Hi all,
Steve mentions, in 0 to 130, he uses multiple trusts to secure properties by way of leveraging his guarantor status to the loans for those propoerties.
He also mentions, "……..the way to get around reaching your borrowing limit is once the ABC bank has said 'no more', create a new trust structure and approach a different bank"
This is qualified however, with "……….as long as the loan with ABC bank is not in default, the debt to the ABC bank is owed by the trustee company on behalf of the trust; you have no personal liability and do not need to record the guarantee on your personal financial statement"
The key phrase being "……….as long as the loan with ABC bank is not in default"
With any venture, it is all about understanding and managing your risks.
In the event a default occurs, are we looking at a potential house of cards?
Is this strategy only for those who already have a fat pay packet?
Mario
Mario
I think Steve has now qualified this statement further as all lenders ask you to disclose any loans which you Guarantee and as a Trustee you need to provide a guarantee.
These days buying in Trust will not increase your borrowing capacity.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Basically, irrespective of the structure or creative investment techniques, everything is driven by your personal debt servicability loading (30% rule of thumb).
I don't know about you but I am not an overpaid executive with an realistaic salary package.
Is the only way around this to have a money partner?
I guess a 50% share of 100 houses is better than 100% of 2,3 or 4.
Mario
Mario
The NCCP (new credit legislation) which came into effect July 1 2010 places total emphasis on the ability to repay the loan and not recommend a loan that is unsuitable.
I am fortunate enough to have rental income on all of my properties that serviceability is not a problem but i can understand your frustration.
In saying this hiding behind a Trust structure doesnt mean that you pay the loan back and this is what lenders want to see in a worst case scenario.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
I believe in the mantra 'Cashflow is King'. My intentions therefore are to create a cashflow bias portfolio.
The challenge of course, more than ever, is having enough cashflow in the first instance to create the other stream. The deposit is the easy part.
It is looking like the only real way to buy multiple properties, each bringing in a trickle, is to set up a syndicate of investors.
At least for those of us who do not have large amounts of disposable income lying around.
Am I seeing this correctly?
Mario
Thinking out aloud
Mario i am not saying it is easy and things have changed considerably since i set up my portfolio.
If you have the API magasine read the article i did in the August edition.
Email me if you dont buy API and I can send it to you.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Hi Richard,
Nothing good in life is ever easy!
My questions are coming from my thinking through possible master plans and how I intend to use property to reach the goals for my family trust.
I need to understand how a sustainable and growing portfolio is created.
I do not at present subscribe to API. Sounds like I should. I'll email you for a copy of your article. Thanks for that.
Mario
Mario
I believe that cashflow is king too, and yes, I am starting with what will be trickles in comparison to the end goal.
Syndication is not something to downplay either. There is great power in a group.
I am doing exactly the same. Looking for partners. I am determined to get my trickle and turn it into a flood!
MarthaMartha,
Do you know how syndicates are different from partnerships / companies?
Is it a tax thing or Liability thing
Is it simply a Memorandum of Understanding thing? JV etc?
Or, is the word 'syndicate' interchangable with company etc?
Mario
There is a lot of differences there.
A partnership is the most dangerous structure – it is not a separate legal entity with each partner involved being liable for the whole debt of the partnership. When you sue a partnership you sue all individual partners
A company is a separate legal entity which can sue and be sued in its own right. Shareholders are not liable for company debts.
A JV may or may not be a partnership. JVs are two or more people/companies coming together for a one off project. They may use a company to trade under.
A syndicate is a lose term referring to a group of people getting together to do a project and it could be any structure from above.
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
Hi Terry,
The reason I am exploring some form of partnership or JV etc. is to deal my servicability challenge.
I am asset rich (enough equity for about 3 deposits, maybe more. All in my PPOR) and cashflow poor (enough to satisfy the banks of servicability but not enough to warrant substantial negative gearing).
The advent of using multiple trusts to deal with servicability is not an option anymore which leaves leveraging a groups cashflow.
Which scenario would you go for?
JV? Syndicate? or Company?
I have a family trust already set up which I hope to accumulate a number of IPs for the benefit of my children. I am thinking I will need to create a separate company to enter into deals and then transfer to the trust at the end of the deal or do I simply use the trust straight up? Should there be another layer of entities?
Mario
Thanks for hearing me out.
Multiple trusts have other benefits – land tax minimisation (makes a big difference as your portfolio grows) and asset protection (your assets are in separate silos) , but you will have to personally guarantee the loans made tot he trusts and the banks will know about the loans to the other trusts as has already been mentioned
Mario
If that is the case then you could use a new trust if you can find a servicing person willing to take part. Just make them a beneficiary and/or director or shareholder of the trustee company and they should be able to guarantee the loan with their other income being rtaken into account. Just make sure it is a new trust and don't change existing ones.
Later on if you no longer need them they can just move out of directorships and you step in and take control. Make sure you control the appointor if you can.
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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