Hi!
This one’s for you, Steve & David. After attending the seminar I’m extremely interested in exploiting the loophole Steve mentioned about obtaining finance. I placed a post on the Somersoft forums asking for opinion, & those of you who read it will know that I was slammed pretty hard!
How do you guys go about structuring it? Is it as simple as purchasing in a trust using a corporate trustee (like every man & his dog does), and then borrow up to the limit, and then replicate the structure? The guys on Somersoft seem to agree that the loans guaranteed by an individual will be recorded against their personal credit history, while Steve mentioned that this is not the case.
My partner & I thought we’d do the first few deals as individuals, because setting up the structures are pretty expensive, and we have not made a dime yet. However, this will severely limit the borrowing capacity of the structures that we will eventually setup, and we want to get this sorted out before we leap further. Any comments appreciated. Thanx!
Cheers [
]
WeiWei,
Why were you slammed?
quote:
How do you guys go about structuring it? Is it as simple as purchasing in a trust using a corporate trustee (like every man & his dog does), and then borrow up to the limit, and then replicate the structure? The guys on Somersoft seem to agree that the loans guaranteed by an individual will be recorded against their personal credit history, while Steve mentioned that this is not the case.I can only speak for me where it is not recorded… but even if it is… so what? It’s not a real debt as such…
To date I have never been asked a single question about going guarantor on the loan for any of our investment properties purchased via the structure outlined at the seminar and included in your course notes.
Mate… when it comes to structuring there is no perfect answer for all people. If you have made your mind up about the right structure for you then the next step is to actually buy something.
Don’t worry too much what other people think… it’s what you think that matters most.
Bye
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi again,
Just read your post on Somersoft…
Everything there is fine, but I just disagree with Rolf said, because in my experience there is a big difference between a guaranteed loan and a real loan.
I guess it all comes down to what you believe you can do, who you listen to and how dedicated you are to getting results.
Always operate within the law…
Bye
Steve McKnight
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Wei,
I also read your post on the Somersoft when it was going on and thought that some of those guys may have had a slightly limited view and might been a bit harsh toward you.[]
My thoughts at the time were that you have to remember that a lot of people on Somersoft (good people they are) are coming to the table with a different perspective. I have learnt and still learn a lot from these guys and gals about buy and hold stuff. Where you and I are heading requires more flexibility and drive. If we were to wrap just one or two houses every year that would be Okay but from everything I have heard from others once you start you find a big market out there. This then requires you to be able to buy a lot more properties than the average buy and hold investor(lots,lots more). I am advertising my first wrap next week so I am not speaking from experience from wrapping properties but I have bought 5 properties over the last 3-6 months (4 buy and hold , one to wrap soon)so I have had to learn how to be creative (not illegal) with my resources. I also see where I should have done things differently in the early days so as to allow me more flexibility now. Lessons learnt. As always (nearly) Steve is right in that others do not have your perspective….the thought of buying 10 or more properties in a year would terrify them. []Also buying in some of the areas we go would also double the terror[] []
I enjoy all your posts Wei so keep on going I am learining heaps. Will let you know how the Ad went.Hope this helped,
Enjoy
AD [:0)]
Andrew Deeringp.s.
Always ready for a chat [^]A great deal of talent is lost to the world for want of a little courage. Every day sends to their graves obscure men whose timidity prevented them from making a first effort.
-Sydney SmithThanx for the support guys! I guess the REAL question I had was whether it was worth it going out to setup a structure now, as our funds are quite limited. Just had another talk to yet another broker an hour ago- he was basically sitting on the fence on this issue; he has done some “creative” stuff, but is also mindful not to get into too much trouble.
I’ve advertised and personally delivered 700 mail drops in the past 2 days- the results are not particularly encouraging, but I WILL get there eventually… [
]Cheers
WeiHi Steve
You wrote
“Everything there is fine, but I just disagree with Rolf said, because in my experience there is a big difference between a guaranteed loan and a real loan.”
Its good that people disagree, Im the first to realise there is more than 3 ways to do the same thing, and I like to see people do things that “cant be done”. All thats usually required is for me to say it cant be done and someone proves that to be wrong.
On that point, can you define the difference between a guaranteed loan and a real loan where start-up company loans are involved, where the directors have either minimal funds and or experience in property related projects ?
Ta
Rolf
Hi Rolf,
Welcome to the Property Investing.Com community. I appreciate your post and welcome you to contribute at any time.
You write:
quote:
can you define the difference between a guaranteed loan and a real loan where start-up company loans are involved, where the directors have either minimal funds and or experience in property related projects ?Let me say up front that if you cannot pass the usual lending requirements for funding then you will find it hard to proceed to secure finance in your own name.
Such people shouldn’t give up… they just need to either:
1. Seek money partners
2. Look to do no-doc loansMy structure / strategy has worked very well for me though considering that I’ve been able to borrow over $6m on a taxable income of less than $40,000 per annum and next to no personal assets.
It would work even better for people with more income / assets (such as their own home etc. (I rent)).
A problem that many investors find is that they quickly become ‘maxed out’ when the borrow in their own names because lenders impose a debt servicing ratio of roughly 30%.
This means that once your loan service costs reach approx. 30% of your income then you may experience trouble gaining further finance on the same terms as the loans you have already secured.
The way I have worked around this problem is to borrow in a company structure and then go personal guarantor.
This works in two ways…
1. Once the company structure has reached a maximum lend then we just replicate the structure
2. We place multiple guarantors under the structure – being me, my business partner and also our accounting practice.
The effect of doing this is:
1. Because we only guarantee rather than borrow in our own name – we are not personally ever maxed out. The Company structure may be (and that’s when we replicate)… but me/we as individual guarantors are not.
2. Becuase of the multiple guarantors under the loan – we can leverage off a greater pool of money (ie. combined gross income)and borrow more money.
Now for a few words of warning…
A. Just because I do this does not mean that it will work just as well for everyone else. But it does mean that it is possible and perfectly legal too.
B. I always provide full disclosure… but I can only answer the questions on the loan application forms presented to me. To date I have never been asked to specify what loans I am guarantor for since these are contingent and not real debts. (Although they become very real if the contingency crystalises!)
C. I am not looking to deceive or hoodwink anyone here… it’s not a loophole, since that implies something that is just not the case. It is a legitimate way to structure your affairs to gain asset protection and has been used by many, many wealthy people for many, many years.
D. Finally, what I have provided here is the briefest of overviews. The way that I do this is much better explained in the Masters Of Property Investing Seminar Notes.
Once again Rolf, thanks for your post and please let me know if something that I’ve written conflicts with your knowledge / experience.
Regards,
Steve McKnight
P.S. People with minimum property investing experience need to become educated first well before trying to implement advanced financing structures such as this.
Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
https://www.propertyinvesting.comSuccess comes from doing things differently
Hi Steve
Hi Steve
thanks for the welcome !
You said
Such people shouldn’t give up… they just need to either…I would not disagree with that. I say if it cant be done it will be.
The major issue that newbies will run into here is joint and several liability. Most lenders if aware of the contingent laibility will assume it is a drawn debt, BUT will make exceptions based on the likelihood of that guarantee(s) being called.
Good to clarify that it wont work for all and sundry, after all I would think that you would not be Joe or Josephine Average !
Most of the application forms and requests for information that I am familiar with have some very specific question such as contingent liabilities, guarantees on loans and leases etc. Indeed when a lender does their directors check on the guarantor they would usually come back with a raft of questions. This goes back to what you said earlier about not everyone being able to maybe make this work for them. It is obvious you have an excellent relationship with your lenders which is not easy to cultivate. Rememeber who you are in your professional life and understand this lends you lots of credibility.
Steve, it was never implied that you would be hoodwinking people, I do a lot of trust based lending and yes such structures are commonplace.
JUst in closing there is no conflict, just differences of opinion where people can learn. Just the act of the discussion alone provides much information.
Ta
Rolf
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