What to do with $325k

Or how about if you know someone who knows someone who is doing this?!

Dave, you could be the first one to ever do this if you don't also invest in income funds...

Coopranos mentioned banks 'asset lending' in this instance as you have no other income stream...

Also, would you have to use 'no-doc' or 'lo-doc' loans instead??

Thanks,

GSJ

 

Well, spoke to the Accountant yesterday and he was all for the plan.

Tart up current PPOR and rent for 5 years while doing LOE, then sell and get into some fund's got 1 thumb up.

If we can pull off the loans to get into a new build and trade PPOR up, rent for 5 years and sell for much larger amount, well that got 2 thumb's up.

When I suggested running it all through a financial planner, he said that we know more about it than any financial planner he could recomend, we are making it work, do more of the same.

Already got the nod from W/pac on a goodly LOC but not enough, still need to get the other 3 bank's who we have loan's with on board as well.

We'll also try and move 3 loan's from Aussie as well , as they are the most unprofessional bunch of p####s I've ever had to deal with.

It'll cost a few grand, but I've had a gutfull of 'em over the last few year's.

If the bank's wont play the game, we'll at least have a LOC in place for the 30% contribution toward's NO-DOC.

I'll be crunching the numbers hard on this last build option though, gut say's it's all good, back of envelope say's same, but the number's are spinning me out a bit.

Thank's for the help and encouragement guy's.

Dave

 

Hi Dave,

A good mortage broker who knows your overall financial position and objectives and is familiar with LOE might be very handy here to act as your main contact instead of you having to deal with each bank individually.

Seems like structuring the finance in the simplest, easiest and most flexible way will be crucial to getting this pure/passive LOE approach working for the next 5 years. The more you can 'automate it' the greater your 'SANF' will be.

I'm no LOE expert - having only just read most of the LOE threads here and on Somersoft in the last few days - but with a lowish LVR eg. 45%, neutrally geared property portfolio, low annual income requirement eg. 35k ('tax free' effectively), and say a bit over 2 MM gross assets, this does seem a pretty good option to me? Even more so given that Brisbane may be slowly hitting the upswing of the next property cycle, so not selling ANY of the properties (including PPOR) now seems pretty sensible.

Anyone here more familiar with LOE agree with that? Coopranos?

Most of the threads on LOE seem to suggest that people in general aren't too keen on the pure and passive LOE approach? But, adopted very conservatively, and in this case for 5 years initially, it doesn't seem too bad or complicated to me?

Selling the PPOR (existing or new build) down the track CGT free and investing into income funds (eg. offshore!) also seems like a good move.

Later on, if the banks decide they won't play the game for whatever reason or no-docs/lo-docs are too expensive or harder to get, then you could easily sell a property or two and invest the proceeds into income funds (eg. offshore as it could be more tax effective given that you will have already paid CGT to realise these gains, and assuming you remain a non-resident).

Also, there should be plenty of equity and time later on (eg. 5 years) to do the more fancy and higher risk stuff like leveraging into income funds with LOC's and margin loans (ie. arbitrage) and capitalising interest (eg. per MW) or investing into commercial property funds or shares etc...

And for now (I reckon forget the new build all-together, and just finish the boat instead!), you can retire almost immediately and sail away into the sunset!

GSJ

ADD: Not sure how being a non-resident will affect your borrowing capacity in Australia???

 

Here we go, this bloke 'Dunsborough' did LOE with $1.6 MM equity and 35-40k pa living expenses.

http://www.invested.com.au/64/newbie-hi-just-retired-equity-7892/?highlight=living+equity

GSJ

 

Hi GSJ

There are parrallels between Dave and Dunsborough as Dunsborough was looking at moving to NZ for an extended holiday.


Further down in the quoted post he was also looking at using MF's to extend the LOE strategy.

"I believe my task now is as i am still slightly negatively geared but with no ongoing taxable income to speak of is to possibly seek out income producing equities and managed funds, showing preferably as fully franked as possible and even some small yearly capital gains. That is where knowledge from this site may help me, ie the navra way etc"
​

http://www.invested.com.au/18060-post10.html

I think anyone who has initiated a pure LOE concept quickly becomes uncomfortable with the growing debt (year or 2) and seek some way to avoid or alleviate this mounting debt.

Generally these people have arrived at this position because they did invest so are unlikely to simply sit around ones they arrive at the arbitrary goal (retirement).

Cheers

 

Yes, and it seems like this is what Dave would do probably do too, as he mentions possibly selling the PPOR after 2 or so years here...

GSJ

 

Dave,

Would LOE actually still be possible for a non-resident???

Would you still be able to re-value and get LOC's with no-doc or lo-doc's if you are a non-resident, and at the same interest rate as residents???

How will becoming a non-resident affect your existing property portfolio, eg. do you have to pay any other taxes on your existing properties, eg. 'withholding taxes'???

Would interest on IP loans still be tax deductible???

If you became a non-resident, would you lose the CGT exemption for your PPOR???

Just curious if your accountant informed you re. these issues, as I read something which suggests it may not be so simple...?

GSJ

 

The main Mortgage Broker I have spoken to know's our situation and plan's, and he made no mention of any dificulties.

While having NON-resident status, I will still be a resident of Australia, so imagine that tax would be the same, just at NON-resident rates, which are slightly higher.

Have not found anything yet about tax deductability of interest, and a question for Monday

CGT on PPOR should not be affected, I can't find a link directly relating to NON-resident status, but this one,

Capital gains tax (CGT) and going overseas

Does refer to :
"If you leave your main residence temporarily, you may want that residence to be treated as your main residence while you are away. This may be the case, for example, if you move because of a temporary job transfer, to study overseas or to take an extended overseas holiday"

"If you make a choice, it is not affected by you becoming a foreign resident during the period of absence"

Got a link to that article?

Thank's

Dave

 

Just going through some old tridentpress books I had.

Let us know how it goes.

GSJ

 

Just another consideration is

Upon becoming a non resident of Australia ITAA97 section 104-160 deems a capital gains tax event to
have occurred. This is that you are considered to have disposed of all your assets, that are not "connected
with Australia" and acquired after 19th September, 1985, at their market value. Accordingly, you will be
subject to capital gains tax on any increase in value over their cost base. The following is a list of assets
"connected with Australia":
1) Land, buildings and structures in Australia

As per Julie's of Ban tac's site

http://www.bantacs.com.au/booklets/Capital_Gains_Tax_Booklet.pdf

She has a lot of good info avail on this site.

Cheers

 

This is precisely also what I read in a tridentpress (Lance Spicer) book, which triggered my line of questioning here!

Certainly something for Dave to look further into...

Maybe he can read Julia's booklet and let us know .

GSJ

 

My sister and her husband recently went to Hong Kong to live and work and they have also been sussing out CGT issues on their IP's in New Zealand. An accountant in HK also confirmed what Julia has written as posted by handyandy.

This is what she wrote to me in an email describing their situation:

 

Thanks for sharing that transit.

Interesting dilemma for Dave to ponder...

If you never sell, then the CGT issue may not be so important, but if LOE doesn't work out, you may have no choice but to sell...

Still interested to hear others' thoughts on if non-residents can borrow the same way as residents...I would have thought there would be restrictions on banks lending to non-residents, perhaps making LOE impractical for a non-resident???

Might have to google it.

GSJ

 

Bored, so I googled it...and, for the remaining few who have made it through the 16 pages of this thread and are still interested ...

Some brokers specialising in non-resident loans:

Peach Home Loans the Mortgage Brokers Who Pay Rebates on Australian Home Loans

Metro XP - Expat Finance, Home Loans for Australian Non Residents

Here's a non-resident loan product...of note, it appears to require FULL DOCS:

New Era Loans

But here there is a lo-doc product, but only to 60% LVR:

'20th Feb St George:
$0 Establishment fee for First home buyers and refinance
Lo doc loans for non residents availble to a max Loan to value ratio of 60%, $1.5M limit.'...taken from Golden Financial - Sydney leading finance and mortgage broker. Home Loans, First Home Buyer, Refinance, Mortgage brokers

GSJ

 

Reading it all, freaking out, can see we need to speak to the Big Boy's [or Girls] and start coughing up some dollars for advice about this sort of issue.

I thought my Accountant's eyes glazed over a little when I put this in front of him.

Time to change accountant's [again] me thinks.

Suprised that after going through half a dozen people at the ATO to get the answer's, that there was no mention of this sort of possible problem.

Well not really that surprised.

Had a read through Julia's article re: this, and I just have too much other **** on my plate to take it all in at the moment (I had my acountant's glazed look) but have to keep on it, as don't want to be going through this as the crane drop's the boat in the water.

Any ideas on who may actually know about this??

Don't mind paying, just don't want the glazed look coming on 10 minutes into the discussion.

Thanks

Dave

 

Maybe Julia?

 

Her suggestion on SS was to wait till next month's API.

But I seriously lack patience with this sort of thing, and am squirming as I type.

Strange how I could sit in the middle of the ocean for day's waiting for a few knot's of breeze to keep sailing.

Think i'll email Julia.

Dave

 

What about your mortgage broker, or bank contact, did they not alert you to any issues that a non-resident may face in terms of the practicality of 'LOE' whilst a non-resident?

Perhaps they should get the boot too?!

I have little patience when it comes to these things (ie. my financial freedom) either!

GSJ

 

Handyandy,

Just in regards to minimising CGT...this 'pearl of wisdom' is for you :

Strategy for 7.5% CGT on IP's - Somersoft Property Investment Forums

It's not relevant for Dave (he is younger, doesn't appear to use trusts, super will lock his money away, and...if he is a non-resident...Dave please note...I don't think he is allowed to have any superannuation in Australia???)...

But, that wasn't the point...

It may be much more relevant though for say a couple in their 50s, that uses a trust structure to purchase properties, has several properties with substantial equity, has a SMSF, and is nearing retirement...

GSJ

 

Hi GSJ
I suggest you reread or at least read the news letter Julie referred you to.

The criteria you proposed would not apply as the proposed couple are employed elsewhere and the cap gain is within their tax structure. If you read the news letter you will see all sorts of exclusions.

Further even if a structure was achieved which allowed the CG to be channeled through to super then there is still a 15% tax applied. The 15% tax is applied if the contribution is not taxed prior to contribution as in the case where a trust/company get a deduction. No 15% tax is applied where it is taxed income.

You can't apply the CG exemption turning it into tax income, which would mean that you have taken it as personal income and then still have the trust get a deduction for the contribution of untaxed contributions.

Again you have jumped on others ideas and concepts and tried to dress them up as your own without real understanding.

Cheers