Hi Everyone,
This is my first post here on the site. I have just recently signed up after finishing 0-130 prop book.
Probably like many people after reading Steve’s book and after I read ‘Rich dad poor dad’ I am now hopefully a bit wiser and want my money to work for me.
So I would really appreciate some advice about the way I am planning my borrowing structure.
Currently about to start up a Unit Trust with my brother inlaw and I as Trustees, Borrow from bank with our personal income servicing the loan for the first property and then after say 3 properties and maybe some equity/cash in the trust we are to roll over assets into a company and restructure the trust into corporate trustee.All of this is so that personal assets are protected.
A few questions I have are:
Once the trustee is changed to a corporate trustee how does the company provide proof of the loan serviceability?
tly new
I currently have PPR loan and loan for neg. geared investment property which will inhibit my borrowing power. How could I restructure to ensure maximum borrowing power to continue borrowing for properties?Any help would be great. I am definitely new to all this but excited about prospects.
A little background…I am married (wife is at home with toddlers), I am director of a small construction company, Family home with mortgage in wife/my name and neg. geared invest property in my name.Thanks
Have you sought legal advice on that? Sounds like you are talking ownership structure as well as borrowing structure.
You and your brother as trustees is not a good idea probably – who will be the unit holders?
What protection will this provide and from what?
What are the consequences of owning more than one property in a unit trust? Also run this one by your accountant.
How will the trust be funded?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 TerryW,
Thanks for replying.
That’s right, ownership and borrowing structure.We have not sought legal advice yet.
My brother in law is an accountant.
Both him and I will be 50/50 in units.I think the first stage of being individual trustees will have no protection but enable personal income to be used to service borrowing. I guess the protection we want is that if a tenant sues or a bad purchase results in the bank withdrawing the property and costs.
If more than one property is in the trust it may max out our potential to borrow. I guess I’m trying to mimic Steves multiple trusts for multiple properties.
The trust will be funded first with cash and then the plan would be to restructure once equity/income grows.
Once assets role over into the 2nd stage of a corporate trustee (company) then protection would be there.I just don’t see how we can be protected without current assets being the security.
The definition of a trust is A holding assets for B. Where A and B are the same there will be no trust relationship.
If a tenant sues they will sue the owner of the property – which will be the trustee and if that is you all of your personal assets are at risk. Having a company as trustee can limit liability to the company and trust assets in this regard. but watch out for the liability of unit holders.
If the bank takes possession of the property and sells at a loss your personal guarantee will be called on and your personal assets at risk.
How will you fund the trust with cash? Loan, subsribe for units in the trust or just use the cash. Consider the consequences of each.
What are the stamp duty implications of putting a corporate trustee in.
Also have you factored in land tax?
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
Solid queries by Terry.
I completely understand where the OP is coming from. When I first started investing, I also wanted to protect myself by establishing trusts. Luckily I spoke with with a few pros and eventually decided not to start my property investing journey via trusts mainly due to land tax costs, complicating serviceability, negative gearing issues and overall costs.
My personal opinion today is that trusts may be used later in the journey. This could be true also for the OP.
Ethan Timor | Aligned Finance Pty Ltd
http://www.alignedfinance.com.au/
Email Me | Phone MeActive Investor & Broker; Based in Northern NSW, servicing Australia wide; Author of '34 Proven Ways to Maximise Your Borrowing Power' (download free from our website)
Thanks for the input Ethan and Terry.
I see there would be costs with going corporate trustee at the beginning instead of individual. Surely the costs would be cheaper early stages then down the track once multiple investments would need to be rolled over. Costs of potential bank loan breaks, new contracts and stamp duty on multiple props.
I did a bit of research into land tax.
Trusts start paying above 25k where as individual not until over 250k. And then it seems to be trust land tax edging more and more as the value grows.As for funding the trust, I’m not sure whether we can make the corporate trustee look like it can service loans. Any suggestions as to what this borrowing structure could look like?
What structure would you guys suggest for maximum asset protection?
If you want asset protection from creditors then there is only one solution – a trust. That is a discretionary trust or a SMSF.
But the strength of the asset protection will depend on the terms of the trust and the structure of the trust.You could also buy assets in the name of someone else – but this is really a trust like relationship which can be challenged.
E.g. a husband buys assets in the name of the non working spouse – he pays the deposit, pays the loan and does all the work. If he goes bankrupt it could be argued that the wife is trustee for the husband and it is really his property.The husband will also have additional asset protection issues – family law if the wife leaves him, succession law if she dies, incapacity – what if her mother as attorney takes control and what if the wife goes bankrupt. Also he has lost control – she can sell, mortgage, lease or leave the property in her will.
With trusts, the trustee borrows. Where the trustee is a company the company will borrow with its directors and 9sometimes) shareholders giving personal guarantees. So any serviceability will be based on the assets of the trust and their income as well as the income of the guarantors.
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
I should also point out land tax varies from state to state – sounds like Stoksey is talking about VIC. Land tax is worse for trusts in NSW, but better for trusts in QLD.
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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