fbpx
Book Appointment
Choosing the right investment ownership model

Choosing the right investment ownership model

28 Dec 2018 | Investor Loans

We all know that choosing the perfect investment and getting the timing right are both critical. What people often overlook, however, is selecting the right investment ownership model.

How you own your investment – and with whom – is a decision you’ll want to nail from the outset.

That’s because the asset ownership structure you select can dictate the tax you pay, access to finance, estate planning, control of your investment, costs associated with maintaining it, and the risks you face.

Today we’re going to take a quick look at your options when it comes to asset and investment ownership.

Personal ownership – sole or joint

Sole ownership is the complete ownership of an asset by one individual. This is perhaps the simplest and least costly form of asset ownership.

You’re entirely responsible for the asset, which means you carry full liability for all debts, finances and taxes.

Joint ownership involves two or more individuals owning a share of the asset.

Depending on your situation there may be tax benefits or tax discounts associated with joint ownership. For example, joint ownership of a property by a husband and wife may qualify for a tax benefit. You may also receive a 50% discount on Capital Gains Tax (CGT).

One of the main disadvantages of personal asset ownership is that it offers little protection for your investment if you become bankrupt or are sued.

Trust ownership

A trust is an investment structure that obliges a person, or group of people (trustees) to hold assets for the benefit of others.

Trust ownership can offer additional asset protection, allow for profit sharing and tax benefits, including a 50% discount on CGT. It can also help with estate planning and reduce the costs associated with transferring asset ownership.

Trusts, however, can be costly and complicated to establish and are also associated with more reporting and administrative responsibilities than personal ownership. Depending on the trust structure you select, it can also be more complicated to secure an investment loan.

Company ownership

A company can own a stake, or the entirety, of an asset.

Again, company ownership can help protect assets from personal losses and liabilities. It can also deliver tax benefits because any income and capital gains is taxed at the company tax rate of 30% (which may be significantly less than your personal marginal tax rate).

On the other hand, companies miss out on the 50% discount on CGT that is possible through personal or trust ownership.

Your control over the asset – including when you buy and sell – may also be diluted via a company structure.

Superannuation ownership

Investing through a superannuation structure can deliver significant tax benefits as any income earned via super can be taxed at as little as 15%. CGT from investments via super may be discounted by a third.

Investing through your super is also an estate planning strategy that many people consider.

That said, there are complex rules around super contribution caps, tax treatment and borrowing arrangements when investing via super. The location, type and liquidity of your investment may also be restricted.

Get in touch

Understanding which ownership option is the best fit for you and your asset can be complex. As you can see, it’s not straightforward – there’s a lot of considerations and no two situations will be the same.

So if you want to get it right from day dot, get in touch.

We can take into account all relevant information to help you decide what option to choose so your asset is owned in the most beneficial way.

Choosing the right investment ownership model

5 common reasons home loan applications are rejected

21 Dec 2018 | First Home Buyers, Home Loans, Investor Loans, Refinancing

Whether it’s unrequited love, or an unsuccessful home loan application, getting your heart broken is never easy. Here are five common reasons home loan applications are rejected.

 

Due to the banking royal commission, lenders are cracking down on home loan applications.

Applications that would have been approved in a just few days last year are now being put under the microscope for much longer periods.

To help you in your quest to secure an approval, here are five common reasons a lender may reject your loan application.

1. No proof of genuine savings

Lenders use the term ‘genuine savings’ to describe funds you’ve saved over a period of time.

Basically, if you can’t prove to them that you can knuckle down and save for a home loan, they’re going to baulk when it comes to believing that you can pay one off.

Here are seven ways to prove ‘genuine savings’.

– Regular deposits into a savings account over 6 months.

– Term deposit savings accounts held for at least 3 months.

– Shares or managed funds held for at least 3 months.

– Rental history for the past 6 months.

– Salary sacrificing through the First Home Super Saver scheme.

– Additional repayments into a car loan or personal loan.

– Deposit paid to a real estate agent, builder or developer that was originally in your savings account prior to being paid (ie. not borrowed from somewhere else).

2. You spend like a drunken sailor

Lenders not only want to see you save money. They also want you to demonstrate that you can exercise discipline when it comes to your spending habits.

Therefore lenders will trawl through your spending accounts hunting for any big-ticket items that are out of the ordinary.

This might include a $400 ATM withdrawal at a casino, or a $100 purchase at a baby store if your application says you don’t have children.

3. Your credit history ain’t so hot

Since Comprehensive Credit Reporting was introduced in July, lenders have been sharing a lot more of your credit history.

You can get a free credit report once a year from one of three national credit reporting bodies, which are listed on this government website.

If you find errors in your report, you can get them corrected. You can also take steps to improve a ‘poor’ rating by clocking up a period of consistency and reliability.

4. You don’t have a big enough deposit

Lenders like to see that you’ve saved a deposit of at least 10% to 20% before applying for a home loan.

But all too often people forget to factor in additional funds for other expenses such as stamp duty, lender’s mortgage insurance and removalist costs.

That means, for example, if you have saved $70,000 for a $700,000 loan, you might want to keep saving for a little while longer before you apply for a loan to factor in those other expenses.

5. Your employment situation

Even if you tick all of the boxes above, lenders may also reject your loan application if you haven’t been in your job long enough. And if you’re unemployed, they can’t approve it full stop.

Those who are self-employed are also running into headwinds. Lenders are becoming increasingly hesitant to approve loans unless a steady and reliable income stream can be proven. That said, there are lenders who are more flexible when it comes to self-employed workers, and we can help guide you towards them.

How we can help

We help people who are seeking a home loan overcome all of the above hurdles on a daily basis.

So if you or someone you know has recently had a home loan rejected, or you simply want to nail it the first time, get in touch.

We’d love to help you navigate the tighter lending standards to make your dream of home ownership a reality.

Choosing the right investment ownership model

Bank wanted mortgage broking fees transferred to customers

19 Dec 2018 | Home Loans, Investor Loans

Bank wanted mortgage broking fees transferred to customers

Bank wanted mortgage broking fees transferred to customers

A big four bank almost overhauled its broker remuneration model so that the cost of mortgage broking services would be transferred to customers.

The Royal Commission (RC) revealed that back in 2017 the Commonwealth Bank planned to replace commissions paid to mortgage brokers with a flat fee.  Instead of the bank paying brokers a commission.  Customers would pay a flat fee to brokers.

CBA’s CEO Matt Comyn told the RC that CBA believed the most attractive model was one where “customers would pay a broker”.

The move would have saved CBA $197 million over five years if everyone in the market moved with them.

They wanted regulator intervention to drive an industry wide move to this model.  CBA feared they’d be left hung out to dry by the other big three banks if they went alone.

“We came to a view that nobody will follow and we will suffer material degradation in volume,” Comyn said.

Not only would this model be a major disadvantage to consumers going forward. It reduce a new broker’s revenue on an average loan to about a third of what it currently is.

Basically, the only real winner would have been the big banks.

Not the customers. Not the mortgage brokers.

The banks.

Some interesting stats

A Deloitte Access Economics report may explain why CBA was looking to limit the growth in the mortgage broking market:

– Over the past three decades brokers have contributed to the fall in net interest margin for banks of over 3% points. This saves you $300,000 on a $500,000 30-year home loan (based on an interest rate fall from 7% to 4% pa).

– 27.9% of residential loans are arranged through lenders other than the big four banks and their affiliates. Providing competition and more choice for consumers.

– On average, mortgage brokers have 34 lenders on their panel and use 10. It’s this additional choice that adds competition in the market. The only winners from less competition are the big banks.

– 56% of residential loans were settled by mortgage brokers in the September quarter in 2017. This is up from 44% since 2012.

– 70% of a broker’s business comes directly or indirectly from existing customers, demonstrating high levels of customer satisfaction.

– 9 out of 10 customers are satisfied with the services provided by mortgage brokers.

It’s still a live issue

Basically, the reason CBA didn’t pull the trigger on the move was because it was worried that if it did, the other lenders wouldn’t join them. Instead, they’d swoop in and steal their business.

However, if the regulator enforced a flat fee model, then all the lenders would have to get onboard.

How can you help?

The best way is to contact your local MP to let them know you’re happy with the mortgage broking service we’re currently providing.

By letting your local Federal Member of Parliament know this you can help prevent the cost of our future services being transferred from the bank over to you – and you’ll also be showing your support for us.

If you’d like any more information on this issue don’t hesitate to get in touch. We’d love to speak to you more about it.

 

Choosing the right investment ownership model

Don’t get outfoxed: a quick guide to property valuation

14 Dec 2018 | First Home Buyers, Home Loans, Investor Loans, Refinancing

Information is power. Knowing the property valuation can help you secure a great price during negotiations.

Whether you’re a buyer or a seller, having an accurate property valuation conducted can give you the confidence you need to close the deal in your favour.

And it doesn’t matter if you’ve had one conducted recently. The housing market is constantly shifting.

A house worth $600,000 a year ago could be worth much more – or even less – today.

So it’s vital to always obtain reliable, up-to-date advice on the value of a home when buying or selling.

Who conducts a property valuation?

Property sellers can approach either real estate agents or private valuers for a valuation.

While private valuers are not used by banks when lending decisions are made, they are useful for a guide to the estimated market value.

In fact, “bank valuations” are altogether another thing. They’re conducted by a lender to determine their risks when you apply for a home loan. And they’ll usually be more conservative than the market valuation.

What exactly is meant by “market value”?

The market value of a property reflects the price that a willing buyer and willing seller negotiate before a transaction takes place.

It is not the current listing price of the property or the amount of money that was last offered for the property.

How property is valued

A property valuer takes a number of different things into account before coming up with a figure.

Typically, they look at the number and type of rooms, the size of the property, location, and areas for improvement.

They may also look into whether the building has a sound structure, the quality of the property’s interior design and fittings, ease of access, and planning restrictions.

Outside the property, they will look into any local council issues and compare recent sales figures in the area to understand how in-demand the property may be.

Factors that influence value

Many of the factors that decrease a property’s value are beyond the control of homeowners.

The popularity of a property’s location and surrounds will have a huge impact on its price. For example, a new whizz bang unit block may go up next door making yours look outdated, or a new high rise could block your ocean view.

Government legislation – such as changes to foreign ownership or Labor’s proposed changes to negative gearing and capital gains tax – can also impact the market.

There are, however, ways that sellers can increase the value of their home outside fluctuations in the market. We’ll take a look at a few below.

Kitchen and bathroom: These areas attract the most interest from potential home buyers. Consider allocating a chunk of your budget towards new sinks, countertops and cabinets.

Fresh paint job: Painting can make a property feel new. Neutral creams and whites suit most people’s preferences. Lighter shades also give the impression of spacious rooms.

Get trimming: If your property looks gloomy, try trimming overgrown bushes, mowing the yard, and growing flowers.

Improve energy efficiency: Buyers may dig deeper into their pockets for a home that helps them save on energy costs. Install appliances with positive energy conservation ratings. Also, replace old windows with ones that have a durable sealing.

And a quick warning to the buyers out there. Make sure you don’t allow yourself to get “wowed” by cosmetic upgrades. Remember that there are other important factors you’ll want to consider when you evaluate a property too.

Want to conduct a property valuation?

If you’d like help finding out exactly how much a property is worth, then give us a call.

We’d be more than happy to put you in touch with a reliable, independent valuer who will help give you an insight into the market value of the property you’re looking to buy or sell.

Choosing the right investment ownership model

Do you shop with Afterpay? Read this

7 Dec 2018 | Personal Finance

We all experience times in life when we just can’t wait to get our hands on that shiny new item. But as the old saying goes: good things come to those who wait.

Afterpay is the largest buy now, pay later scheme in Australia.

In fact, Afterpay had more than $1.45 billion pass through its platform in the first three-quarters of last financial year.

It boasts more than 1.8 million customers, who mostly use it for online apparel shopping, and 14,000 retailers under its wing.

The reason for Afterpay’s rapid rise is its interest-free, instant purchase business model.

To qualify, all a customer needs is a debit card, enough money for the first instalment and no proof of income. Customers then pay the final three instalments a fortnight apart.

The risks

Interest-free. Instant. Too good to be true?

Here’s the thing. As you can make many purchases with Afterpay without proof of income, before you know it you could adopt bad spending habits and may fall into debt.

Now, late payment penalties are capped at $17. But if you’ve made multiple purchases and you’re defaulting on all of them, the debt and fees rack up.

Here’s the real kicker

Afterpay, and its competitors such as ZipPay, are still credit liabilities and need to be disclosed when applying for a home loan.

And the banks are getting very stringent on who they lend money to these days due to the regulator crackdown.

In the current tightening lending market this could hamper your efforts to obtain a home loan if you’ve racked up quite the Afterpay bill. Especially if it’s obvious that you’re struggling to pay it off.

Additionally, the Terms of Service on the Afterpay website state:

“Afterpay reserves the right to report any negative activity on your Afterpay Account (including late payments, missed payments, defaults or chargebacks) to credit reporting agencies.”

This means that your credit score may be affected if you fail to meet repayments.

And last year alone Afterpay netted $11 million in late payment penalties.

Another way to buy

Financial independence is not about racking up debt for shopping.

It is about saving money for a rainy day, rewarding yourself with purchases when you hit savings targets, and protecting your borrowing capacity for appreciating assets – not depreciating items.

Additionally, you never know when you will need money to pay for an emergency or capitalise on an opportunity.

You or a family member may become sick, or you might want to expand your property portfolio.

For all these things it helps to have extra cash on hand.

So if you can’t afford it, don’t buy it. Sure it’s hard, but short term pain is long term gain.

Need a spotter?

Enforcing good spending habits isn’t something you can just start doing overnight.

Often it takes a guiding hand to help you work out a plan, not to mention someone who can hold you accountable – just like a personal trainer.

If you’d like to know more about how you can start implementing good spending habits that will set you on a path to financial independence, get in touch. We’d love to help out.