Total Wealth Management > Mortgage Finance
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Financing your asset purchases

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For most businesses, the decision for financing your asset purchases is very clear cut as it boils down to a choice between a lease or a chattel mortgage. There are, however many businesses who may find a short term rental contract the best option available. For businesses that may not qualify for traditional bank lending or have specific needs, short term rental finance can offer many benefits, please consider the following list:-

asset purchases

  • Start up equipment finance when banks don’t want to know you
  • No capital outlay, keep your cash for more important things
  • 100% tax deductible monthly payments
  • Fast approval – 24 – 48 hrs / easy application
  • No financials under $50,000*
  • Maxed out capital expenditure budget
  • Choices available at the end of the 1 year term

Once the rental term is over, the business has 4 choices:-

  1. Hand the equipment back as it has served its purpose
  2. Continue to rent
  3. Buy the equipment outright and get a 75% rebate on all the rental repayments made
  4. Switch to a ‘rent-to-own’ plan for another 3 years where the equipment is owned at the end of the term

CostVSFlexThe flexibility of these options along with the net cost to the business is something that should not be over looked. Lease and chattel mortgages can tie businesses down for long term periods and reduce flexibility. On the other hand, equipment hire is very expensive and may leave you open to availability and weather issues. Consider the adjoining chart.

The rental option is a pathway to ownership while at the same time presenting you with a very economic alternative to bank finance, particularly if your business fits into one of the categories highlighted above.

For example, a $30,000 service van for your business would rent for $355 per week, after 12 months the buy back price on this asset would be $20,036. Lets consider each of the end of term options mentioned above:-

  1. Hand the equipment back as it has served its purpose – The total rent paid would be $18,495 and the tax deduction claimed on these rental payments for a company would be approximately $5,550 (30% tax rate). The net payments would total $12,946, therefore by adding the end of year 1 purchase price to the net payments the rental cost of ownership would be $2,157 or $41.50 per week against having purchased the van outright. The revenue and profit generated by the asset should be well above this cost.
  2. Continue to rent – If your contract ran for a few more months, you could still exercise the above option at the completion and each rental payment would continue to add to your rebate total if you decided to purchase the asset.
  3. Buy the equipment outright and get a 75% rebate (net of tax) on all the rental repayments made – Net of tax requires the deduction of 10% input tax credits claimed from the 12 month rental figure before multiplying the total by 75%. This is then subtracted from the purchase price and tax is added back on for sale back to your business at a price of $20,036.
  4. Switch to a ‘rent-to-own’ plan for another 3 years where the equipment is owned at the end of the term – rental payments are reduced by approximately 30 % during this period.

*Each application is assessed on its own merits

For more information on financing your asset purchases, please contact Chris at TWM Finance on 07 3281 1226.

Renting VS Buying

Renting VS Buying, it’s quite simple really!

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To help answer the renting VS buying question, I will never forget the feeling of handing over 7 x $50 notes each week to our real estate agent/landlord back in 1987 when I rented in Gosford. For my partner and I, this was enough to motivate us to get a deposit together to purchase our first home. If you feel the same way then read on!

These days you don’t get the same feeling of ‘giving your money away’ as we did back then as we didn’t have ‘the internet’, now digital banking creates a false impression so that the amount you are paying does not feel like it is that much. Take my word for it, pay your rent with cash and see how much it hurts.

rent vs buy image

albaconsol.com

Renting VS buying largely comes down to convenience and cost. In order to live close to the city or even the suburbs, you have a much greater demand due to the close proximity of everything; therefore the property prices are going to be much higher. The only option that may be left open to you is to move further out. You might think that this is not an option, so I guess you first need to weigh up the costs associated such as fuel/public transport and time. That block 20 kilometers out of town is likely to be half the price of the one in town; that $100K – $200K is a lot of fuel and time, especially considering that your first place is a stepping stone to your ultimate ‘dream home’.

Other then the monthly mortgage, which is often a similar amount to what you are currently paying in rent, there are also many costs associated with acquiring your first place including; Stamp duty, inspection reports, rates and maintenance. If you are considering making the switch, it is essential that you have a plan to ensure you have considered all of the costs involved.

If you stop and truly consider the pros and cons of moving further out, you might be surprised at the benefits of ownership living out of the city and leaving behind the renting VS buying dilemma. I once had a 2 hour commute each way to work! Not much fun at the time but we did see some nice growth in the property we purchased at the time.

These points, of course are the down side of getting your own place, on the other hand the upside is quite appealing. Consider the following points:-

  • A place to call your ‘own’, your own block of dirt & the pride that goes with it
  • An investment that will hopefully grow in value over time
  • A more permanent residence with out leases and continual moving
  • No increases in weekly rent (currently interest rates are low or falling)

Lets face it, the longer you put it off the dearer it will get. History has shown that property values are likely to climb steadily higher, so if you look ahead 5 years, would you rather be renting still or settled into your own place? For me, renting VS buying is an easy decision!

If you would like to compare the options available to you give me a call at TWM Finance for help.

By Chris Howard, Mortgage broker at TWM Finance

mozo.com.au

GEN-Y – Redefining the Australian Dream

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GEN-Y are redefining the Australian Dream because the Australian dream was simple when our parents were young.

Austdream

deakin.edu.au

They’d get jobs in a handful of sectors, buy a humble brick home in the suburbs for less than $100,000 and have a couple of kids. Four television channels and board games provided entertainment. On weekends friends were invited around for barbeques. To communicate with people outside the home people used telephones that were connected to the wall. Our parents certainly couldn’t have predicted that their millennial children – born between the early 1980s and mid 1990s – would grow up to be digital natives whose own aspirations would be entirely different. After spending super chilled summers running around under the sprinkler in the backyard, we must come to terms with the fact that a bit of lawn and enough room for a Hills Hoist may no longer be a given when we have families of our own.

According to Prof. Sgro, we’re better educated than our parents, so although we may appear frivolous at times, he’s sure we’ll wind up with more than Instagram snaps of our travels when we get old. ‘Culturally and socially we’ve been sold on the idea of having a house and security,’ Prof. Sgro says, but adds that the next generation of investors will think beyond the picket fence and put their income into profitable activities, commercial properties or shares. He suggests that bright digital natives are more entrepreneurial. We’ll use our skills for start-ups and invest in business ventures. ‘Gen Y is mobile. They have better things to do with their money than have it sitting in a house,’ he says.

Economist Brian Haratsis suggests that millennials shouldn’t rule out owning a home entirely, in the process of GEN-Y – Redefining the Australian Dream they may find it may take longer to get into the market than it has in the past. ‘The big issue now is your deposit,’ he points out. ‘If you look at what the future repayments are, it’s not that bad compared with the past. It’s thinking creatively about how you get your deposit so that you can enter the market.’ He says if you need $60,000 for a deposit and can’t save it then you should get into the share market. Safer bets like BHP, Coles and Woolworths will enable people to accumulate wealth over time. ‘As you move through your financial life those shares may form part or all of a deposit for an investment,’ he explains.

It seems that uncertainty is the only certainty for GEN-Y’s redefining the Australian Dream, but if any generation is equipped to handle it, it’s this one.