Yeah. I wouldn’t sell-I actually did that and regret it now.

Just keep on using the equity. Approach your exisiting lender first and ask for an increase and use that money as a deposit for the next. If they don’t come to the party, refinance.

Terryw
Discover Home Loans
North Sydney
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Without much deposit it would be hard for you (I mean Fred) to buy one. Fred would have to use a 95% loan, so would need 5% deposit and 5% for costs – about $9000 on a $90,000 property.

It could help greatly if Fred was good at buying under market value and the values were growing rapidly.

Maybe Fred could also
-borrow the deposits,
-get the vendors to finance his deposit,
-get the vendors to pay his closing costs as part of the deal
-renovate to add value
-get some loans as a wrappee and then rent out or lease option (won’t be positive geared tho)
-save like mad.

Terryw
Discover Home Loans
North Sydney
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Guys, they were good stories. thanks for that.

I have only had one problem which seems minro now, tenant stopped paying rent and I went soft and let them, they then skipped out owing about $1800 in back rent. Nothing major as the capital growth going going mad at teh time.

Terryw
Discover Home Loans
North Sydney
[email protected]

Wraps are often better deals for the wrappee than they could get with a bank. Think of a credit impaired person with only a low deposit. They are not going to get finance from a bank or a financier. If they had at least 10% deposit plus costs, they could get a loan with one of the non conforming lenders and pay interest rates of around 10.56%. They may be able to refinance into a cheaper loan in a few years time, but the exit fees could be 4% of the original loan amount. If they wrapped off someone, they may have to pay a premium of 20% on the price, but they could get interest rates around 8% to 9%, plus they deposit needed would be much less, little or no application or exit fees. I think there is nothing wrong with this.

However, wrappees could get themselves into trouble if the market drops 20% and rates go through the roof. But is this likely to happen? thats what the wrapees have to asses.

Terryw
Discover Home Loans
North Sydney
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It is always a good time to buy when you think about the long term. Imagine if you purchased at the peak of the last boom (when was it, 1990?). Waht would the property be worth now?

Terryw
Discover Home Loans
North Sydney
[email protected]

Jason

I like MH’s idea.

There is no way for them to simply increase their loan on their current property and for it to be taxable. If they simply get a loan on their new property they will be paying the mortgage with after tax dollars, not dedcutions. But they will be paying even more tax as their old property will be making a nice profit.

If they sold to a trust, they get to keep the property but can get a loan for the trust to purchase it. The funds received will be tax free (CGT exempt) and they can be used for the new home purchase. All they will be up for is:
Trust formation-$1000
Stamp duty – $7200 (approx in NSW)
legals-$500 approx
and a few more various small fees

maybe $9000 all up.
The trust would rent the house out and claim interest on the full loan (maybe 95% LVR), overall it may be slightly negatively geared. At the same time the $220,000 from the sale of the house to the trust could be used for building and they may need a small loan of $30,000. the interest on this would be minimal.

Now say they rented out as is:
rent $250 per week = $13,000 per year. less say $1000 in deductions = $12,000 profit. say they paid an average of 30% tax, that would be $4000 per year in extra tax. At the same time, they would have a mortgage of $250,000 on their new home. the interest on this would be about $15,000 in yr 1, and they couldn’t claim it!

Does this make sense?

And beware of taking advice from ‘friends’. It can cost you dearly. get some good advice from a GOOD accountant.

Terryw
Discover Home Loans
North Sydney
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I don’t know if you can set up a property trust like that without getting ASIC approval and a prospectus. Maybe you should check with ASIC just in case. This is like raising money from the public.

If you just want to set up a trust with friends etc then it should be ok, and a good accountant will be able to help you with structure. It sounds like you are in a very good financial position, good luck.

Terryw
Discover Home Loans
North Sydney
[email protected]

And it takes ages for the money to come in. Just think, you get someone a pre approval, then they go and look for a property, then 42 days settlement, then the money comes in up to a month later. That $35,000 that you were going to spend on a franchise could help come in handy until you get on your feet. It is a years salary to many people.

Terryw
Discover Home Loans
North Sydney
[email protected]

basically you will have to keep comming up with 20% deposits (at least) to keep on going. You can get the deposits from many sources including capital growth, savings, joint ventures, etc. If your properties are cashflow positive this helps a lot.

Terryw
Discover Home Loans
North Sydney
[email protected]