Just a quick question about trusts and borrowing capacity.
Once I have reached my borrowing capacity with one lender do I then need to set up a new trust and Trust company to go to a different lender to leverage my income again or just keep using the one trust?Clarky this has to be the longest running thread in the 13 years I have been involved with this forum.
Setting up a new Trust / Company will NOT increase your borrowing capacity assuming the Directors are the same as you will personally guarantee each loan and would be required to declare that guarantee on future applications.
Not a matter of starting a new entity more a matter of structuring the lending with the right lender from start to finish.
You use the lenders with the least favourable serviceability model to start with and then work your way along.
We regular receive enquiries from forum members who have done it the wrong way round and we have to unravel their borrowings before they can expand.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
Even then, using the least favourable servicing lenders first will leave you in a spot of bother. As most borrowers don’t have endless cash funds available for purchases, or a singular chunk of equity to start off with to build their entire portfolio they are reliant on accessing their equity to buy further properties. Starting at the lowest end of the spectrum will result in you locking away your equity unless you refinance away – which if you paid LMI to begin with is very inefficient.
All one great big balancing act, but that’s what a good investment based broker is for.
Corey Batt | Precision Funding
http://www.precisionfunding.com.au
Email Me | Phone MeInvestment Focused Finance Strategist - servicing Australia-wide
As a trust lawyer and a mortgage broker of 15 years all I can say is see Richard’s post!
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
Sorry guys I’m not quite following what you mean. After reading the chapter The Truth About Structuring in Steve’s book I was under the impression that if I started a Family Trust and a Trust Company that I was the directory of. I could as a trustee guarantee the loan to the trust from the lender with a borrowing capacity based on my income and once I reached the limit with one lender as long as the loan was not in default and the repayment were met by a positive cash flow investment property I could then go to the next leander and leverage my income with them and do the same thing thus increasing my borrowing capacity by having multiple loans from multiple lender as long as all the repayments were being met is this not the case?
Lenders treat guarantees the same as borrowings. You are liable for the debt if the borrower cannot pay.
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
So is what Steve has written in his book 0 to 130 Properties wrong then? He has said in his book that as long as the loan repayments are being met that you are guarantor for that your trusts can borrow from multiple lenders with you as the guarantor increasing your borrowing capacity by leveraging your income across multiple lenders with multiple loans as long as you don’t have any debt in your name only the guarantee to make the repayments.
I disagree.
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
If the income from the properties is cashflow positive (in the eyes of the bank this would mean that 80 % of the rent covers your repayments) then each property would increase your borrowing capacity.
So you could purchase one property 1 in trust 1 and then property 2 in trust
2 and property 3 in trust 3. So long as servicing was met (and equity).
But your original post is wrong and Steve’s book is outdated.
Back then some banks only asked you to list what “loans” you had personally and not what “garuntees for 3rd party entities” you had given out. If they didn’t ask you to declare it on the form, then some people
Didn’t.Kind of how you used to have low doc loans where you just signed a stat dec or had a letter from your account saying xyz He earnt 200k a year and could therefore service the loan.
So is what Steve has written in his book 0 to 130 Properties wrong then? He has said in his book that as long as the loan repayments are being met that you are guarantor for that your trusts can borrow from multiple lenders with you as the guarantor increasing your borrowing capacity by leveraging your income across multiple lenders with multiple loans as long as you don’t have any debt in your name only the guarantee to make the repayments.
Yep and Steve says the same thing in his 0 to 260+ properties book…….the numbers in there are way way too rubbery to take at face value which is why I wrote the amazon review I did – http://amzn.to/1BttN87
Don’t get me wrong I still think people should get serious about their future and invest more than they do HOWEVER I’m surprised no one has been more critical about what was written than what I’ve read online in previous reviews.
And don’t forget, the more trusts that you have the bigger the accountants bill!
In general trusts are about asset protection these days, and while there can be some tax benefits as well they do not directly benefit your borrowing potential so you have to look at the purpose of setting up a trust and ensure that it is still a viable vehicle particularly in the light of recent ruling by the tax office.
Happy investing!
ElisaMT | Awesome Lending Solutions
http://www.awesomelendingsolutions.com.auTailored solutions that build wealth through property
Thanks everyone your advice has been much appreciated. Time to jump on the deep end and see if I can swim!
interesting, if it is true that you can increase your borrowing capacity by increasing the number of trusts/companies that you setup then won’t everyone be doing that?
They used to in the good old days now there are other reasons why you would set up multiple Trusts.
Cheers
Yours in Finance
Richard Taylor | Australia's leading private lender
what are other reasons?
multiple land tax thresholds (some states), asset protection, estate planning, joint ventures, easier transfers to a SMSF (unit trusts), stamp duty savings etc
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
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