What strategy would you advise?

Hi everyone. I've just settled on two 'off the plan' apartments (2br/2bath) in Canberra CBD in the same building, both with 70% LVR, worth about $620k each (purchased in a family trust). I'm living in an apartment (PPOR, 2br/2bath) in another area with 25% LVR but with 99% cash in an offset account (paying nothing on the mortgage which is in my wife's name only, purchased 1 year ago), with the apartment worth about $550k. I plan to buy a $800k-$1m 4br house in the suburbs next year and I'm considering various strategies I could use.

My best thoughts so far is to sell one of the CBD apartments (minimise risk from having two apartments in the same building) and take the ~$180k cash after paying off the mortgage. Then I'll take out the $140k cash from the PPOR mortgage offset and refinance it so it has a 70% LVR. That would provide another ~$245k cash. In total, I'd have about ~$570k cash (approximate figures only) made available.

I'd then like to use ~$370k as a 40% deposit on the new house, with the balance of ~$200k as another 30% deposit on another investment somewhere. That would allow me to have our own house (in the trust) and have 3 positively geared investments being rented out (2 of them also in the trust).

Is this a sound strategy? Do you have any better suggestions? I'm all ears, thanks.

 

My other idea is to sell the current PPOR and have $550k available so that there's nothing individually owned, and sell one of the CBD apartments to free up $180k. That would allow a 50% LVR on the new house, as well as maintain the plan to buy another investment. This would then have all property in the trust. Thoughts?

 

@Terry_w will be able to better advise on this.
But just from my reading it looks like their are a number of issues here.

1 - Why are you buying investments at such low LVR's? These should be leveraged to 105%.
2 - I could be wrong but I'm not sure the idea of holding all your assets including a PPOR in the same trust is a good idea? @Terry_w?
3 - Do you have an investment strategy? What is the reasoning for buying OTP, particularly 2 in 1 development?

To start with I would be selling your current PPOR. At 25% LVR when you do then it into an IP it would have lost most its deductible loan.

 

What are you trying to acheive?

What about the tax considerations? You will be increasing non deducitble interest if you take from the offset.

How will the trust use your cash? - Consider asset protection.

Thought about ways to structure things to maximise borrowing capacity - if you plan to buy a few?

Could spousal loans be used?

See my legal and tax tips for heaps of strategies:
Index of Legal Tips https://propertychat.com.au/community/threads/terryws-legal-tips-index.4581/
Index of Tax Tips https://propertychat.com.au/community/threads/terrys-tax-tips.3010/
Index of Strategies https://propertychat.com.au/community/threads/terryws-structuring-strategies.11564/

 

If you want help with a strategy, you will need to tell people what your end goal is. Do you want a 50k, 100k, 200k rental to live off? Start by listing the final goal and then work backwards to see what you need to achieve it.
Also there is zero mention of the rental incomes from those properties or what your income is. Sharing is caring

 

Wow, so many replies so quickly! Thank you

My history. I'm a discharged bankrupt as of July this year. Last year my wife received money from her father to buy a property in her name only, since I was still bankrupt then. We decided to buy a new apartment near where we both worked because it was good value with good appreciation and future rental potential and very convenient for us. With her $30k income, the bank would only lend at 25% LVR, which was achievable. With the balance remaining, she and her father decided they wanted to invest in 'off the plan' apartments as well (against my advice at the time, but I wasn't the one with the money...). So she put down deposits on the two CBD apartments in her name, and the remainder was stuck in the offset account.

Now that I'm a discharged bankrupt and eligible for credit (from only a few lenders), it was decided (with the help of a mortgage broker) that my high income of ~$200k would be a much better option to move forward with. So in order to have me involved, the contracts needed to be rewritten. We took the opportunity to establish the trust and have the contracts in the trust instead. Majority of any profits would be distributed to my wife instead of to me.

The lender we went with was the only one who would offer a loan, as long as it came with a 30% deposit. Done.

So now we want to buy a house, and I'm looking for ideas on how to proceed wisely.

I'd like to be in a situation where investments are positively geared to minimise our costs, with any profit going towards our house. Within the next 5 years I'd like to have quite a number of positively geared properties generating a passive income so I can retire by 55.

Please let me know if you need any more information, thanks.

 

Will you live in the house?

 

Yes

 

@AlansJourney a world of difference to everyone's response when we get painted a clearer picture

 

Indeed. Everyone's gone quiet.... lol

 

haha everyone wanted to drill you but a lot of it makes perfect sense now

 

Whose name will it be in?

Generally you would want as little non deductible debt on this as possible. Perhaps starting off at 80% LVR with several splits and then doing a debt recycling strategy.

In your sitation asset protection may be worth considering. If other entities are selling property with funds being diverted into this you have to be careful abotu how you do it.

It may be worth considering gifting to a new discretionary trust and then having your wife borrow the money back to buy. This way the trust will be a creditor. The trustee may even take a mortgage over the property so it will be a secured creditor. The loan could be itnerest free so there are no direct tax consequences.

But this is all complex stuff so get some legal advice from a lawyer before trying.