A young client of ours finally got it, asking “so if I buy a property using a 10% deposit (and borrowed the rest), the minute the property has appreciated by 10%, I’ve doubled my money?” Yes! 100%! …
Well, that’s a bit simplistic; there’s stamp duty, holding costs, Land Tax, and CGT but ‘leverage’ nevertheless separates property as arguably the best asset class in which to invest – because the bank basically funds it for you.
The less cash you need to put down to buy a place, the greater will be your profitability (as opposed to profit).
Health Practitioners get a leg up in this regard. Because you’re perceived to be a low credit risk, banks are happy to extend loans with a loan-to-value ratio over and above the rest of us, who are generally required to have 20% equity.
Doctors can borrow up to 95% LVR, without LMI.
Gearing to 90% is available to physiotherapists, chiropractors, audiologists, psychologists, osteopaths, podiatrists, radiographers, sonographers, speech pathologists, pharmacists, and podiatrists.
Given 82% of nurses and midwives are female, Westpac has just changed the gender mix of their Medico Policy by including them. Great stuff ~
Although nurses must be earning $90K pa to qualify, this policy will help many of them get ahead faster, so please let them know!
The ability to extend limits up to 90% LVR isn’t only useful for those who want to maximise their exposure in property.
Dr. Kylie called us recently. She had a home loan of $800,000 at BoQ, and had $600,000 available in redraw (meaning her ‘Limit’ was $1.4M). She said she needs the redraw available because she’s looking to purchase a second clinic soon for around $500,000 so wants to be cashed up & ready to pounce.
Kylie also had a small $300,000 loan on her existing clinic, which is held in a Unit Trust. Her 2 loans looked like this:
For asset protection, she should probably add her husband to the title of their home; that at least gets half of it better protected, right? Also, increasing the Limit of her loan to 90% of the $2M value of her home ticks this box, as well as making all their usable equity unlocked & available.
We explained the tax consequences of ‘redrawing’ from the non-deductible home loan for her forthcoming deductible purpose and why it’s best to split it up now, which gives a brand new account number for Loan B (v important) but also will give her the ability to, over the years ahead, reduce Loan A, the home loan, faster.
Given her surgery is held in a Unit Trust, we’re looking to secure that $300,000 loan by her home instead, freeing the surgery held in her relatively protected Unit Trust from any encumbrance. It will look like this:
Sure, Kylie will get new-to-bank interest rates and a cash rebate, but our focus is all about structuring a tax-effective, flexible structure that puts her family in a safer place.
Not that she doesn’t enjoy the $4,000 rebate and the interest rate of 4.99%, but that stuff’s just the icing on the cake, on top of a clever structure.
It’s interesting that over the last 3 months, the banks are happy to make less money (smaller margins) on new home loans for new clients. The rate of 4.99% would have been 1.74% before the rate rises (4.99% – 3.25%), which certainly wasn’t available back then! I must note, after yesterday’s rate hike, this rate will soon pop up by 25 basis points.
Now is a great time for borrowers with variable rates to refinance and get a bit of advice at the same time. But if you’re not in a position to refinance, please give the bank a buzz and let them know what we just offered you. They’ll unlikely match it, but hopefully, they’ll do something.
Thanks for reading guys ~ soon we’ll discuss the joys of Superannuation & Self-Managed Superfunds, notwithstanding the moving goal posts! We’ll also come back to Dr Kylie’s situation, and explain how the rent earned by her Unit Trust (which probably should have originally been purchased in a SMSF) can still get taxed at only 15%!