Crystal finance Pty Ltd (Crystal) specialises in obtaining investment finance to enable ordinary people to create wealth through the purchase of investment properties. We use traditional Banks and Lending Institutions and adapt their existing products to meet our customers needs.
We at Crystal are dedicated to not only finding the best loan product to suit their purposes but are also looking to structure a complete financial solution, which will enable them to continue to purchase properties in the future.
Take the case of Tom and Joan Dalgety. Tom is a plant operator on $41,000pa whilst Joan earns $32,000 as a training coordinator. Both are in their mid 40’s, with all their children grown and left home and over the years they have reduced their home loan to $24,000.
When they bought their house 23 years ago it was a struggle. But whilst they were steadily reducing their loan, the value of their house was increasing and they now find themselves in the position of having more disposable income than ever before with very few commitments. But they still can’t seem to save anything. They wanted to buy an investment property, now if possible, with an economical and easy to manage loan arrangement.
The current loan of $24,000 had been set up as a Line Of Credit, which receives both their salaries and, until recently, the last of their family payments. They use their credit card to pay all their personal expenses and established a sweep facility to automatically clear the credit card every month and ensure the card doesn’t cost them anything.
This has become a traditional arrangement and had the advantage of rapidly reducing their housing loan.
However, in embarking on an investment property strategy they needed to re-define their goals.
The original aim was to repay the home loan as fast as possible to achieve an unencumbered house and live on the pension. Tom and Joan now wanted to purchase an investment property for $150,000. To achieve this they still need to repay the home loan as quickly as possible, but also wish to maximise their tax deductions, which means retaining the investment loan whilst providing for future property purchases.
From a lending point of view, this represents a number of conflicting requirements that requires a variety of loan products.
In the end we settled for a discount variable rate home loan with principal and interest repayments, combined with an offset account; an investment loan, also at a discount variable rate but this time on interest only for five years; together with a line of credit.
We then structured the cash flow in a way that was not too different from what they had been used to, but used every dollar of income to accelerate the repayment of the home loan.
This arrangement had the further advantage of clearly distinguishing between personal and investment loans, making it easier for Tom and Joan’s accountant to claim expenses and kept the taxman happy.
How did this work?
Firstly their existing Line of Credit was converted to a Principle and Interest housing loan of $24,000 taking advantage of the Bank’s introductory discount rate. All income, including rental payments was then directed to the offset account. Personal expenses continued to be met from the credit card and cleared monthly from the offset account.
This now meant that not only was the housing loan reducing, but the reductions were even greater with the combination of a cheap introductory rate and the offset benefits from both Tom and Joan’s salaries together with the rentals before funds were required to clear the credit card each month.
We then established an investment loan of $160,000 to purchase their investment property for $150,000 plus meet purchase costs. This had the advantage of not requiring Tom and Joan to contribute any cash funds but use the equity they had established in their own home. It also meant that a larger portion of interest could be claimed and returned to them as less taxation being deducted. Obviously, we didn’t want this loan to be repaid so established an interest only loan and again took advantage of the Banks introductory rates.
With this in place we realised that Tom and Joan still had further equity in their home so we set up a Line of Credit of $80,000. Now they could look around for their second investment property secure in the knowledge they could pay a deposit immediately. They could then put forward a loan application based on the full purchase price and using the equity in the investment property.
Although Line of Credit interest rates are generally higher than home loan rates, this was no longer important as the interest remains tax deductible and in any event the debt would soon be converted to an investment loan at a discounted interest rate.
This structure gave Tom and Joan the peace of mind of not significantly changing their personal cash flow arrangements whilst maximising their ability to repay the housing loan, purchase an investment property with no cash outlay and provide for future investment property purchases.
In addition, with this level of borrowings and income, many Banks are prepared to offer discount packages. In Tom and Joan’s case we were able to obtain all this with no Bank application fees, monthly loan administration fees waived, credit card annual renewal fee waived, monthly account keeping fee waived with higher than normal transaction thresholds plus a discounted interest rate on all loans, including the Line of Credit, for only $300 per year.
As a combined package to create wealth and secure their future it was irresistible.
Crystal finance Pty Ltd
Unit 19 64-66 Bannister Road
Canning Vale WA 6155 |
