Next step up
Question from Stefan updated on 4th June 2014:
We have a own family home with a mortgage of less than $50,000, we aim to be mortgage free very soon. We also have a negatively-geared rental property owned by our trust with 100% finance of $395,000 (sucking up the loss in the hope it will make a profit long term). We are wanting to buy a bigger family home and since our current home is worth approx $460,000, we would like to know if (and how) we can rent out our current family home (via sale to family trust) and drawdown two loans. One would use the equity in the existing family home (which would become our new rental) and one would be against the new family home). Could you please advise if this is a good idea and if so, how to go about doing this. Stefan.
Our expert Kris Pedersen responded:
Hi Stefan, definitely take advice from an accountant. Depending on your circumstances and the financial numbers relating to the property's cashflow you may be better to use a look through company rather than a trust. This will depend on whether you can flow losses back against income from the trust, you need to get expert advice in regards to this. I would then however be recommending that ideally you want to gear the two rentals (the existing and the current family home) up to 80% and then put as much equity into the family home as possible. I'd be recommending a different bank to the one that holds the rental properties. Note that from my experience you can normally get the same tax benefits as cross securing by structuring it correctly but you can achieve a better asset protection position. Regards, Kris Pedersen
Kris Pedersen of Kris Pedersen Mortgages is a commentator on property and finance. His team sources top finance strategies. www.krispedersen.co.nz