Should I buy my next investment property under Chan&Naylor’s Property Investor Trust, or just under my name?
If you speak to Chan&Naylor, you will get reply like “PI Trust offers Asset Protections while still allowing you to claim negatively geard property against your income…”, etc.
The thing is, I found it’s MUCH harder to get finance when the property is bought under trustee of a trust.
Instead of having pool of choices of mortgage products, you’ll be left with around 4 choices of lenders only, and mostly are non-banks such as Homeloans ltd, LaTrobe Financials which charges up to 1% higher than the standard Low-Doc rate! As soon as I mention the word “Trust”, those big banks turned their face away!Also, to setup the trust will costs around $3000, plus annual ASIC fee (if using Pty Ltd company as trustee) around $220 per year, and higher tax return costs due to increased complexity. Not to mention higher mortgate rate, lesser choices, potential higher application fee (because of non-bank lenders), or even needing to pay LMI.
On the other hand, speaking to other financial adviser, he put his investment properties under his name. What about asset protections?? “No problem” he says, “I have insurance on every aspects you can think of so I am well protected in case anyone ever sues me. Landlord insurance, business insurance, professional indemnity, life, income protections etc.”
I have mixed response but can anyone share their experience and insights?
Is the advantage of C&N PI Trust is that good to offset extra costs, and why is so hard to get finance under trust?Hi there, $3000 to set up a trust is very expensive; I paid around $1,000 for each of mine (3 so far).
There are a lot of “good” banks out there that will lend you money using a trust structure; you just need to work with a good broker. I get loans for my clients and myself with the “better” banks ALL the time. It’s not hard at all.
In regards to asset protection, tax benefits, etc, it depends on your personal situation, go see a good accountant as it would depend on what do you want to achieve.
Happy Investing
State land tax is probably higher as well under a trust.
Similar experience to you, a lot more hassles with trusts. Some bank officers have no real understanding of trusts, in the end they will want all sorts of personal guarantees. ANZ and NAB did accept it in the end.
My other half and I are divided on the issue. I still maintain that asset protection under something other than personal name is worthwhile in the long run, however it is likely the costs are higher and the tax benefits are lower(the really smart tax cookies will debate this). And more hassles with the banks. From personal experience, perhaps my outlook is to consider it for higher value properties (say>$500K) with the view there is more to protect over time, and perhaps leave smaller properties under personal names, with minimum equity, and cover with all types of insurance as how the financial adviser tackled it.
Hi Jon,
May I know what type of trust you use for your property?
I have also spoken to 2 different brokers but they won't be able to get me major bank loan mainly because:
1. The property will be in Trust structure
2. It's 80% LVR
3. It's Low Doc / No DocIf anyone can suggest which bank, I would really like to know so I can consider when I am purchasing my next IP (or should I contact you Jon?
)Thanks.
Dave.
Dave
You are speaking to the wrong mortgage broker or Bank.
Most of my investor clients operate within a Trust structure and they have never paid a higher rate of interest or application / ongoing fees.
There charges are certainly at the high end of the scale and i have introduced many of my clients to very experienced Property Accountants who charge considerably less to establish a similar Trust structure.
Richard Taylor | Australia's leading private lender
Hi Dave, sure mate, ANZ, St George just to name a couple. Lo-Docs, 80% LVR, trust structures, no worries.
Happy to help, please feel free to contact me if you have any further questions, etc..
Regards
Jon
Unfortunately Anz lodoc not available with a Corporate Trustee over 60% and SGB not available on a Pro Pack in a Company or Trust name other than that all is well.
Richard Taylor | Australia's leading private lender
Richard, I personally have ANZ lo-docs at 80% LVR with a corporate trustee… I also have lo docs with St George – 80% LVR…
BTW, no one mentioned Pro Pack, or any pack for that matter.
Happy Investing
Hi Jon, Richard, Scarecrow7,
You know what, I spoke to ANZ mortgage specialist on Nov last year requesting to get a quote.
After speaking with their supervisor, he ended up saying "sorry we can't do it if it's under trust structure for 80% LVR" ??!!
He might be still be able to help me though if I'm willing to put a certain amount of funds on ANZ Term Deposit in conjuction of the loan, but I said no, because I am trying to put down my own money as little as possible!!Just for a comparison, may I know how much is your interest rate with ANZ Jon?
(I am expecting around 8.6% with these non-bank lenders)Scarecrow7, I somewhat agree with you
But considering the long term view as the property price will increase over time, I would also like to structure it right from the first time to avoid costly mistakes in the long run.Dave.
Hi Guys, my bad, sorry, Richard is correct, 60% LVR on Lo-Docs under a trust structure for ANZ. I got mixed up as the last two I have "written" using ANZ were full docs.
However St George does 80% LVR under trust structure for lo-docs. Dave, around 8.6% at the moment , not the cheapest one for sure.
Happy Investing
Jon
Got your message and no problems mate easy mistake to make.
As a large introducer to both Anz and SGB i thought i knew my product and the fact that the Qld State Manager is my best mate helps.
Just to clarify i didnt say SGB would not do a lodoc under Trust what i said it wasnt included in their Pro Package.
Big difference.
Lodoc lending in a Pro pack in Trust you would get circa an 8% interest rate.
Richard Taylor | Australia's leading private lender
Hi,
We have a trust structure and have borrowed 80% LVR from NAB for two 'buy and holds'. We also borrowed 80% of final value using the trust for a two unit development in Adelaide. We lent money at the current rate without any penalties. We did have to give a personal guarantee for each of the loans.
The only negative with the NAB was that they put a condition on the trust that we couldn't borrow money from any other source (how did that one get through?) which caused us a problem when we went to RAMS to borrow 80% LVR for another piece of land in Adelaide. RAMS had no problem lending our trust 80% of final value for the construction of four units on this land.
regards John Wright
No Trust lending is no problems.
In saying that John I imagine you were using a Discretionary Family Trust if you were buying and selling.
The original question relates to a Hybrid Discretionary Trust where certainly you would have problems with a lot of lenders.
Richard Taylor | Australia's leading private lender
I see…
So is Chan&Naylor's "Property Investment Trust" is viewed as "Hybrid Trust" by major banks?Hope someone from Chan&Naylor's can answer this…?
Is this the bottom line why it's harder to get finance, while you guys can get finance on Hybrid Discretionary Trust?Dave.
Dave
It is viewed as an HDT because that what it is.
They have just had their Solicitors re-writte the Trust document with changes specific to property investor.
There is nothing new there.We have never had problems in placing a loan in any form of Trust at a competitive interest rate.
Richard Taylor | Australia's leading private lender
Richard, that's for the insight.
So what would be the best trust for Negatively geared property?Dave.
For give my ignorance but what is a Hybrid trust and how does it differ from a Discretionary Trust?
John
John,
As far as I can understand it so far, Discretionary (or often called Family Trust) offers assets protection, and allows you distribute income to members (beneficiaries) esp to the lowest tax brackets. In regards to property, it doesn't allow individual to benefit from negative gearing as the losses are trapped inside the trust.This is where the hybrid trust kicks in, as it has the income unit where one may claim tax losses on negatively geared property, so the losses is not trapped in the trust -> Tax Benefit -> More money in your pocket on tax time.
John
Dave defination will get you by.
You would not buy a business, development or cash flow positive property in a HDT.
Richard Taylor | Australia's leading private lender
There are problems with getting loans in hybrid trusts if the trustee is different to the unit holder. If they are the same, then you may get it through with lenders that don't even like hybrids. The trustee is the name on the title with the unit holder ususally being the highest income earner. So if you have a company as the trustee, then the legal owner is the company with the loan being in the name of a third party – the individual. That is what causes the problems.
Property is fairly safe, with the chances of the owner of the property getting sued (as the owner) slim, so having a corporate trustee may be a bit of an overkill.
Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
http://www.Structuring.com.au
Email MeLawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au
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