Hey Sean,

I went over to the States last November and started buying some US property.

I spoke to Wachovia bank about the possibility of borrowing money, and the short answer was that it will be very difficult until you have a credit history and a banking history.

You can go with 'hard money' lenders, but I wouldn't.

Another option is to set up a structure with someone from the US as a director or member, and then use their SSN / history to help the entity gain finance.

If I find out any other options I'll let you know.

Regards,

– Steve McKnight

Agreed – too much 'soft spam' is flying under the radar.

But you can help us! At the bottom right of each post is an 'angry' face. Click that and it will report the post as spam and we will investigate.

Regards,

– Steve

D,

Nice try, but that's not what I am talking about. In your situation you are getting to a 100% leverage situation, and this will be tough to get approval for because when lenders do their due diligence in the post GFC environment, I suspect it will be identified and knocked on the head.

Also, I'm not sure it would work out in the debits and credits in the underlying accounting.

To start off with, in the books of Trust A:

DR Asset (Property) $1m
CR Loan (You for lending in the equity / deposit) $300k
CD Loan (Lender) $700k

This is a cash transaction, so the journal above also indicates the cash outlay and source of funds, namely:

Cash In

Loan (You) $300k
Loan (Lender) $700k

Cash Out:

Property Purchase $1m

Now let's say you set up Trust B and want to buy another property on the same basis. Assuming you could get a 70% loan from another lender ($700k), where is the other $300k going to come from? While you can 'loan it form Trust A', it won't be a cash transaction because Trust A doesn't have cash to hand over (unless it refinances the property, but how much more will be loaned because it is already at 70% LVR?)

For example,

TRUST A

Dr Loan (You) $300k
Cr Loan (Trust $300k

<now Trust A owes Trust B>

TRUST B

Dr Loan Trust A
Cr Loan (You)

Overall Cash Position (Trust A &

Cash In

Loan (You) $300k
Loan (Bank Lending To Trust A) $700k
Loan (Bank Lending To Trust $700k

Cash Out

Property (Trust A) $1m
Property (Trust $1m

Cash Shortfall: $300k

As you can see, all you are doing is transferring the loan to you from Trust A to Trust B and there is no cash movement. This means that you are still short $300k of physical cash which is needed to buy the second $1m of property (Trust .

As mentioned, you might be able to refinance the property in Trust A (say, up to 80% LVR), but this would only give an extra $100k, you would still need to find another $200k from somewhere else. You couldn't even x-securitize the property in Trust A as it is at max LVR.

Overall then, and as I will outline at the upcoming get together, for this strategy to work you need:

a) A source of cash to provide the 20% deposits that does not rely on refinancing or other debt. In my case this money came from realised profits as I sold property, and from good cash flow businesses

b) You need to be able to demonstrate that you can service the debt.

c) You need a strong asset position

d) You need to source a lender who knows and understands what you are doing.

Terry makes a good point about residential lenders. I deal principally with business bankers who operate with more advanced structures and situations. But business banking is not for the elite… it is open to anyone (or can be if you can write a business plan!).

This has been a technical answer, and sorry if it has put some readers to sleep or frazzled them with accounting, but it sets out the nature of the transaction and the source and use of the cash needed.

Regards,

– Steve

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

Lewis O'Brien.

03 9888 6388

– Steve

Hi Rob,

Make sure you check out realtor.com, and search for the area of interest.

The post-foreclosure (short sale) is an interesting option.

– Steve McKnight

Angiebabe…

Are you related to this site?

It just seems a bit odd that you would join today and then post this.

Is seems to me to be some seeding for something new.

For what it is worth, what I'd like to know are:

a. Are the original listing prices genuine? If so, are they independently verified, or is it up to the agents to input?
b. How much is paid for listing the property on the site?
c. Why are there so many google ads on the site? Makes it look a bit dodgy.
d. Who are the people behind the site? On the 'about us' site it doesn't mention names.

This whole thing seems a little odd.

– Steve McKnight

I've a couple of thoughts to add here:

a) 1 Br Apartments. These are the bottom of the market and hence are attractive to those seeking affordability. As such, they are likely to underperfom the median house price growth and rent. If you can, you are better off with a 2br second hand apartment than a new 1 br apartment.

b) How do you plan to make money from this investment? Growth, Income or Both? It is smarter to start with your profit and work backwards to your property, than to start with your property and work forwards to your profit.

c) You are right about the hidden costs. Be careful with body corporate, leasing charges, extras (pool, gym etc), carparks, noise (check construction for soundproofing), stairs / access (impacts rental if hard to move in and out – ground floors tend to rent for more unless there is a view).

d) Finance – make sure you shop around for a financier as some will not like apartments less than a certain size.

Food for thought. All the best,

– Steve McKnight

Hi,

I agree with other posts about needing the preliminaries sorted.

That said, you have a goal and if you lack the funds it is smart to invest with others. Make sure you have each role defined though, as if you are all doing the same thing then it will cause arguments.

Open communication among the partners is the most important requirement. Common goals and expectations are also critical. For example, be careful if one party contributes more time or money than others. This will be acceptable in the short term but will cause tension in the long term.

As for a structure, unless you are related a family trust will be out. Therefore, alternatives to explore are:

a) A unit trust (where the units are owned by the three parties)
b) A partnership of family trusts (each party has their own family trust)

As has been said, best to see an accountant to discuss your specific needs and what fits best.

All the best,

– Steve McKnight

Happy Easter!

I am about to sign off for some family time, but will be sure to answer this post on the other side of Easter.

Regards,

– Steve McKnight