Page 174 of Steves Book 0-130 Properties etc

I can't comment on Steve's experiences some years ago, but now the banks will specifically ask about personal guarantees and will ask if you are a director of a company. 

Well, I'm going to the brisbane session.  See you guys there.

If all your properties are highly cashflow positive with 20% deposits, does that give you unlimited funding?

I have spoken with my bank manager regarding my borrowing limits and each cashflow positive property appears to increase my borrowing capacity due to the income being higher than the associated costs.

Hi,

The essential point made in the book is not to 'hide' the fact that you are a guarantor, but rather to acknowledge that a guarantee is not a debt.

I am yet to find any evidence that lenders treat a guarantee as the same as a personal debt. Instead, what seems to be happening, is that lenders are taking a much closer look at serviceability in general, and asking more questions than before.

For example, when they do a credit check, any companies that you are a director of will be revealed. These days, lenders will now be likely to ask for financial statements of those entites to check your overall solvency.

In conculsion, after speaking to multiple mortgage brokers and internal bank contatcs, I can summarise by saying:

1) Since the GFC, lenders have become far more attentive to detail, and ask far more questions about loan applicants.

2) Nonetheless, the multi-trust structure outlined in the book remains valid, albeit that more questions may be asked. In particular, a guarantee is not the same as a debt, but different lenders will asses that guarantee differently.

3) The key determinant is (and has always been) demonstrating serviceability – that is, how will the loan be repaid? This speaks to your income and asset situation, and the stronger the better.

4) In light of the new post GFC lending environment, it is important to ‘select’ the right lender as different lenders have different appetites to risk and investor profiles.

I continue to use this structure across multi-lenders and am yet to strike a problem. That said, I am only borrowing 80% and can demonstrate strong serviceability.

Regards,

– Steve

Hi Terry,

I can only talk from personal experience. I have borrowed millions from many different lenders over the years, all with the same structure. This year I have borrowed with Bank West and NAB, and have had specific chats with senior personnel who are aware of the practice and are fine with it – indeed, that say that's how most of their high net worth clients work. Even CBA, who I didn't end up proceeding with on a project, were happy with the multi-trust structure with personal guarantees.

The legal and practical difference between a guarantee and a debt in massive. I explained it in the re-release of the book, but I will also add an article about it to the website once it has been upgraded (new release should be ready soon).

Healthy questioning is good as it brings out the debate. I certainly don't understand the finer points of mortgage broking, but am instead approaching this based on finding solutions to continue to access finance. I'm happy to keep fleshing this out.

Regards,

– Steve

Thanks everyone for this post and especially Steve for replying.

Can I just clarify the way that trusts are being used in this scenario (humor me ok) Trust A has 1 Mil of properties with say 300k equity. Trust A then loans this equity 'money' to Trust B which then uses this 300k of un-geared 'cash' to secure more loans to buy more property. You as guarantor get a phone call from a nice bank person asking if you understand all your obligations etc, you sign a form and the loan is a go.

You cannot use all of the property in Trust A to secure say 1 mil in fresh loans for Trust B.

Like I said humor me.

Thanks guys for the free education

D

BTW, the guarantee is not just a phone call, but a legal document with most lenders requiring the guarantor to go and see a lawyer to get legal advice. The lawyer must sit down and explain that if the person on the loan cannot pay then the guarantor will be required to pay the loan, if they don't they can be sued etc. There are added costs for this, most lawyers charging a few hundred. And to make things worse, you may not be able to use the same lawyer that is acting for your entity as it be a a conflict for them to represent a borrower and the guarantor and the bank may insist on the independent legal advice. All the costs start to add up.