Building a portfolio within a trust

To those who have pointed out my silly error, thank you. When I was talking about 10 before I get the money I was getting confused with a bond. Sorry to confuse everyone.

 

I plan on setting up a trust to avoid being sued if I ever am. I don't plan on doing anything too risky, I'm currently doing my apprenticeship and plan in becoming a mortgage broker afterwards.
I don't know if being a mortgage broker is a risky career, but anything could happen by accident one day and I want the comfort at night of knowing my portfolio is safe

 

A trust wont stop you being sued but if you are they trust assets may not be available to creditors - depending on the structure.

 

I said a certain number of properties not because I want a number, but because I want a certain amount of passive income. After doing some rough figures I narrowed it down to about 8 properties (which it why I have put such a large difference between my two numbers when I asked)

Thank you for pointing out my mistake too, I was getting confused and talking about a bond rather than a trust.

 

That's correct not many people get past 2 properties, I posted a thread somewhere on this.

Absolutely portfolio value vs debt, and lets not forget - equity is not cash they are 2 different beasts. Equity can change and is dependent on bank valuations on the day, if markets fall so does your equity.

Net worth is most important factor IMO

 

There are lots of reasons why to hold assets in a trust, many others not to, and cases to do a bit of both. Many people think a trust is a 'loose' company structure and can mess around accounts, tax and money, but it is wrong. I hold all my assets in a trust (property, shares) and never had any issue with IO loans or others. The only constraint is that you need to talk to more senior bank staff, brokers and accountants who know how to with a trust.

 

Bit of a noob question, but can someone please explain how losses are covered for negatively geared property in a trust/company beneficiary structure? I understand losses are quarantined within the trust, but on a month to month basis am I able to transfer money into the trust bank account to cover the shortcomings?

 

Someone would lend the trust money to cover the shortfall - usually the person who is controlling the trust.

Alternatively someone would gift - same person.

Normally you would lend if you have to borrow money, from a LOC, or if you have not paid off your PPOR debt.

 

Don't quote me on this but to my understanding it works the same way as capital losses and gains in shares.
Example would be whatever money is lost in the trust cannot be claimed by tax, but would you pay less when the asset turns positive until the two balance each other out.

 

But how does the trust pay for this short fall?

 

It doesn't, you must pay the shortfall as you would with any other set up. But you don't get the tax benefits you would receive without the trust set up.

 

If you are paying someone else money you need to consider whether that payment is a loan or a gift and properly document that.

 

I heard the LVRs for trusts are lower which might prevent people with smaller deposits to buy in this structure. Is that generally the case? How much lower? 80%? 70%?

 

Depends on the lender - can still go up to 90% maybe even 95%

 

Depending on the type of trust it can be more difficult to get finance due to lender restrictions. FT are generally fine, UT less fine and HDT less fine again.

 

As Jess said Trusts are fine - hybrid trusts are a different story though as there are only a select number of lenders that will take it on (from memory Suncorp, NAB, CBA, St George).

The biggest issue you will find with Trust is servicing or the lack of. Most Trusts have Corporate Trustee and as such its not possible to do negative gearing which depending on the lender and loan amount will make a big difference to the overall servicing.

 

These are all good points. Especially with the Discretionary Trust being almost essential, if you want to get finance. I think anyone who wants to set up a trust and borrow on the trust to buy a property needs to liaise with an accountant, solicitor and mortgage broker to make sure the trust will actually do what they need it to do.