Canterbury Property Services

Discussion in 'Property Experts' started by armorris007, 14th May, 2009.

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  1. dp

    dp Member

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    Terry,

    if you have time,....Are you able to elaborate more on the alternative to cross collateralisation... how that work in term of protecting on PPoR (or security) in the event of isue
     
  2. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Simple eg.

    PPOR value 100k loan 60k

    want to buy an IP value 100K.

    What do you do?

    1. Go to bank. Bank says use PPOR as security for 60k loan and for the new property loan.
    So loan 2 is 100K. with security of PPOR and IP.
    Total loans 160k total security is 200k.
    80% LVR.

    Great.

    2. Go to a professional for advice.
    Get a LOC on IP 1 for 20K.
    Use this for deposit for IP 2.

    IP 2 borrow 80% LVR loan of $80,000 from same or different bank.

    Net result is 3 loans
    60k loan for PPOR
    20k loan for deposit for IP - deductible
    80k loan for IP - deductible.

    160k in loans with 200k in security.

    Great, but still the same as 1 you say.

    Using scenario 1.
    lets see what would happen if IP 2 dropped in value. This is what actually happened to a broker friend of mine.
    Wife leaves him, he has a heart attack and no income coming in. Cannot pay the loans so he must sell a property. But prices have dropped on one.

    Loan is 80k but value is 80k. Remaining one has dropped in value too. say 90k. He finds a buyer but the lender will not release the security. ie he cannot settle unless he reduces the remaining loan to 80% LVR so 80% x 90k = $72k. He must pay $7k off the remaining loan. But he has no money and the sale will not give him any proceeds.

    Sale falls through and he cannot pay the loans. He goes bankrupt.

    If he had used scenario 2.
    The bank would have a mortgage only over 1 property so he could have sold IP and just paid out the loan. He would still be in trouble, but he would have time to work around things and he could have kept his home. There would be no requirement to pay any extra off any loans - though he may still have the LOC outstanding for the investment which he has sold - the interest on this could still be deductible too.

    This is just one example.
     
  3. dp

    dp Member

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    Thanks Terry. I will read this tonight.
     
  4. venom

    venom Well-Known Member

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    Loc

    Hi again, Terry and dp.
    Terry your second example with the Loc's is what Canterbury and the Bank have set me up with, I have a Loc for our Ppor, a seperate Loc as a buffer, and a construction loan for Ip till it is Built then it gets added to our second Loc, does that sound ok?
    dp depending on Council, our Builder should be starting in about 4 weeks, it is all exciting, when will you be building your Ip up this way? What area are you building?
    Hope to hear from you both more as we travel this path:)
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    I would not recommend a LOC for a PPOR because if you were to ever rent the house out in the future then little to no of the interest would be deductible (because every deposit is a payment and every withdrawal is a new loan). Its good to have a buffer LOC.

    It is good to have a LOC to pay expenses and possibly interest on the investment from, but this can be risky as there is a good chance the ATO will deny the interest. What is your purpose on doing this other than to pay down your non deductible home loan sooner? Have you got a private ruling?
     
  6. Kingsley_L

    Kingsley_L Member

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    Hi everyone, I am new to this forum and I would like to ask a question in regards to Canterbury's system.

    I met the "sales" person first time today and he briefly explained their company's system. I think I understand most of it, but there's one thing that is bordering me is that he said it is best to continue to rent than is to waste money to own my own home. Does this make sense to you guys?

    I am planning to purchase my first property sometime this year and make it an investment property in the beginning years. But I do want to own my own home at some point.

    Any advices are welcome.

    Thanks heaps,

    Kingsley
     
  7. dp

    dp Member

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    Hi Kingsley,
    I can see a point in there, I started like that, I rented in a nice suburb, nut bought my 1st investment, and continued on. although as people say "rent money is dead money", when you rent you can save on big mortgage, and other expenses like rates etc.., & you cannot claim on PPoR, whereas IP you can claim everything (refer ATO Guidelines) . but not sure how Canterbury system works there .... May be they have another structure tailored for you
     
  8. dp

    dp Member

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    Hi Venom, I'm building in Coomera, how about you, which suburb ? we expect to start around month or so... Fingers X, just wanted to get the keys so that it can start generate some income :)
     
  9. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Its generally cheaper to rent the same property than to purchase it. You will also get all sorts of extra tax deductions.

    But you won't get the CGT free benefits of owning a home. A way around this is to live in the property for a short period initially and establish it as the main residence. Then move out and rent it and rent a cheaper property. Under s118-145 ITAA 97 it is possible to retain the property free from CGT for up to 6 years.By this time the rents would have risen and your property may be positively geared and this will mean you pay more tax on the rent received so you can then move back in and then begin living in it as your main residence again.
     
  10. venom

    venom Well-Known Member

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    Hi Terry, thanks for your input, with our PPoR, it will be payed off before we would consider renting it out, we are more into doing this for our retirement than moving into a bigger, better, faster home, so no worries about that point. I will phone Canterbury on Monday to find out about if we need a private ruling, but I am sure we dont, will let you know what I find out ;)
    dp we are building in Griffin qld, Coomera is in a very great area too, and close to the water, Yes we cant wait to start getting the rent etc to start paying down our PPoR
    Cheer's to you too Pete.:)
    Kingsley, yes that would be another way, to rent and buy IP if you dont already own a PPoR ie as Terry's Reply and as dp pointed out they would have a different structure for your case, keep us informed about how everything goes for you:D
     
  11. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Hi Venom,

    If you are using this method to pay off your home loan sooner (by capitalising interest, paying interest with a LOC etc) then the danger is that the ATO could deny the deduction. It may therefore be a good idea to apply for the ruling.

    On the other hand if you do so and the ATO don't approve of this then it would be very risky to continue. Another strategy may be to hope for the best and try to fly under the radar. If you are audited then the penalties shouldn't be too high.

    My mate, ex ATO, says applying for a private ruling is like waving a red flag at a bull.
     
  12. Kingsley_L

    Kingsley_L Member

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    Thanks for everyone's comment. I will definitely update you guys once I have my next meeting with the Canterbury people.

    Cheers,

    Kingsley
     
  13. dp

    dp Member

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    Thanks venom for the update.

    Just wondering .. Any QLD person the group...

    Are you able to shed some light on Coomera area.. I've done some internet research, but nothing like hearing from a local.

    Venom ... another question. did you get a chance to choose the area (like Grifin ) or Canterbury chose it for you, as in my case Jodi (and others) have chosen the the area for me.

    That is a bit of worry for me, as if this area is going to have the right attributes... I understand its bit late to reverse , but ... you know
     
  14. dp

    dp Member

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    Please do Kingsley. Will be looking forward to hearing from your experience with Canterbury.
     
  15. venom

    venom Well-Known Member

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    Hi dp, Coomera is about half way between the Gold Coast and Brisbane, and those area's are filling fast, alot going on in the area, Canterbury have a 10 point check list that they follow to find a property for their clients, I dont think they have property on hand, but as in our case ( as with all I think) they wait until your loan is Pre approved and then they have Dan go out and find a property that fits their 10 point check list and one that fits in with your price range etc, so to answer your Q, no we didnt pick the property but are happy with it, and the area. I am sure that if you had stated you didnt like that area they would have looked elsewhere for you, but it does take time to find propertys that fit their list and depending where you would like could take a long time to find one.
    I think you can rest easy on this aspect. they are not fly by nighters and will look after you till you decide you have enough propertys :D

    Hope all you others are going well:)
     
  16. venom

    venom Well-Known Member

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    Private Ruling.

    Hi Terry and everyone,
    I have since spoken to Canterbury about whether I needed a private ruling from the ATO and they told me (Quote) Yes we know all about this- it has no effect on what we do. The latest ruling is saying that no-one can claim a deduction for capitalized interest i.e. interest on interest, of course you can claim a deduction for interest. it was always a grey area in the past many people got away with claiming it, but we have never tried. the projections Canterbury do for clients does not incorporate the deductions for capitalized interest, only the normal interest.
    Their preferred Accountant are aware of this and lodge your Tax return accordingly. nothing is claimed out of step with the ATO. (Unquote).
    Hope this ease's everyones fears that they do risky things,;)
    dp I just had an email this morning from the Builder saying our slab will be down within the next two weeks, Yes!!
    Anyone else have anymore news to report yet?:)
     
  17. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Thanks for the update Venom.

    I thought the main basis of their strategy was to pay down the non deductible debt faster by diverting all income to this and then letting the interest on the investment property be paid with a LOC. That is the impression I got with looking at their website a while back.

    If this isn't the strategy then what is?

    Ps, they are wrong about the TD. The ATO is not saying someone cannot capitalise interest and claim it. There is in fact another TR which says the interest would be deductible on the capitalised loan if the underlying interest was deductible. What they are saying in the latest TD is that they can deny the deductions if it is a scheme with the dominant purpose of saving tax and paying off your non deductible debt. This doesn't mean they will deny the deduction, just that they can.
     
  18. venom

    venom Well-Known Member

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    Hi again Terry,
    yes putting everything into paying off the Ppor and letting the interest on Ip be payed with LOC is the way they do do it,As you thought. as for the capitalized interest, maybe they are wrong, or just not looked into it recently, but that is not part of what they do, as claiming the interest on the interest would be minimal anyway, and prob best not to risk upsetting the Tax Man;)
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Member

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    Well, that is capitalising interest. You would be borrowing from the LOC to pay the interest on the investment.

    Its a very good strategy, just be very careful as that new TD will apply.

    If the ATO audit you and ask why you are doing this (ie borrowing to pay interest) how would you answer?
     
  20. star13

    star13 New Member

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    Newbie...

    Hi everyone,
    I am a newbie to this site and wanted to know about Canterbury Property Services. I actually just saw their banner in real estate.com as I am now looking to buy my first property.
    I also do not have any background in investment or properties, etc, so all of your advice and experiences would be greatly appreciated.
    I have no property at the moment, I have savings of $45,000 and car loan balance of $3,500.
    Am I eligible for their program? Or do I go to them after I have bought my first property and have enough equity on it?
    Thanks guys! :)
     
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