All Topics / Finance / What name do you buy property in, your own or a family trust????

Viewing 15 posts - 1 through 15 (of 15 total)
  • Profile photo of Raewyn5Raewyn5
    Member
    @raewyn5
    Join Date: 2009
    Post Count: 5

    Hi there, we about to embark on our first investment property and just wanted some general advice.  We have approached a company who do house and land packages interstate.  This is not the issue.  I told him about Steves book and what was his opinion of buying, not in our own name, but in the name of a trustee on behalf of a family trust.  He basically rubbished that idea, told me that no-one in the industry knows or can believe how Steve bought 130 propertys in 3.5 years.  I have also mentioned the family trust idea to my accountant and I have not heard back from her in regard to that at all.  I do remember one thing in the book that stands out and that is you have to do things differently to get where you want to go.  I know where I want to go, it is to own multiple properties and I want to structure the finance properly before we start.
    Has anyone formed a company as trustee on behalf of a family trust?  What is your experience of it? 
    Thanks so much

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Thousands of people form companies/trusts to buy property. I personally never buy property without using a trust. Do some more general reearch and find out some more information before you believe either side.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    There is no difference in buying in Trust with a Corporate Trustee over buying in your own name as far as borrowing capacity is concerned.

    I accept that many Brokers and indeed lenders wont understand a Trust structure and also that many wont offer you the same rate discounts and package benefits however that is not to say they dont exist.

    An experienced Mortgage Broker should be able to guide you through the maze and make things clearer to understand.

    Just note that setting up multiple Trusts will not increase your capacity to borrow.

    Richard Taylor | Australia's leading private lender

    Profile photo of Raewyn5Raewyn5
    Member
    @raewyn5
    Join Date: 2009
    Post Count: 5

    Thank you both for your advice.  I  will definately be doing more research and appreciate your answers.

    Terry, you said you would never buy property without using a trust, can I ask why?

    Richard, I was under the impression that it would increase borrowing capacity. (That was the main reason I liked the idea)  It was explained that the debt would be in the name of the company as trustee and the directors act as guarantors for the loans.  Once you exhausted your borrowing capacity with one bank, you could then set up another trust and go to another bank.  I thought that the directors' incomes could be used multiple times because the directors only have to guarantee to repay the loans. 

    Profile photo of god_of_moneygod_of_money
    Participant
    @god_of_money
    Join Date: 2008
    Post Count: 970

    " I personally never buy property without using a trust"
    Not always true though for 1st PPOR.. get freebies FHOG and stamp duty
    the 2nd property onwards… yes definitely through DFT or ??? superfund :P

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Yep, you would need one PPOR per couple – best in the name of the person with less risk.

    Buying in your own name exposes your property to risk and to high rates of taxation and there is no flxibility at all.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of danielleedaniellee
    Member
    @daniellee
    Join Date: 2006
    Post Count: 197

    Hi Raewyn5,

    We purchased our first IP in a Family Trust with a Corporate Trustee. The main reasons for going down the trust route were to run the portfolio like a business even when overseas, and also for income distribution. We intend to have a large portfolio throughout Australia, so income distribution would eventually become a good problem to have in 15-20 yrs time for us.

    I have met others who have questioned that approach, citing additional admin cost in compliance and ASIC charges. We did the spreadsheet modelling and realised that the eventual income from our portfolio will become too unyielding under a 'personal name' model. 

    I suggest more research on the number of properties you intend to purchase, your personal drive for wealth accumulation, future plans with the family, etc.

    Cheers

    Daniel Lee

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Hi Raeywn

    Sorry but this is clearly incorrect and I think Steve has issued a couple of corrections to this comment in his book.

    Richard, I was under the impression that it would increase borrowing capacity. (That was the main reason I liked the idea)  It was explained that the debt would be in the name of the company as trustee and the directors act as guarantors for the loans.  Once you exhausted your borrowing capacity with one bank, you could then set up another trust and go to another bank.  I thought that the directors' incomes could be used multiple times because the directors only have to guarantee to repay the loans

    It certainly does NOT increase your borrowing capacity.

    Richard Taylor | Australia's leading private lender

    Profile photo of Raewyn5Raewyn5
    Member
    @raewyn5
    Join Date: 2009
    Post Count: 5

    Thank you all for your views, your information and experience helps me immensely.  Thank you also Richard for your comments, much appreciated as I did not know that.

    Profile photo of lordoftheundeadlordoftheundead
    Member
    @lordoftheundead
    Join Date: 2008
    Post Count: 31

    I'm just wondering what happens when a director has given a personal guarantee and who then ceases to be a director.

    is the former director able to be removed and the guarantee placed on the new director? i'm sure it can be done but do banks allow this?

    I only ask as i'm currently an alternate director so would hope to pass gaurantees onto the director once they return

    regards

    pete

    Profile photo of Ryan McLeanRyan McLean
    Participant
    @ryan-mclean
    Join Date: 2010
    Post Count: 547

    Hey,

    Me and my wife earn a combined income of $40,000/year. We have set up a trust and a company and are currently in final negotiations of buying our first property.

    I can’t give you legal financial advise, but here is my personal opinion.

    You have to look at your investment strategy and whether trusts fit into that. Basically you buy properties in trusts to protect yourself from your own negligence. I buy older properties and thus will always miss one thing or another when it comes to maintenance.
    I have set up a company, who acts as the trustee for my trusts. Each individual property I purchase in an individual trust. This offers maximum asset protection. The company costs $212/year to own and doesn’t lodge a tax return (it is a non trading company), the trusts cost $0/year and I do my own tax returns.

    Trusts make lending more difficult, as banks prefer you to buy it in your own name (it makes it easier for them to get their money back if the investment goes bad), but it makes you liable.

    Buying in a trust is good as if you do something stupid (like run over someone while drink driving) your properties are protected as you don’t “own” them. You own the company that controls them, so if someone sues you they take ownership of the company. You then set up a new company, boot the old company out of the trustee position and reappoint your new company (as far as I am aware). Always see a qualified account though, don’t take my comment as ‘law’.

    I would never purchase property not in a trust because you are making yourself (and all your assets) personally liable to any law suit against you.

    @ Pete – I assume you would have to refinance the loan in order to change the personal guarantee of the director

    Ryan McLean
    http://CashFlowInvestor.com.au
    Positive Cashflow Properties Are Just A Click Away
    Hope this helped

    Ryan McLean | On Property
    http://onproperty.com.au
    Email Me

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213
    lordoftheundead wrote:

    I'm just wondering what happens when a director has given a personal guarantee and who then ceases to be a director.

    is the former director able to be removed and the guarantee placed on the new director? i'm sure it can be done but do banks allow this?

    I only ask as i'm currently an alternate director so would hope to pass gaurantees onto the director once they return

    regards

    pete

    The guarantee wouldn't cease once you cease to be a director. You would need to apply to the bank to release the guarantor and substutite with a new one and they would require the new one to apply and prove their incomes etc.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of lordoftheundeadlordoftheundead
    Member
    @lordoftheundead
    Join Date: 2008
    Post Count: 31

    Thanks Terry,

    does this mean i'd have to refinance or would the banks be willing to make the change? especially if the new director was in a better financial positon.

    regards

    pete

    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    Hi Pete

    You would have to talk to the bank, but it may be better just to refinance and make a clean break with there no chance of missing something.

    Terryw | Structuring Lawyers Pty Ltd / Loan Structuring Pty Ltd
    http://www.Structuring.com.au
    Email Me

    Lawyer, Mortgage Broker and Tax Advisor (Sydney based but advising Aust wide) http://www.Structuring.com.au

    Profile photo of Richard TaylorRichard Taylor
    Participant
    @qlds007
    Join Date: 2003
    Post Count: 12,024

    Last thing you would want is to resign and walk away as a Director only to get a call some years later that the Company could not settle its Debts and the Guarantee in favour of the Bank was still valid.

    I certainly would be getting the loan refinanced or something clear from the lenders legal department to confirm that your Guarantee was released in full.

    Richard Taylor | Australia's leading private lender

Viewing 15 posts - 1 through 15 (of 15 total)

You must be logged in to reply to this topic. If you don't have an account, you can register here.