Hello,
We have a few questions regarding the structure of our loans. Currently we have a PPOR which will be paid off by the end of the year. In addition to this we have three IP in a family trust account.
We are relatively new to investing, and as we are currently in the process of restructuring, would appreciate any advice you have.
We were advised to have the three IP loans as one loan. Is it best to keep them as individual loans opposed to one investment loan? We have decided to keep them separate.
Originally we were paying P+I but with our new structure will pay IO until our PPOR is paid off and will then re-assess.
We have used our PPOR’s equity to fund our investments and are currently sitting on a LVR of 60%. All IP are + geared, but as we have only held them for the past year have only a small amount of equity built up in them.
Our broker has advised to have an available amount of funds to redraw on our IP in order to use as deposits for future IP. E.G loan of $100k, but available amount 140k. The broker has suggested up to 100k (split between 3 IP loans) but states we will not pay interest until we use this $. Is this wise, what are the pros/cons in doing this?
X-coll is something we do not have a good understanding of at present. With our previous lender, I believe our properties were x-coll despite asking for this not to occur. How will we know whether this is the case with the new broker?
If our PPOR equity has been used, does this mean the PPOR is x-coll?
Finally, we have always asked to be guarantors for our IP as they are in trusts. The loan is in our names. How do we know whether we have the loan in our name, or are only guarantors?
Thank you in advance,
M&S-
This topic was modified 9 years, 6 months ago by
M & S.
Hi M & S
Firstly welcome to the forum and hope you enjoy your time with is.
I have to say I think your existing Banker / Broker was certainly not looking after your best interest if they have advised you to X collateralise the 3 loans into one.
This is something we rarely would recommend for a client and in fact I have written a couple of API articles on the very subject and why is definitely not recommended for investors.
Obviously I do not have all of the facts to hand at this stage but would suggest you untangle the individual loans and free up your PPOR.
Subject to the valuation on the existing IP’s no reason why you couldn’t set up an equity loan going forward to enable you to fund future deposits.
Buying in Trust has a lot of advantedges but you need to be aware of some of the issues.
Again structured correctly the benefits may outweigh these but you need to work thru the maze to fully understand you direction.
Happy to have a look over your existing structure and throw in my 5 cents worth.
Cheers
Yours in Finance
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This reply was modified 9 years, 6 months ago by Richard Taylor.
Richard Taylor | Australia's leading private lender
Hiya
4 properties isn’t just someone starting out :-)
Avoid cross coll – it’s a mess.
It’s not a bad idea to access equity now because as it’s becoming harder to do due to APRA’s recent intervention.
Cheers
Jamie
Jamie Moore | Pass Go Home Loans Pty Ltd
http://www.passgo.com.au
Email Me | Phone MeMortgage Broker assisting clients Australia wide Email: [email protected]
PPOR – you sound like you could be messing things up with the trust assets and loans. You need to keep your personal finances and trust finances separate of the trustee could be in breach of trust. You shouldn’t be paying into a trust loan without thinking carefully about it and properly documenting whether it is a loan or a gift.
Trust loans should be in the name of the trustee.
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 you all for the responses. We really appreciate your time and input.
Richard, what would you require in order to look over our current structure? Please PM us if that is preferable.
Jamie, I suppose ‘starting out’ is relative. By starting out, we have only been investing for the past 12-18 months and are a long way from achieving our goals. We are new to the forum and there is a lot we still need to learn. Thanks for the vote of confidence though :)
Kind Regards,
M&S
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This reply was modified 9 years, 6 months ago by M & S.
Hi Terry,
Just to clarify, our PPOR is not in our family trust and is not connected in anyway other than through the use of equity towards IP. We have separate bank accounts for our PPOR and our IP loans.
Could you please elaborate what part of our sructure could be in breach of the trust?
We value any advice you have as we would like to ensure we have the best possible structure/strategy in place to improve our chances of achieving our IP goals.
Our IP (in the trust) are in the trustees name’s.
Thank you in advance,
M&SYou must treat the ‘trust’ as a separate person and segregate the trust assets including income from rent, cash etc from your own assets. Does the trustee have a separate bank account for the trust money and rents? And how did you use your equity in your personal property for a property purchase in the trust?
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 Terry,
You’ve asked us very good questions, and it reiterates just how little we currently know about finance and trusts. We did however work closely with our accountant to set up our trust and when he has since reviewed them, no concerns were raised.
To answer your questions, the trustees have separate bank accounts for the trust money and rents.
I suppose the equity was used used as a gift to start our trust.
Are there benefits to whether we opt to utilise our incomel/equity in the trust as a loan or gift?
Is there any material you could recommend that we read in order to increase our knowledge of this?
Thank you in advance,
M&SIt is critical that you establish whether the contribution to the trust is a loan or a gift. This is from a tax perspective as well as from an asset protection perspective.
If you borrowed the money to lend to the trust, who is claiming the interest on this loan? If it is you, then you shouldn’t be. If it is the trust then there seems to be no loan agreement in writing so if audited the ATO may deny the interest. If you gifted the money to the trust and you borrowed it then the interest won’t be deductible to either you or the trust.
If you were to become bankrupt at some future date then the loan is your asset and will be recovered and handed over to creditors. If it was a gift it may be protected if made 4 years before bankruptcy (other things to consider too). But since there is no documentation it will be argued that it is a loan.
Imagine what could happen if you died. The executor would have to sue the trustee to get the money back – it would be their duty to do so and they would be personally exposed if they didn’t. But there is no paperwork to determine which it is. This could lead to a court hearing costing the estate tens of thousands. Your children could miss out on the money lent as well as the legal fees. This happened to one of my clients.
Good that the trustee is keeping assets segregated though.
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
BTW, I think I cover some of this briefly in my ebook, and I am writing a more detailed book on trusts, mainly from the legal side of things.
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
Wow, it certainly is a lot more complex than we first thought (and we first thought it to be complex)!! We really appreciate and value your time and advice, thank you Terry.
We have a writren loan document for each IP in the trust in the name of the individual trustees as trustees for the family trust and have previously claimed the interest in the trust (not personally). Is this loan document a sufficient written document of the loan for the trust to prevent such circumstances as you’ve mentioned? Or are you referring to the need for a clearly written document outlining the gift/loan to the family trust?
We have not financially benefited in any way from the trust, and do keep finances separate (aside from previously using our PPOR’s equity, which we will have a closer look at).
We will search for your e-book and will be interested to read your book on trusts. If you remember, please let us know when it’s available (although we may be a little out of our depth).
We still have a multitude of questions, partly as a result of what you’ve written which we appreciate. We knew we had a lot to learn, but you’ve provided some direction as to where we need to go from here.
Thank you,
M&S
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This reply was modified 9 years, 6 months ago by M & S.
Terry, would you mind sending us a link to your ebook, possibly through PM if required?
Thank you in advance,
M&SThe ebook is in the signature
“Trusts and Tax for Property Investors” download free at http://www.propertytaxsolutions.com.au/The loan agreement is that between the trustee as borrower and yourself as lender?
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
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This topic was modified 9 years, 6 months ago by
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