Business Lending

Discussion in 'Loans & Mortgage Brokers' started by Archaon, 7th Jan, 2020.

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  1. Archaon

    Archaon Well-Known Member

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    Hi All,

    Trying to wrap my head around certain avenues moving forward.

    Say I was to own a residential house in a trust/personal name, and lease that to a company I own (company has no other trading/activity), who then subleases to another agency for a substantial premium, net 75k before tax in the company for the one asset.

    Say the business earns the 75k in the first year and I were looking to go for Finance within the business, to buy another residential house how much lending could I get access to, and for argument sake, would it be better to go commercial lending or resi finance if the yields are extremely high?

    Many thanks.
    Arc
     
  2. Brady

    Brady Well-Known Member

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    Not sure where or what you're thinking on this one...
    There are so so many different variables
    But just for argument sake roughly income x 6 = $450,000
     
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  3. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    A business is not a legal or tax entity, but something someone does. Do you mean 'company'?

    Since you are renting to a related company there will be no borrowing advantage at all
     
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  4. Archaon

    Archaon Well-Known Member

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    Sorry, yes, a company.

    When would the company be able to borrow money using the proceeds received from a trust then?
    Would this be company earnings, or because I am the trustee and Director of the company it would all be considered personal earnings?
     
  5. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    It would have no effective difference, unless different people were behind the company and trust
     
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  6. Marty McDonald

    Marty McDonald Mortgage broker Business Member

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    They would look through to the source of the income. Sounds like a futile exercise. When lending to a company they will want directors guarantees so think of the company as just a vehicle to own the asset the lenders still look at the people behind the company ie you.
     
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  7. Archaon

    Archaon Well-Known Member

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    As a hypothetical.

    Three scenarios:
    I hold two residential assets that return 75k each net before tax, so 150k .
    How will my borrowing capacity be affected if:

    Scenario 1 ~
    I hold them both in my own name and have a PAYG of 96k (not likely to increase)

    Scenario 2 ~
    I hold them both in a trust/company structure, PAYG 96k

    Scenario 3 ~
    Use PAYG to leverage into a trust structure with both and eventually use the company income of 150k PA as my personal income for servicability

    Side note: Would commercial lending within a company allow the yield to be fully utilised?

    Would the banks only take 6% gross yield (and only 80% of that to boot) of each property to weigh it against my serviceability, a lot of yield will be unusable.
    I'm trying to find the best course of action but i'm extremely uneducated in the company/trust/personal name, and conducting a business space.

    Ideally I would also like to leverage the income into property developing in the future also.

    Any help, or recommendations for books/material I should read would be greatly appreciated.

    I really need to sit down with someone experienced in the space and talk out my plans, trying to get as much info as possible as I have so many ideas in my head thinking it could be possible, but need to be grounded by those far more experienced than I.

    Regards,
    Arc

    @Marty McDonald @Terry_w @Brady @Rolf Latham @Shahin_Afarin @Jess Peletier @Jamie Moore
     
  8. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    If you hold a property under a personal name vs a company then theoretically the borrowing capacity under a personal name would be slightly higher as you can apply negative gearing to the servicing calculation. Im not sure what you mean in scenario 3 though.

    Now say you purchase a property under a company name and then go for another loan - some lenders have a niche whereby they will not factor in the company liability (and rent) in the personal A&L/servicing position so this is a good thing.

    All lenders (decent ones that is) will require the ABN to be registered for at least 2 years and most all require 2 years financials and only a small portion will need 1 years financials.

    If you work PAYG and have business income at the same time then lenders can use both income sources.

    Im not sure if the above has answered any of your questions but I think you may have a problem and its best to sit with a professional and get them to first understand the problem and then recommend the best approach. Most often this conversation may be between you, the Accountant and the Banker/Broker.
     
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  9. Archaon

    Archaon Well-Known Member

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    Thanks @Shahin_Afarin i didnt word scenario 3 very well.

    The business income would be leasing a property from my personal name to the company, then subleasing from the company to an NDIS provider, it sounds as though with 'look-through' the rental income will still be capped at 6% gross yield if via resi loan.

    Would I be able to get a commercial loan to build a Resi property in my personal name? Would that allow more yield to be used in my personal borrowing capacity, or would it hinder me in other regards.

    The Gross yield is looking to be ~30%.

    Coupled with my PAYG not looking to increase significantly in the foreseeable future, I'm trying to do all that is possible to increase my serviceability.
     
  10. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Re the 6% gross yield - not all lenders do this but yes a lot do.

    Why are you setting up a company to sublease to NDIS provider? What are you trying to achieve by doing this?

    Commercial loan has similar assessment requirements as residential and there isn't anything in commercial per se that is going to help you.

    It sounds like the normal rent of the property is say $500 per week however if you do the sublease arrangement then its say $2,000 per week and you want the lender to use the $2k per week to help you with servicing - is that correct?

    Where are you building the property? Same property or different one?
     
  11. Archaon

    Archaon Well-Known Member

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    Yes this is correct, if the 6% yield is based off the property value, then the max gross yield the bank would assess would be $750 p/w based off $650,000.

    The NDIS gross yield would be in the range of $2,500 to $2,750 p/w

    I'm trying to find a way to leverage the added yield into increasing serviceability, very in-experienced in this space as i'm sure you can tell.
     
  12. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    Ok got it there are different ways you can approach this and they will vary in terms of interest rate and you can do this potentially under residential lending. The important thing however if the ABN of the company - has it been registered for 2 years or less than 2 years?
     
  13. Archaon

    Archaon Well-Known Member

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    It hasn't been started yet unfortunately, was seeing whether it would be worthwhile firstly.

    I've been purely PAYG before now.
     
  14. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    You won't be able to structure it that way unless the ABN has been registered for 2 years. There are other options if the ABN is registered for under 2 years but rates and fees will be considerably higher.
     
  15. Archaon

    Archaon Well-Known Member

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    Would the ABN need to be trading, or merely registered?
     
  16. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    an ABN cannot trade - it is just a number.
    To be able to obtain an ABN an entity would need to be in business or enterprise - which might include leasing.
     
  17. Shahin_Afarin

    Shahin_Afarin Residential and Commercial Broker Business Member

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    ABN registered
     
  18. Archaon

    Archaon Well-Known Member

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    I may have one from a hobby photography business a while ago, I'll look into it.

    Thanks all!
     
  19. Terry_w

    Terry_w Lawyer, Tax Adviser and Mortgage broker in Sydney Business Plus Member

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    You are a different tax and legal entity to the company