Multiple investment property loans...

Question from Jen updated on 4th October 2006:

Hi, does buying our first property and use it as owner-occupied or strictly as rental(investment) property to the market, affects the eligibility/flexibility to get the next home loan, for next property investment in future? If it's a rental property, what is the best way to protect the asset (e.g in a Trust) as well as distributing any tax benefit/losses to the owners (as in LAQC)? Thank you!

Our expert responded:

What a question! The answer really depends on what the price of the home is that you are buying and the mortgage you take out for that. There are two primary things that banks look at when lending money – serviceability, which is how much you earn, and the loan to value (LVR) ratio. As long as you meet the bank’s criteria, then you can keep borrowing money until the bank’s not happy any more. I would suggest that you sit down with a good mortgage broker to work out what your borrowing ability is before you commit to anything. In regards to how you own the property, it depends on your personal situation is and what your goals are. We would normally want to have a meeting with a client before advising specifically on this. Different things are important to different people and this affects the decisions you will make in choosing how to structure your investments. We would normally recommend a family trust to own a family home, depending on your ages. For the rental property, it really depends on your long term goals. LAQCs do not normally make a good long term structure vehicle, but will give good tax benefits in the short term, say five years. It is also worthwhile remembering that IRD is reviewing LAQCs as a structure. Trusts make an excellent vehicle for long term property investments, but in isolation, give no short term tax benefits. When working out the structures, you must consider your long term plans plus other issues such as your relationship, children and the cash position of the properties. These issues and others must be considered and this can only be done through consultation with an appropriately experienced person. It can be quite expensive in more ways than one if you don’t get it right.

Kenina Court is a director of Acorn Solutions Limited, an accounting firm dedicated to working with clients to help them create wealth. She is an avid property investor, entrepreneur and seminar presenter on asset protection and wealth strategies.



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