Questions on setting up LTC

[kipkip]

Newbie here although have been lurking around the forum as a cd-rom - lots of great advice and knowledge learnt from here.

I currently own a rental that is under my own name and have built up enough equity to use as a deposit (via LOC) for buying my next IP. I'm planning to setup a LTC for any new purchases in the future and got a couple of dumb questions:

1. Do I have to setup the LTC before contacting the bank for pre-approval? Does it matter if the pre-approval is under my own name?
2. How does it work on applying home loan as the LTC wouldn't have any capital or income (yet) at the beginning, since all of those would be coming from my other rental/personal income? Do I have to provide a personal guarantee that the repayment will be met (and obviously the bank will have to assess and be happy with my financial position/serviceability).

Hope someone can give me a few pointers, thanks.

[Rosco]

Hi kipkip,

Is LTC the best structure for you?

Often it is best to limit the number of entities, so could be better to buy in own name again, or look at transferring current property to an LTC (watch depn recovery, and costs vs benefit).

1) Not normally, but I would tell the bank you are looking at setting up an LTC. They generally give you pre-approval and don't care what entity you use, as long as you give them some time before settlement

2) Talk to a mortgage broker. One option is to give your existing home as security, so that same bank effectively owns both properties, and lends the full 100% on the second because you have enough equity in the first. Another option is to work with 2 banks and keep the two properties seperate.

Ross

[PTILoveYou]

1) you can set up the LTC after unconditional date, and before settlement of your new IP
2) works the same if the property is under your own name. You will have to personally guarantee all loans anyways, banks require you to do that, they aren't gonna lend you if you don't

If you are buying by yourself, and you are in a salary job, then just buy under your own name. Saves accounting cost.

If you are into asset protection (self employed/business/future partner), then it's a different story.

[kipkip]

Thanks Ross.

I have been trying to decide whether LTC or trust. My day job is already paying the top tax bracket and my current property is now CF+. But I thought the legislation for trust may still change and I could always transfer the shares to a trust later on, that's why going down the LTC path for now. Maybe I miss something here?

My plan is to stick with the same bank for the 2nd property, transfer the current property to the LTC once my current fixed loan term is up (to avoid break costs), and switch to a different bank to keep them separate.

For transferring a property personal to LTC, do I have to get a RV and have the LTC "pay" me to "purchase" the property? Or is it just a simple change of ownership on the title?

Thanks
K

[kipkip]

Thanks Gary.

I am buying by myself at the moment, but planning to buy with other in the future, and also going to setup a business in 2-3 years time. Should I wait till then?

Thanks
K

[Rosco]

Hi kipkip,

There are advantages and disadvantages to each structure. It depends on your individual circumstances.

Some notes

1) If you use LTC. Cost to set up LTC, need to do a company annual return ($45 to $130) and accounting goes up. Our prices $900 for sole trader, plus $1250 for company, so $2150.
Then at some point you would probably sell personal property to LTC, so say $1500 in legal fees at some later date.

2) If you use sole trader. NO set up cost, no annual return and maybe $1000 annual accounts (so save $1000 per year if using accountant).
Then at some point in future, sell both rentals to LTC, set it up etc, so maybe $3000 in legal fees for transfer.
If looking at buying a personal house, then properties in personal name have probably gone up in value, so can probably transfer to LTC for a lot more, meaning you can borrow more on LTC and have less personal loans.

So from your posts, I would be heading towards option 2, and suggest it is worth you getting formal advice from a chartered accountant who specialises in property.

If you did sell from personal name to LTC. Need sale and purchase, then lawyer sells from personal to LTC, LTC takes out new loan (often 100%) and repays you. Might cost $750 to sell, and $750 to buy in legal fees

Ross

[kipkip]

Thanks Ross, appreciate your help.

[khoed792]

Hello Ross and Kipkip !

I am in a very very very similar situation as you .
I have 1 investment property under my personal name (bought in 2012) and planning to hold it for years to come .. and just bought 2nd one a few weeks ago . Accountant told me to set up LTC as soon as i bought 2nd property and move 2nd property directly into LTC. regarding my first property - my accountant advised me strongly to get a REGISTERD VALUER to get a high valuation on my first property so i can sell it off to my LTC - (so I can borrow more on LTC for my own personal home in the future - say 5 years .. ? )
Not sure if this is a good idea suggest by my accountant as I could have just put it under my personal name for both properties ? - what do you think Rosco ?

Also these are my cost

transfer property to LTC - lawyer fee 1500
Setting up LTC - $500
accounting fee - $800 sole trade + $ 1200 for LTC for 2016 ..

all prices ex GST

ACcountant charges $200/hr (She charges me on the minute aswell for speaking to her on the phone and emailling her ) EEKKKK!!!

are all these cost about right ... ? or should i seek new accountant

[Anthonyacat]

Hi Khoed

The costs you are quoting aren't unreasonable for a mid-size accounting firm. As you can see they roughly equate to the prices Ross mentioned. I'd expect a bit lower if you are with a very small firm or one man band. My own fees would be a fair chunk less (and no GST yet!) but you do get a reduced level of service from sole practitioners which doesn't suit some.

As for the advice to set up an LTC, will depend very much on the rest of your situation. I don't much like LTCs personally. There are situations they can be useful, but most of the time just add a bunch of cost for the client, and boring work for the accountant.

Anthony

[khoed792]

Are you able to claim back tax on purchases eg. repairs and maintenance if you paid using your personal credit card WHILST your property is under LTC ( and not under your personal name ) ?

[Wayne]

Are you able to claim back tax on purchases eg. repairs and maintenance if you paid using your personal credit card WHILST your property is under LTC ( and not under your personal name ) ?

Claim back tax - you mean include as an expense.
Yes - you can use any form of payment for R&M (or anything else - I pay the insurance by CC) - just keep the receipts.

[Anthonyacat]

Income tax? Yes. Just need to make sure your records are clear. You're buying on behalf of the LTC. It is seen as a loan by you to the company.