All Topics / Help Needed! / Using trusts to never get ''maxed out borrowing capacity''.

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  • Profile photo of DalkuiDalkui
    Participant
    @dalkui
    Join Date: 2022
    Post Count: 0

    Hello all, i would appreciate your help so much if anyone knows the answers Im looking for. Im looking to buy my first investment property soon. Im a bit stuck when it comes to building a trust.

    The main reason I plan on building a trust.. is to ensure that once I max out my borrowing capacity with the trust, i can then build another trust and approach a different bank to borrow more money. I am on a low wage but have a lot of savings to make multiple 20% deposits on different positively geared properties, my borrowing limit being 150k will let me buy 1 house per family trust.

    The questions i have…

    1. Is this method still usable or being used?

    2. Does the trust need to be professionally set up or can i buy a $135 trust off the internet somewhere?

    3. what are the essentials that need to come with the trust i buy. e.g ABN ,TFN, GST registration?

    3. if you have a book suggestion i would really appreciate it as Im finding it difficult to understand trusts.

    Thanks heaps,

    Regards Dallas

    Profile photo of Steve McKnightSteve McKnight
    Keymaster
    @stevemcknight
    Join Date: 2001
    Post Count: 1,763

    Hey Dallas,

    Yes, the approach continues to work: for the right investor buying the right property.

    You will need to go and get legal advice about the right trust and how to set it up. That will cost several thousand dollars.

    I have a resource called ‘Buyer Beware’ that explains all the structures, but it is currently out of print and needs an update. If only I had more time…

    Bye,

    Steve McKnight | PropertyInvesting.com Pty Ltd | CEO
    https://www.propertyinvesting.com

    Success comes from doing things differently

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

    You will need to go and get legal advice about the right trust and how to set it up. That will cost several thousand dollars.

    as a lawyer specialising on trusts I wish I could charge this much for advice on trusts.

     

    This strategy works with companies – the company could be acting as a trustee or be acting in its personal capacity. i.e. a trust is optional – and in fact should be avoided in many cases due to the land tax laws.

    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 David RyanDavid Ryan
    Participant
    @david-ryan
    Join Date: 2022
    Post Count: 0

    I have been considering this strategy, as the recipient of a $1M inheritance and a borrowing capacity of $700K (I’m in the 37% tax bracket), since borrowing capacity is my limiting factor.

    However, I am not convinced it’s the best strategy.

    Interest rates are much higher when lending to a corporate trustee with an interest-only loan (vs. owner-occupier P&I). Currently it seems to be 4% vs 6% (ballpark) – and you’ll probably be assessed at 9%. When you’re paying that much interest (6%+) it’s even harder to find positively geared properties. You may sacrifice capital growth in order to achieve it by purchasing duplexes, units/small blocks, regional properties. But you’ll need to see some capital growth to make the leverage worthwhile. Otherwise you’ll have an under-performing asset, and there’s no point extending your borrowing capacity just to acquire more under-performing assets. You could stick it all in ETFs/REITs and get an average return instead. There’s no point investing your time and taking more risk unless there’s a prospect of higher than average returns.

    (Edit: If you know what you’re doing, you can probably get cashflow positive properties with growth prospects. I’m just saying that being cashflow positive alone isn’t enough.)

    You could invest some of your savings into other asset classes (shares, credit funds) to increase your cashflow and firm up your borrowing capacity. Not financial advice, but it sounds like you have the funds to get some.

    • This reply was modified 1 month, 1 week ago by Profile photo of David Ryan David Ryan.
    Profile photo of TerrywTerryw
    Participant
    @terryw
    Join Date: 2001
    Post Count: 16,213

    If you are investing in personal names you would be paying the same interest rate, generally, as a corporate trustee would be.

    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 David RyanDavid Ryan
    Participant
    @david-ryan
    Join Date: 2022
    Post Count: 0

    I stand corrected.

    I thought I saw cheaper rates for individuals – perhaps because it opens up more options when it comes to lenders, e.g. fintech lenders such as tictoc who are competitive on price but lack features like loan splitting (and perhaps reliability etc).

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