1. Deductibility doesn’t depend on the security for the loan – this is largely irrelevant. It is the use of the funds that determines deductibility. If the trust borrows to invest the interest would be claimed by the trust.

2. no.

Jaxon, It would be extremely unlikely that such a matter would worry a bank let alone get to court.

If the lender asks you would need to disclose personal guarantees given so the lender would then assess you on the full debt of the 3 trusts. If they don’t ask about personal guarantees then you would be assessed on your personal debt and the debt for the borrower in quesiton.

There is no real difference with structuring loans between negative and positive cash flow property. You should still borrow 104% and avoid cross collateralising securities.

For the trusts this is a complex form of legal ownership which you should seek legal advice on.

I am made a thread here on how trusts can improve borrowing capacity. See if you can find it from a few months ago.

arpeggio wrote:

Dear Corey & TerryW,

What legal standing do i have in the event my brother decides to rent the property under only his name?
Can such a contract be legally binding?
Thank you again & with best regards.

Such a contract could be legally binding.
And you would be entitled to recover your share of the profits from your brother – he would be holding them on constructive trust for you.

But complex and expensive to enforce, possibly.

You could also enter a co-owners agreement which is a contract on how you will pay for expenses and other things such as who does what and how they are compensated for.

You could then sue him on 2 different grounds if things go wrong – breach of contract and under equity.

But if you are this worried you might want to get out of the deal now rather than later.

Seek specific legal advice.

Not much you can do really other than run thru a property manager. Just contract with the agent that he pays each to each of you via a separate bank account and also that all important decisions are only made with unanimous consent.

There is nothing really advanced out there but you could start getting technical by reading tax articles and rulings etc and law articles in relation to the legal and tax aspects of property investing.

AaronC wrote:

Jaxon wrote:

Hey David,
Found property west brisbane (logan) sale price $120,000 for a 3b that needs major work,
get loan for $150,000 at 80 lvr, use your remaining cash for the $50,000 of work needed,now you have a property worth $220-245k renting for 230-260 per week and done all that within a 2-4 month timeframe.

Hi Jaxon,
If David does this, sold the property for 245k, made the profit around 245-50-150=45k, but this happened within 12 month which means no capital-gain exemption, the net profit will only be 20k roughly, is it worthy to take so much risk for 20k? please teach me, thanks a lot.
Best regards,
Aaron

CGT probably would not apply in this situation – just income tax.

Just make sure you get good legal advice along the way, otherwise an unexpected stamp duty bill could turn a profit into a loss.

A SMSF and a member can jointly purchase property together as tenants in common. Or both could be unit holders of a fixed trust.

A Joint venture is possible but they way you described would breach the sis act.