My understanding is that CGT does not apply if you are classed as a trader. A trader is someone that makes money by buying and selling. In this case there would still be tax to pay, but it would be all income tax – no 50% discount.

Whichever way you go, I think a trust of some sort is certainly worth looking at. It will still allow tax minimisation and asset protection.

Trusts can help cap tax at 30% as they can distribute to a company as a last resort. Company tax rate is a flat 30%.

Terryw
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https://www.propertyinvesting.com/forum/topic/26291.html

Terryw
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Its all to do with taxation.

If you take money from on offset, it is not borrowings, so the extra interest incurred if used for investments is not deductible (unless the original loan was).

Taking money from a LOC would mean the extra interest is deductible.

Which do you need will depend on your circumstances.

If you have a home loan, generally a offset is better. Save all you can in the offset, then when you want to invest, pay down the home loan and redraw (ie borrow). This reduces non deductible debt while increasing deductible.

If you have an investment, you would also be wise to use an offset to save extra funds. Do not put them off the loan as you will create a mess, taxwise, if you take them out again for general living expenses.

If you have a property with equity, generally a LOC would be better if you are going to use this just for expenses such as depsots, paying rates etc.

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Looks in the various Mortgage Broker magazines out there, as there are a few people advertising that are after trail books.

Going rates seem to be around 1 to 2 times the annual trail. So if you have 3 loans producing $100 per month trail you would get around $1200 to $2400 for it.

Terryw
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Why a caveat loan? These are usually 5-10% per month.

What about a normal loan? around 8% pa.

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Lending money can make good returns, but when you think about it, it cannot be leveraged.

So your $100,000 is returning you about $7000 pa. Not bad, but…

If you used $100,000 as deposits on 5 properties $100,000 and each grew 10%, then that is 5 x $10,000 = $50,000 in year 1.

Lending money is risky too.

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Depends how you look at it. Most variable loans have no penalties, but fixed rates do.

If the bank lends you $100,000 at 7%, fixed for 5 years, they are assuming you will be paying them $7,000 for 5 years.

If rates drop to 5% and you suddenly want to pay off your loan to $50,000, then the bank will be losing out. They can only relend that $50,000 at 5%.

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Maybe i should elaborate. The Land Titles Office (in NSW anyway) just records names. So there is no way to distinguish between people of the same name.

No lender is going to lend money without getting the joint owners to sign. If something went wrong, they would have no security. You would need both owners consent anyway to lodge a caveat and both owners would be notified.

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Yes, LMI protects the bank, so they may be happy to reduce their risk. But the approval criteria is actually more strict for LMI loans, so it is harder to qualify as you have to pass the bank, and then the LMI company’s criteria.

Whether paying LMI is worth it or not depends on your circumstances. When starting out I got 95% loans to reduce the deposits needed and keep my cash for other things. When you think of the compounding effect, buying many properties as quick as possible – in a few years the growth will have, hopefully, made paying all that LMI worth it. And, I always capitalised my LMI, so I didn’t have to pay it out, but still could claim a deduction.

Now I am more conservative, and avoid it. Funny how we change.

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You could just ask for 80% (or whatever) of the value. The lender will ask for an estimate, and this will be given to the valuer. If it comes in higher, then you can usually adjust the loan value up – depending on serviceability.

Best to use a broker to assist in this.

Terryw
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