Hi all,
Just to give you some background to my question – My partner and I currently have two properties and are hoping to purchase another one before too long. Our current properties are both slightly negatively geared, so we would like to now find one or more positive cashflow properties to complement them.
Our current properties are in both of our names, and are "cross securitised". (I'm now fully aware that this isn't the best situation, but we did it at the time as we didn't have the 20% deposit.)
* The properties are worth about $600,000.
* We owe about $480,000 on them.
The questions I have are around choosing the correct structure for our next purchase…
1. I recently read one of Steve's books, which indicated that there is a real benefit in borrowing with a trust and company setup, in order to borrow again and again without the limitations of being seen by lenders as "maxed out". Who has tried this? Does it really work?
2. Is structuring our next purchase with a trust and company as the trustee where I am the director likely to work for us in terms of providing greater borrowing capacity? Or have we effectively shot ourselves in the foot by purchasing the first two properties in our own names?
Your thoughts would be much appreciated.
Cheers,
Simon
Hi Simon
Welcome aboard
1. It's incorrect. Purchasing a different entity isn't going to improve your borrowing capacity.
2. As above – it doesn't work like that. However, purchasing in your own names doesn't mean you've shot yourself in the foot at all – it's how the vast majority of investors purchase their properties.
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]
cybersimon wrote:Hi all,Just to give you some background to my question – My partner and I currently have two properties and are hoping to purchase another one before too long. Our current properties are both slightly negatively geared, so we would like to now find one or more positive cashflow properties to complement them.
Our current properties are in both of our names, and are "cross securitised". (I'm now fully aware that this isn't the best situation, but we did it at the time as we didn't have the 20% deposit.)
* The properties are worth about $600,000.
* We owe about $480,000 on them.
The questions I have are around choosing the correct structure for our next purchase…
1. I recently read one of Steve's books, which indicated that there is a real benefit in borrowing with a trust and company setup, in order to borrow again and again without the limitations of being seen by lenders as "maxed out". Who has tried this? Does it really work?
2. Is structuring our next purchase with a trust and company as the trustee where I am the director likely to work for us in terms of providing greater borrowing capacity? Or have we effectively shot ourselves in the foot by purchasing the first two properties in our own names?
Your thoughts would be much appreciated.
Cheers,
Simon
As a trust lawyer and mortgage broker I must say I agree with Jamie – it doesn’t work that way.
There are many ways to structure things without trusts or with a trust but without it owning the property. Many things to consider also about structuring besides the obvious taxation and borrowing issues – one people often overlook is death and incapacity – what would happen to you/brother if either one died or became legally incapacitated (crazy, in a coma etc)? Add to that divorce!
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
Thanks very much for the responses guys, that clears that one up for me.
So from an asset protection and taxation standpoint, how do you think we should structure our next purchase?
Or perhaps my before asking this, the question should be – What are the factors that determine which is the best structure to use?
Aside from owning in our own names, what are the other most common structures people use, and why?
Sorry, I know there is a myriad of information out there on this subject, I guess I'm just looking for a good place to start.
Many Thanks,
Simon
Purchasing under an individuals name is by far the most common structure I see. After that – you get the odd family/discretionary trust and every so often a hybrid will pop up.
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]
Simon,
Superfund? Have you considered if the combined balance of your current funds will let you leverage into an investment property through a Self Managed Super Fund. You mentioned "maxed out" so it looks like you have a concern about your current income supporting borrowings. Something to think about. You could also structure something like an NRAS property inside your SMSF. Granted this is a bit niche and would not do anything to offset the negative cash flow position of your current portfolio. The other negative is that gains will be effectively quarantined inside the smsf so you would have to weigh that up to. Have a few more ideas but actually just cooking tea for the kids so I will try and get back to this thread later. Cheers.
Don Nicolussi | Mortgage Broker - Home Loan Warehouse
http://homeloanwarehouse.com.au
Email Me | Phone Me"I think of finance as a technology, a way of getting things done." Robert Shiller
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