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Discussion in 'Managed Funds & Index Funds' started by AndrewG, 10th Feb, 2007.

  1. AndrewG

    AndrewG Well-Known Member

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    Hi all,

    So I have decided what amount Id like to invest in what funds. Can those who have gone before me explain to me the way they structured their bank accounts / lending ?

    i.e. does one create a new business LOC and invest money from these, possible with/without a margin loan as well? If you do apply for a margin loan, are the banks normally competitive in this area? If I were to setup a LOC it would be through Westpac to make it easier for me, so I will check out their Margin Lending specs in the meantime.

    I already have a LOC setup purely for my R/E investing, and would like to keep that separate for tax purposes.

    Thanks,
    Andrew.
     
  2. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    I do everything through my trust - so it has its own bank account and own loan facilities (including margin loans).

    All fund investments are funded through the margin account - and add capital to that account from my IP loans whenever I refinance to draw equity (or when I have surplus funds from my personal account, which is loaned to my trust).

    Any loans I make to my trust are made via my trust bank account, even if the money is then just going to the margin loan ... I clear everything through the trust bank account to show a clear trail of where the money came from and for what purpose.

    All distributions are paid in cash and paid into my margin loan account, partially used for maintaining LVR and the remainder reinvested into whatever fund I am concentrating on at the moment.

    Interest is capitalised into the margin account - although that's only changed recently, up until now I was paying the interest costs myself because I had the cashflow available to do so - and it maxmimised my borrowing capacity by doing so. My margin loan has now grown to the point where I can no longer fund it myself, and given the cashflow from managed funds is infrequent (quarterly at best), it's easier to manage it by capitalising.

    Hope this helps.
     
  3. AndrewG

    AndrewG Well-Known Member

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    Thanks Sim for your post with regards to the trust you have. Does anyone else have an opinion on this, who does not use a trust?

    Andrew.
     
  4. Redwing

    Redwing Well-Known Member

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    We use a Hybrid Discretionary Trust and have begun acquiring properties through this vehicle rather than our own names which we've done previously.

    We've purchased Managed Funds via the HDT and have set up an account with ComSec to purchase Individual Shares if need be

    The HDT (or PTY LTD Trustee) has its own Bank Account, TFN, ABN, ACN are all set up

    Bank Account and Credit Cards have been set up to relate to 'deductible' or 'non-deductible' debt for ease when it comes to tax time

    our LOC is used for Investing 'only'

    In regards to a Margin Loan....try speaking to your/a Mortgage Broker and see what they can do as well in regards to rate (I'm hoping they may be able to get a better deal).
     
  5. islandgirl

    islandgirl Well-Known Member

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    Yep I've done the same. I have separate accounts for everything and in my mind the simplest way to keep everything straight is run it as you would a separate business. That seems the cleanest.

    The LOC loans to the trusts, the trusts all have their own bank accounts and loans (incl the margin loan)
     
  6. iiinvestor

    iiinvestor Well-Known Member

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    Likewise. HDT has separate bank accounts and LOC. UT has separate accounts for IPs too. I use MYOB to manage each entity separately. No corporate trustees at this stage due to overhead and -'ve CF.

    All trading and margin accounts are in the name of the HDT. As per your question, I don't know of any difference in rates, etc. The application was a little more complicated for the HDT, but it was all ok in the end.
     
  7. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Choice of margin lender depends to a degree on what you will invest in ... but interest rates vary hugely too.

    Most of the banks either have their own branded margin lender or they own another margin lender with different branding (eg Leveraged Equities is owned by Adelaide Bank).

    Of the big-5 banks, I've not been impressed with any of their margin lending products - they are either uncompetitive with interest rates, or offer pathetic LVRs. ANZ, Commsec, Westpac, NAB were all quickly cut from my short list. I do use St.George Margin Lending who generally offer excellent LVRs, and their interest rates are reasonably competitive too - but the jury is still out on their customer service (haven't been with them long enough).

    But I've had really good service from Leveraged Equities - they are pretty competitive with their LVRs (although not as aggressive as St.George) and their interest rates are good too (they will discount for higher loan amounts).

    There is absolutely no reason to use the margin lending service that your bank offers (unless they happen to offer the best deals).

    I don't recommend using your real estate portfolio as collateral for investing in shares/funds ... use a separate LOC/loan to draw equity from your property and transfer the cash to your separate margin facility ... don't put your real estate at risk if you don't have to.
     
  8. coopranos

    coopranos Well-Known Member

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    I have all my property loans/lines of credit through Commonwealth/Colonial.
    Their rate at the moment is 8.90% variable and 8.45% fixed, on top of that I am on a particular lending package with my homeloans, so get a discount on that margin loan rate.
    All the LVRs seem fairly good (70% for all the ones I want, whereas I checked with a couple of other lenders who were doing 60% for the same funds). They do 5% buffer so margin call at 75%.
    Only drama with them I think is that the loan is income tested, unlike someone like BT and St George who pretty much have the cash if you have the collateral as far as I know.
    Unsure if the income test will present any issues, but should be organising the margin loan with Commsec in the next couple of weeks.
     
  9. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Neither St.George or Leveraged Equities are income tested.
     
  10. AndrewG

    AndrewG Well-Known Member

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    Fair enough - I will check Westpac out more as a comparison, going by your response. Most banks tend to be fairly similar, and then I'll have a look at the others you have mentioned also.

    Agreed - it will be separate for sure. As I do not have any trusts setup, do you suggest I get these loand and invest in my name, wife's name, or both? I intend to work for another 5-10 years max, my wife will not be returning to work after the baby is born. I don't know that it would be worth all the hassle and effort to setup trusts at the moment, considering all R/E purchases are in joint names? What do you think?

    Andrew.
     
  11. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    The general strategy is to put income producing assets in the name of the lowest income earner, and cashflow negative assets in the name of the highest income earner (assuming you can negatively gear that asset - which you can with shares/managed funds).

    So, assuming your goal is to make money from your fund investment (distribution income greater than LOC + margin loan interest cost), then it would be best in your wife's name one would think. Naturally there are complications with growth funds which don't necessarily distribute as much income, and hence you may be slightly negatively geared - which is not ideal for a low (or no) income earner.

    You would also need to ensure that any LOC used to purchase managed funds is also kept separate to the other LOC and loans used to purchase assets in joint names - since you want to be able to clearly identify the loans for assets purchased in a single name (assuming you went that way). Remember - it is the purpose of the loan and the owner of the asset which determines deductibility of interest costs on the loan - it does not depend on who is named on the mortgage.

    I always recommend you get expert advice from a tax specialist (hopefully you have an accountant who is really good with tax), because these questions are always tricky without understanding your situation in detail - there are many things which affect tax outcomes, and some expert knowledge is required in my opinion.

    My portfolio, which is a mix of growth and income funds, does produce more income than it costs in interest from my margin loan and equity loans ... so it would not be ideal if it were held in my name (I'm the highest income earner).
     
  12. Glebe

    Glebe Well-Known Member

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    Nor Suncorp.
     
  13. Simon Hampel

    Simon Hampel Co-founder Staff Member

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    Based on what I see of Suncorp's website and LVR list - I suspect they are reselling St.George (or vice versa) - they look pretty much identical. The only difference (that I can see) is the interest rate structure!
     
  14. bundy1964

    bundy1964 Well-Known Member

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    The differances I can see between Suncorp and St George/BankSA is 0.1% on interest rates, lower LVR for Suncorp and lower buffer for Suncorp on shares. Suncorp also lacks the Etrade bolt on for trading using another system and pricing structure.

    So much of it looks the same at a quick look at both web pages including the "nuts and bolts".

    Customer service is always an issue as is ease of use and cost. For 0.1% I get an extra 5% LVR and an extra 5% buffer.