Hi, I am new to investing and this forum. I have bought an investment property/apartment which I will be borrowing the full amount 500K plus stamp duty etc; equity is in our home in which we have $60K left owing. I am a low income earner 25K with a husband who is a high income earner. I am wanting the title in my name and the mortgage will be in both names. I am signing the contract next week. I have been advised we should put the property in my husbands name to get the tax benefits of negative gearing. I have 8K Super, late 40’s and would like some financial security for myself and not be reliant on my husbands Super, income etc. I would like to create my own wealth. Am I making a financial mistake for our family not reaping the tax benefits of negative gearing. It will be a stretch to pay existing mortgage/investment loan and raising teenagers. Is positive gearing an option? The investment is purely my idea/desire for financial freedom as a female who has worked and supported the family for 20 years. I am taking responsibility for this decision and my husband will be supporting this, am I making the right choice?.
TesstHave you already purchased the property as you say you have but then you say you'll be borrowing the full amount?
You need to speak with a solicitor about this and have him go over the contract plus other stuff. So much stuff needs organising before hand. What happens if you two split up and the title is in your name but mortgage is in both your names?
You also need to make sure your purchasing the best property for your circumstances Eg. Capital growth and/or income.
Positive gearing is when the rent covers all your mortgage payments, interest, repairs, insurance, strata fees, rates yadda yadda.
Thanks for your comments. I have signed the contract and paid a deposit using the redraw facility on our existing loan which will be re-imbursed once new loan is in place.
I am seeing my solicitor next week.
The property is in a great area, good growth only 10 years old, near beach but expensive outgoings/body corporate fees.
The rent will not cover the mortgage payments, interest, repairs etc.so positive gearing is probably not an option. Like I said I am new to this, but have jumped in and purchased the property and now need to ensure I know how to manage this.
I would not be able to have purchased this property based on my wage so that is why mortgage is in both names.
Speak with a mortgage broker and make sure they set up the loan the best way for your needs.
Eg Interest only, offset account, varriable/fixed etc
Tesst- I was in the same situation- at home with the kids and title of our home was in my name but the mortgage had to be in both names- now i split with the ex and have to re finance the loans.
I would speak to an accountant who knows about property as to the best way forward.
If he is the higher earner – then why not take advantage of negative gearing.
If something happens to your relationship then everything goes into the property pool so you don’t miss out. I don’t really see any advantage of not using negative gearing. There is no benefit- you are best to take full advantage of what you can – you don’t get many from the government so you might as well use what you can. I can recommend an accountant to help you if you need one.Oh, and I think that you can get the tax back before the end of the year- like a tax break in your husbands income week by week or month to month. I cant think what is it called – but it will help raising the teenagers and is most peoples objection to property investing- that you have to find the cash week to week until the end of FY.
Hi Tesst
Good for you on wanting to have the property in your name and i can understand you wanting your independance.
Obviously you are aware that as the property Title is in your name then you are the one who can claim any of the deductions. If your income is lower than your husbands which appears to be then you obviously wont claim as much as he would be able to. Of course in saying this once the property becomes positively geared the income will be added to your current income and taxed accordingly.
I am however slightly concerned about the way you are wanting to finance the property as it sounds like your lender has suggested that you offer your existing PPOR as security for the new loan and cross collateralise the 2 securities. I really would strongly suggest you avoid this at all costs.
i am also concerned that you have used your existing PPOR redraw to cover the deposit as you may have contaminated the loan interest from day 1 and therefore lose the deduction on this.
Structure the loan correctly and i wouldnt have a problem. I am not saying that it is the way i would proceed but i can understand your reasoning and as long sa you believe the property will perform strongly over the long term can't see an issue with your way of reasoning.
Definately seek some professional advice on loan structuring though before you go too far forward.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thank you to Yours in Finance and Women In Property for your feedback, it is much appreciated.
The existing property is not so much security, but our Lender wanted to ensure that we had enough equity in our existing home to be able to borrow the full amount needed to purchase this property.
Using the redraw facility for a deposit was the only option I had. Do you mean I have contaminated my existing mortgage’s interest? I do hope to structure the loan as effectively as possible, though am learning on the fly. Thanks for understanding my reasoning, it is important to me.
I do understand negative gearing is the best advantage, but in the long term, it may be simpler to have something in my name. I would like to start creating my own wealth.
Are there any other options for tax benefits that can be utilised using the low income earner instead of the higher income earner?
Is the Accountant in Melbourne?
KInd RegardsHi Tesst
Hate to say your lender cannot have it both ways and sounds to me like a nasty case of cross collateralisation. (Of course your lender wont tell you there is anything wrong with that).
Yes hate to say the deposit funds have been contaminated. Your lender could have given you a Bank Guarantee or Deposit Bond for the deposit both of which would have been fine.
I am lost as to why they would suggest that course of action.
No point in crying over spoilt milk now but dont whatever you do Cross the loans.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Richard,
What do you mean do not Cross the Loans? The existing loan will stay separate from the new loan; but thank you for highlighting this and I will double check that is the case.
I do not know why our Lender suggested this, no other option was put to me. I have a lot to learn and nor I or my husband have invested before; I am still glad I have taken the initiative to start this process and am keen to ensure it is a success.
Thanks so much for your advice, I do understand I should have sought professional advice before I went ahead and signed contracts. As you said no point in crying over spoilt milk. I will ask more questions when I see my solicitor this week.
Regards
TesstHi Tesst
Welcome aboard.
Your current lender will probably try and use your entire owner occupied property as collateral for your investment property. This is what we call cross collaterisation.
To avoid this, you should be able to set-up a second loan against your owner ocuppied property which will act as the 20% deposit and costs on your investment property, you would then arrange for a separate 80% loan to be set-up to cover the remaining portion. In this scenario, you have three loans set-up but the properties remain uncross collaterised.
Since you've got an owner occupied debt, it would be ideal to set up your investment loans (the equity release and subsequent 80% loan) as interest only.
James from House of Wealth is a good accountant in Melbourne.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
Tesst
Yes the loans will be separate but the investment loan will be over 2 securities your new IP and the existing PPOR.
This is known as cross collateralisation and is the evil for investors.
I wrote an article about why such a strategy was bad for investors some years ago for the API magazine and can let you have a copy if you drop me an email.
The way the loans should be structured are as follows:
1) 80% of IP purchase price with lender A secured against investment property solely.
2) 20% of IP purchase price and acqusition costs with lender B secured against your PPOR as a separate interest only loan sitting behind your current PPOR.
Your current lender will want to offer you 100% of the purchase price + costs secured against both securities and trust me there is a massive difference.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Thanks Jamie (Pass Go Home Loans) & Richard (Taylored Financial Solutions)
Okay, I understand what you mean by cross collateralisation. I will look at the Loan Application and speak to my lender tomorrow. This information is extremely valued and is providing me with some insights into how investment loans work and what a risk it could be to my existing property.
Richard, I will email you re the article in the API magazine, thank you.
Jamie, I have looked up House of Wealth and they are not far from where I work so I may give them a call – thank you.
Regards
TesstTesst
Just ask the lender a simple question.
What securities will be used for this loan application.
If they say both and it is a single loan then they are cross collateralised.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Tesst,
Dont beat yourself up- it is hard to know what questions to ask when you are investing in property.
You do need brokers and accountants who know what they are dong.
Even then you cant know the questions to ask until you get into it.
You have started on your journey and that is the main thing.
Good luck with your investing.Thanks WomeninPropMelb.
I do feel good about finally starting on my journey in investment. It has been something I have been wanting to do and now I have to learn quick and fast how to manage it.
Tesst
Hi Richard,
Thanks for your advice, just in the nick of time, I spoke to my lender and am fortunate I asked the question this morning. He advised that as we are borrowing 100% of the loan, $195K of the loan is secured on our existing property and that was the only option otherwise we would have to have mortgage insurance (which could cost 15k). So even if we paid off the $60K on our existing property we couldn’t get the deed until the $195k was paid.
Anyway, I thought about it and we have land with a beach shack that is worth about $200K (which we own) and suggested could we put the $195K on that.
He advised it could be a possibility if we get it valued and put a mortgage on that. I have been tied up with work so will be discussing this with him tomorrow. What do you think?
Also I am getting pressure from family (to put the IP under husband’s name as we will be losing 1000’s in Tax benefits). I haven’t had time to organise seeing an accountant and will be signing paperwork on Thursday. Should I just put it under his name and write up an agreement with the solicitor that property is 75% mine/25% his if circumstances change. I really wanted something that I independantly owned.
Regards
TesstWhy do you have to sign the paperwork on Thursday? What is the rush?
I would suggest you speak to an accountant before you go ahead as this may seem like a good thing to do but could cost you $1000’s more?
Who is putting pressure on you to sign?
As I always say – this will not be the last investment property – there is always another around the corner.
Get it right before you go ahead.
Get advice before you sign.
Put it off- make an excuse but please see an accountant.
If you need an excuse I can lend you my handy book of 100 excuses……And don’t be pressured by a sales person saying this is your “ONLY Chance”…Hi Tesst
I am unsure who your lender is but this gets better by the day.
They now want you to secure the whole loan against your PPOR which places the entire property at risk.
Obviously the bank johhny had to meet his security target this week in order to get his bonus at not thought to the clients risk.Look not be using an unencumbered property to secure the entire loan you are going from the develop to the deep blue sea.
Obviously your lender has no idea whatsoever and certaintly isnt out to look after your interest.
Simple advice would be switch lenders tomorrow.
If you are under pressure to sign something i would walking away as if you cant buy it how you want to then dont proceed.
Get you loan structure right first and then you will be able to sign it.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Yes, Richard is right – I dont understand why you have to sign- walk away until you get more advice.
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