Maximising borrowings using structures

Yossarian, I'm not suggesting committing a fraud, nor borrowing beyond my capacity to repay. I'd point out that even if all your properties are positively geared, my understanding is that there is an artificial limit imposed by many institutions as to what they will lend an entity. I don't have any guilt about using legitimate means to get around these artificial lending limits. If all properties are positively or neutrally geared, why should borrowing be limited?

Also, I'd argue that loans that you guarantee are not your liabilities. If your son or daughter buys a car and needs you to go guarantor to get them the loan, do you think that the parents, when applying for their own mortgage, should declare that car loan on their statement of assets and liabilities? In this case, the liability is being counted twice, as presumably the son/daughter would declare the same debt on their position statement if applying for their own mortgage? Why should liabilities that are backed by guarantees be counted twice?

For those Trust borrowings that I guarantee, my intention would be to not declare those debts, but I also wouldn't declare the Trust's assets or income. So I'm actually presenting the lender a picture – given the significant equity and positive cashflow within the Trust – that is WEAKER overall than if I did attribute the Trust's assets/liabilities/income/expenses to myself, purely to prevent "maxing out" the artificial borrowing capacity that some lenders impose. I would definitely agree that if the Trust was not financially self-sufficient, ie negatively geared, then the Trust's positions should be disclosed, and not disclosing them would be misleading the lender. I'm proposing misleading the lender to the lender's advantage, ie I'm actually in a stronger position than I'm presenting.

I would also agree that the whole strategy sounds somewhat dubious, but given that someone as well-known as Steve was willing to put his name to it on CD, I thought it was worthy of further investigation… I'd still love to hear from Steve or Dave about this, or somebody else who's actually done it. And particularly anybody who has done it with the knowledge of their broker, and what their broker had to say about it.

Here here, Adam. Quite a lot of posters seem very willing to assume bad faith, imply fraudulent intent, and pass their judgement, without actually answering the question with any useful information.

I've not used this strategy and have no intention of using it if it's not legitimate. I am making genuine attempts to ascertain whether it's viable, but rather than provide solid information about the legal distinction between guarantees and loans in your own name, or talk about whether they know of people using or attempting to use this strategy with success or otherwise, many posters would rather cast aspersions for even asking the question! Which, given, as you highlight, that Steve McKnight – who presumably we all respect since we're on his forum – advocates this strategy, seems a bit over the top.

If what some other posters are saying is true, that you have to attribute all the loans that you guarantee as well as your own loans to your personal balance sheet, then I wonder how people like company directors – often required to give director's guarantees for their company's loans – get finance for their own purposes and buy a PPR, for example.

If I'm incorrect in my assumptions, then I'm happy to be corrected – but with facts and references, preferably, not opinions and vitriol. And it would be a bonus if the respondent assumed the question was asked in good faith, which it is.

Well, life is funny sometimes…. by coincidence, I recently ran into somebody who was intimately involved with Steve's early property dealings and I had the chance to ask him about this. What he told me is exactly what I suspected – that the strategy is "if they don't ask, don't tell".  It is possible to use this strategy in the sense that it can be done, but many brokers – as has become evident here – consider it unethical and won't become your "accomplice". I am surprised that Steve would openly advocate this.

The majority of lenders would certainly not be happy about this if they were aware of it, but whether such conduct constitutes a breach of your contract with the lender hasn't been tested, as the people who are likely to try this strategy generally don't default because if they're at all smart they would only use it for positively geared property. Though I readily concede that if it were tested, you probably would be found to be in breach of your duty of disclosure and possibly other conditions.

As I stated in a previous post, I was only interested in this strategy if it were legitimate. I will not be adopting the "don't tell" approach, but I like Alistair's statement about self-funding commercial ventures, ie that in many cases the lenders are aware of these additional debts but decide not to include them for servicing purposes because they're self-funding.  That makes sense and I should be able to take advantage of this as I'm fortunate to have a very positively geared commercial property which has a debt that is enormous relative to our personal income. So I definitely need to find lenders who think as Alistair portrays – and I'm sure they're out there.

Thank you all for your input, and best wishes to all,

Tracey