Im looking at purchasing a few IP and Im looking for some advice RE: Structuring.
I want to purchase the properties in a new Trust Im currently setting up with my company being trustee of the Trust and me giving a personal guarantee so I can use my Income to service the debt.
My question is do i need to set up a new trust and company for purchases when ive reached my limit with each lender?
What kind of trust is best to purchase the IP?Thanks
Hi Trevor
For some reason this question is coming up a lot lately!
When you reach your limit having a new company/trust will not help you borrow more because the bank relies on personal guarantees. So if the person giving the guarantee is the same it won't really help.
Generally only a discretionary trust is good for investments because it offers asset protection and tax minimisation
It is also a good idea not to have too many properties in each trust – for asset protection reasons.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
Thank for the reply Terry,
So , when i reach the limit for my income (Borrowing Capacity), if the properties are positively geared and servicing themselves what is the best way to go?
Keep borrowing in the Discretionary trust with my company as the trustee and me personally guaranteeing each loan.I was of the understanding that if i was at the maximum borrowing capacity with BANK A using Trust A then i would go to BANK B and use a new Trust as it would be the entity borrowing the money and i would personally guarantee the loan but i wouldnt be required to note my previous guaranteed debts?????
Is that correct? Sorry if its confusing, but Im confused
hi Trevor
The bank is relying on the guarantee. The company and trust are worthless. So if a person has guaranteed x number of loans and they cannot service anymore the bank will not lend.
The bank will know about your other loans as they will do a credit check on the person where they will see all of the other loans applied for personally and as guarantor for the last 5 years. They will also see which companies you are a director of and they often do a credit check on these too. They will also do a credit check on the company applying for the loan.
So when a person reaches the limit all you can rely on is increase your income – both personal and rents. You should also shop around from bank to bank as some are more generous than others and some have rules which favour investors.
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 Trevor,
Steve McKnight mentions this in his most recent book, however you need to proceed with caution.
Steve basically steps around the issue by saying something along the lines of most banks won't 'ask' if you have other companies or other personal guarantees, however you need to disclose all info IF you are asked.
I can tell you from experience that this is true, however in most cases when you prepare a statement of position (stating all your assets and liabilities), it would be a good idea to disclose any other interests in companies/trusts that you have, or any other guarantees that you provide.
If the bank was to find out about the other borrowing at a later stage, they may decline your next application, and potentially even ask you to reduce your LVR to them.
Regards,
YII must admit i have never seen any lenders application that didnt ask whether there was anything else you felt you should disclose or were you acting in a guarantee capacity or had other loans that you didnt want to admit too.
Most applications state that the information it true and correct.
Put simply as Terry mentions when your borrowing capacity is up it makes no difference what entity you make the application in as swithcing entities or Trust does not increase your serviceability.
However in saying this of course each lender works out its serviceability calculations differently so your limit on what lender may lend may not be the limit of another.
Richard Taylor | Australia's leading private lender
Actually I looked at a St G app a while ago and it didn't ask for guaranteed loans to be disclosed, so I wrote to them and got a confirmation that they would be taken into account.
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
A good banker will ask for disclosure of any other debts/guarantees/interests, however there are still a few who close their eyes and block their ears just to get deals over the line.
They aren't doing themselves or the borrower any favours in the long run, but still…
Looks like it might have changed now
Please take care to ensure all information you give us in this application is correct.
I declare that: the information in this application and the financial information supporting it are in all respects correct and complete
to the best of my knowledge and belief.
Richard Taylor | Australia's leading private lender
NAB has a similar clause in both their consumer and commercial loan applications…
Thank you all…… i guess Steve McKnights income must have been extrodinary to purchase 130 properties in 3.5 years?
Their income was good, but their creativity was better!
No not at all just going back 8/9 years a lot of regional lenders werent that sophisticated.
St George who were the 5th largest Bank in Oz up until the Westpac acquisition only had credit search machines in their Branch offices from 1997.
Prior to that a clients credit record was taken on the word of the borrower. "I have no defaults or other loans….promise"
Richard Taylor | Australia's leading private lender
Hi Trevor,
I have read Seve's book and I must say I must be missing something because all of my properties are cashflow positive, but i am almost at my limit of borrowing capacity because i don't have the money for more deposits, especially now that the banks want deposits of 10% or more.
Cheers
Sonya.
CBA also didn't do credit checks at all for under 80% LVR if you went into a branch!
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
Also many people have found that loan applications and companies don't always appear on your credit file – I am director of a couple which don't show up on mine for some reason.
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
Certain lenders dont ask for current loan statements on refinances where the lvr is less than 75%.
Is that taking a risk or what.
Richard Taylor | Australia's leading private lender
If I did that and our audit team found out it would most likely result in dismissal…
especially if the rationale was "…but the LVR is only 75%!"
Be suprised this is a major regional lender and it is policy.
Richard Taylor | Australia's leading private lender
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