hey !
just finished reading steves second book (great) but, ran into some things i didn't fully understand. any help/answers would be great. first he says that he has never bought any property under his own name, instead he alwasy uses a trust or somthing.. to limit his liabliity. what exactly is that?? When i was searching for ways to limit liablity, LLC's seemed to be the best option ? does any one know if thats what he was talking about? or is their some better/easier way?? secondly he breifly mentions how he gaurenteed his own loans or somthing, which allowed him access to more credit and so he was able to expand faster……. because it seems like at some point, and this point will be diffrent for everyone that the banks will just stop lending to you, you'll reach a limit, and so theirs a limit to the amount of "cashflow" properties that you can aqcuire.. is their any way around this ?? i assume their must be… but im not sure what it is
thanksllc's are only available in America. A trust is a Legal entity see http://www.investorbuddy.com.au/financial-planning-and-tax/family-trusts-an-explanation
Now a trust can be controlled by a person or by a company. A company is also a legal entity but has directors.
These directors provide a guarantee to the lender that they as Directors will pay the lender back if the company defaults in the Loan.
Once the loan limit is maxed out the theory is that you start another company and it starts to borrow money.What I am unsure of is if the lender checks how much the director has guaranteed with the previous company.
Company's limit liability. eg. if you were running a company and it failed, then the creditors could only come after the company assets, not your personal assets. There are some exceptions to this rule though, including if you are director and do something illegal or don't pay company tax etc. The company is a separate 'person' legally.
A trust is not a legal entity but an arrangement where someone holds something for someone else. Legally it is the trustee that owns property (name on title) but this is in name only and the real owners (beneficial owners) are the beneficiaries. like when you open a bank account for kids, it may be their money, but the parent's name on the account. Trusts are considered a separate entity for tax reasons – they have to file their own tax returns and have ABNs and TFNs etc.
With purchasing property, if you are borrowing money, lenders will require the trustee and/or the directors of a company (and maybe shareholders too) to provide a personal guarantee for the loan. If the deal goes bad lenders don't want to be left with just a empty company but they want to be able to go after someone individually and their assets.
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
ahh, ok. Well I live in America so (probaly should have mentioned that) so i guess i'll need to see what kind of trust can be formed here.
"Once the loan limit is maxed out the theory is that you start another company and it starts to borrow money.
What I am unsure of is if the lender checks how much the director has guaranteed with the previous company."
ohh ok..makes sense..
any one here have any practical experiance with this problem ?
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