Trading finance - Where to go from here

[Frezzinghot]

Just putting it out there, mainly to those of you who are currently trading full time.

I am wanting to trade full time bottom line, issue currently is service-ability from our current banks perspective. Need to raise a RC of about 200k to get as a deposit of trades.

Current financial position is as follows.

PPOR current CV $1,375mil Lending of $690k

Rental 1 CV $450k lending of $180k

Rental 2 CV $550 Lending of $500k

RC account limit 200k 140 drawn $60k available

Current income from both my wife and I $140k per annum.

Have been to our bank at TSB and was a no go to increase our RC account as servicing was not good on any more lending so we are hard pressed to get any more there, any suggestions on how I get started, I intend to continue working until I can build up a record of trades/deposit so that I can go full time, want to keep the rentals as all cashflow +ve and not worth selling as I want to gain more capital from both. What options do I have, have some good trades under my belt but too far and few between to go full-time and leave the JOB.

Any suggestions? no longer have the passion for my chosen career and want to change track. Goal is 2 trades a year with 50k net profit which will easily surpass my current income after tax.

Thanks in advance.

[Anthonyacat]

The obvious first step for me seems to be talking to a mortgage broker. TSB has said no, but someone else might say yes. You need to get funding from somewhere - a bank, a second tier, family and friends, etc.

Or find someone to partner with who has the money spare but doesn't want to do much of the actual work. You'd need to split the profits somehow, and depending how it's structured it might dilute the final numbers that you need to prove viability in a couple years. I'm actually potentially looking for something like this myself, and have a client who might be interested also if he hasn't already found someone. Email me at [email protected] we might be able to sort something out - no promises though, conservative accountant so might potentially judge you almost as harshly as TSB!

[Frezzinghot]

The obvious first step for me seems to be talking to a mortgage broker. TSB has said no, but someone else might say yes. You need to get funding from somewhere - a bank, a second tier, family and friends, etc.

Or find someone to partner with who has the money spare but doesn't want to do much of the actual work. You'd need to split the profits somehow, and depending how it's structured it might dilute the final numbers that you need to prove viability in a couple years. I'm actually potentially looking for something like this myself, and have a client who might be interested also if he hasn't already found someone. Email me at [email protected] we might be able to sort something out - no promises though, conservative accountant so might potentially judge you almost as harshly as TSB!

thanks Anthony will be in touch, would I be right to assume any profit made by trading or other income should go straight in personal debt before paying any down on investments?

[Anthonyacat]

thanks Anthony will be in touch, would I be right to assume any profit made by trading or other income should go straight in personal debt before paying any down on investments?

What you do with your income is up to you!

But from a tax perspective, personal debt is not deductible, so costs up to 50% more than equivalent interest rate deductible debt. Makes sense to kill that first.

[Frezzinghot]

What you do with your income is up to you!

But from a tax perspective, personal debt is not deductible, so costs up to 50% more than equivalent interest rate deductible debt. Makes sense to kill that first.

The problem we seem to be having now is that each year we seem to be paying extra tax come tax time, our accountant keeps saying we are making profit now from the rentals so never seem to get anything back these days. I’m told this is a good thing but still a bit confused by this tax relief from IP interest.

[Anthonyacat]

The problem we seem to be having now is that each year we seem to be paying extra tax come tax time, our accountant keeps saying we are making profit now from the rentals so never seem to get anything back these days. I’m told this is a good thing but still a bit confused by this tax relief from IP interest.

Without seeing your books I can't comment on the tax you're paying. But 'never getting anything back' from IRD is indeed a good thing - it means you're profitable. You only pay tax on profits, and with a rental property your accounting profits are usually the same as or lower than cash profits - so if you made $9k cash profit from the rental over the year, the most you'd expect to pay in tax is about $3k - hopefully less.

The basic concept is that you only pay tax on the profit, so expenses relating to the rental get tax relief. If you pay $10k in interest on your own home's mortgage, that costs you $10k. If you pay $10k of interest on the rental mortgage, depending on your marginal tax rate you end up paying as little as $6,700 net - a difference of almost 50% (10-6.7)/6.7= 49.25%

You want to kill private debt as soon as possible, and kill rental debt as soon as the private debt is gone - eventually you'll be paying a lot of tax on your property, because it'll be earning you a lot of money. That's a very good position to be in.

Re the financing, happy to hear from you whenever; I'm in no great rush.