Home Loan Borrowing using Trust

The claims in the book and what Mr. Terry seems to be exact oposite. Can Mr. Mcknight please shed some light on this matter. We would like the idea of what is taught in the book but a lawyer says otherwise.

psrproperty wrote:

Hi all, After reading Steve McKnight’s book about putting the name under Trust structure instead of under personal name. Can I please ask people who have borrowed home loan using Trust structure from the banks, how was it done? Do you approach personal home loan unit or commercial lending unit in the bank? Appreciate some guidance.

Hi Rliwanen,

You say this:-

“The claims in the book and what Mr. Terry seems to be exact oposite. Can Mr. Mcknight please shed some light on this matter. We would like the idea of what is taught in the book but a lawyer says otherwise.”

I have always thought chapter 9 of the updated “0 to 130 properties” is very well written and quite complete.  But you do need to read and assimilate ALL of it, as there is so much information to be absorbed.   Like Terry says, it is possible that “the wording is loose” in legal terms but I, as a regular reader with no legal training saw no such contention.

My take on the words “putting under a Trust structure instead of personal name” might confuse someone if they already have a Trust with themselves as trustee (i.e. the Trust is administered by themselves under their personal name).  From what I recall of chapter 9, Steve does not use that structure, but instead has a Company acting as trustee of the Trust.

To take this further, and to provide more clarity, please identify just which words you are reading that have you saying “The claims in the book and what Mr. Terry seems to be exact oposite” and “a lawyer says otherwise”.   Once we know just where your concern lies, we can better shed some light on it.

Other than that, DO re-read all of chapter 9 slowly, carefully, and completely – it may just answer all of your questions.  ;)

Benny

Well, I greatly respect Terry as a lawyer, but to be fair to me, 0 to 130 is not a text book on trusts.

Instead, it explains the concept of how I have used (and continue to use) a multi trust structure to leverage my personal borrowing capacity.

Everything written in the book is both factual, and accurate.

Oh, and for the record, NOTHING that Terry has said is at odds with what was outlined in the book.

– Steve
BA Bus (Acc), CA, 30+ years accounting experience, 20+ years investing experience, 1000+ property transactions, borrowed millions using multi-entity structures.

• This reply was modified 3 years, 11 months ago by  Steve McKnight.
• This reply was modified 3 years, 11 months ago by  Steve McKnight.

Hi rliwanen,

“I hope you wouldn’t mind if I seek further clarification.”   Indeed, that is why we are here, so feel free.  We don’t learn to ride a bike the first time we are on it, but we get there with a bit of help !!

Benny

psrproperty wrote:

To exercise an example that may be more relevant to someone who wants to start off in buying property using company trustee trust structure. Say if the sole company director (so sole guarantor in this case) has 10 properties, and he only puts 2 properties as assets for the guarantees. In the event of company bankrupt, does it mean creditor can only chase the guaranteed 2 assets, or can creditors reach as far as the other 8 assets since they are owned by the guarantor of the company being sued?

I think you are misunderstanding the guarantee here. There are 2 types of guarantees

a) security guarantee where property A is used as security for a loan to buy property B.

b) income guarantees where a person’s income is taken into account for a loan with someone else as the borrower.

Here we are talking about income guarantees. A brand new company will not have any income of its own so the lender will rely on the director to pay its loans for serviceability reasons. If for whatever reason the company cannot pay its debt the lender will have a mortgage over the property owned by the company. This enables them to take possession of the property and sell it to recover their money. If this is not enough they will go after other assets of the company (and trust if company was acting as trustee) and/or the assets of the guarantor – they will ask the guarantor to repay the loan first though.

Hey Terry,

I just wanted to clarify a few things if that’s alright (I talk in a discretionary trust sense)

a) When you say to carefully select the director of the trust, should it be the personal with the highest annual income? What are the other important factors to consider?

b) What do you mean when you say ‘avoid using certain lenders’?

c) When you say ‘once borrowing cap reached, then set up a new company to either act in its own right or as trustee for a different trust’, won’t lenders for the 2nd trust see that the director/s of the first trust (director/s would be the same for the trusts) have given personal guarantees for the assets held in the first trust? I thought guarantees are essentially looked at as personal borrowings for serviceability?

Lastly, if you have maxed out your personal burrowing capacity by purchasing real estate, will establishing a trust and having a company act as trustee still allow you to burrow more since it’s the company’s debt and you’re not personally liable? If so, how is the borrowing cap decided?

I know this is a handful but I’d really appreciate it. Grasping this whole trust concept has been a trip. Even after reading a book on it I’m puzzled.

wan0151 wrote:

a) When you say to carefully select the director of the trust, should it be the personal with the highest annual income? What are the other important factors to consider?

All the other legal issues. Being a director is potentially dangerous and burdensome, but not being a director means loss of control.

wan0151 wrote:

b) What do you mean when you say ‘avoid using certain lenders’?

Each lender has a different policy to other lenders so some will be good for what you are after others will not be good.

wan0151 wrote:

c) When you say ‘once borrowing cap reached, then set up a new company to either act in its own right or as trustee for a different trust’, won’t lenders for the 2nd trust see that the director/s of the first trust (director/s would be the same for the trusts) have given personal guarantees for the assets held in the first trust? I thought guarantees are essentially looked at as personal borrowings for serviceability?

A trust is not a separate legal entity, but a company is. So the debts of Company A are not debts of Company B. If company C borrows money the debts of Company A and B are not taken into account. But most lenders will look at the borrowings of the personal guarantors, as the company has no income. Guarantees given by the directors will be considered the same as loans for serviceability for most lenders, but not all. Some lenders will disregard personal guaratees as long as the borrower is paying their own way and the guarantor is not needed to fund it.

wan0151 wrote:

Lastly, if you have maxed out your personal burrowing capacity by purchasing real estate, will establishing a trust and having a company act as trustee still allow you to burrow more since it’s the company’s debt and you’re not personally liable?

Since the lender is basically base the serviceability on the guarantor’s income, if they have already reached borrowing capacity then they or a related company will not be able to borrow any further – its too late at that point.