hard to sell
– Low or not captial growth (due to the above)
– Restricted on selling agent and managing agent
– Rental guarantee meaningless if company goes down
– May be other costs that pop up

Having said that, some people buy more than one of these things so there may be something in it, but not my cuppatea.

Use equity to cover everything. Why use your own cash when this could be used to reduce non-deductible debt first?

Having a company or trust will not change anything from a borrowing point of view. The lender will be looking at you as they will be asking you to guarantee the loan. Trusts are good for other reasons such as asset protection and tax savings, not for borrowings.

But since you have cash, you should qualify for No Doc loans easily.

Hi Giulio

I just ran your numbers through a serviceability calculator and you should be able to pass serviceablity – unless you have large credit card limits, personal loans, car leases etc.

Just try another bank.

Hi Helena

Sounds like you have a little problem. I would suggest you seek legal advice asap, try legal aid.

Have you documented the money you put in with the brother in law? You could probably argue you have an equitable interest in the house, but that won't really help if the bank takes it. They will sell it, and any left over should be divided between the two parties.

You could also argue that you have lent the brother in law money and sue him for that.

It will be very hard for you to get a loan now as you are around 81% LVR. Maybe you could talk to the lender and ask them to give you more time and/or reduce the rapayments or even extend the loan term, or make it IO etc.

Changing titles now will be expensive as you will have to pay stamp duty on your share.

Good luck, and do contact legal aid.

Hi Mike

It seems that this system will be hard to replicate yourself on a small scale. It is that company which provides the loan, and an asscoiate company acts as trustee (legal owner) for the property until it is transferred at the end. There is another company that manages the property. I have never actually seen a non recourse loan myself. I have heard about them on larger projects, but have never heard of anyone offering one on smaller loans. This would probably be the hardest part in setting it up – though I am not sure if the non-recourse nature is essential for this.

I have seen people buy property in a unit trust and then have some units in the unit trust owned by their SMFF, but am not sure if this is still allowable.

Its hard to say.

Probably the markets have changed signifcantly since those materials were produced. Its much hard to find cashflow positive properties now and the ones you can find may not be worth purchasing.
Why don't you start looking at what you have, checking out the growth prospects on the area, seeing if you can add value, increase rents etc. If you sell now, then you may incur a loss, and then the area could take off!

The ideal is not necessarily to have cashflow positive property, but to make money. Maximising profits should be the goal. So what you have to do is work out if you think the property is going to increase in value over the short and long terms. If you sell, what are you going to do with the money?  If you are going to buy another property, then you are essentially selling one to buy another = stamp duty, CGT, Legals, agent fees etc.

One option instead of selling is to access the equity and repeat the process.

Sounds more like a lifestyle choice.

I would change both loans to IO anyway, and get a 100% offset account on one of them – the one you may live in.

If you have lived in one previously, you could probably class this as your main residence and to avoid CGT while still renting yourself. But whether this is more beneficial than living in your own proptery will depend on the rent you are pay, receiving and the loans on the property etc.

Banks don''t really look at properties like that. What they do is what Adrian described and take a percentage of the rent received. These days there are a few lenders that will take into account negative gearing benefits by taken depreciation into account and also interest claimed on rental property loans – eg. ANZ, St G, Bankwest and others.

So being able to claim depreciation can help in servicing.