Maximise borrowing capacity via trusts

Discussion in 'Loans & Mortgage Brokers' started by trungvn, 20th May, 2017.

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  1. trungvn

    trungvn Active Member

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    In Steve McKnight's from 0 to 150 properties book, he claimed that he used trusts to multiply his BC to millions. The strategy is to borrow under a trust which have you as a loan guarantor. The loan is not tied to you but the trust, so you can borrow many more times than if you were borrowing in your own name. I checked with my broker who said the opposite -- it does not make a difference even if I use trusts. Who's correct?
     
    trungvn, 20th May, 2017
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  2. Richard Taylor

    Richard Taylor Well-Known Member

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    Your Broker is correct.

    What may have been the case 10 years ago is not the same today and Steve McKnight has corrected this statement in his latest reprint of the original book.

    Buying in Trust will not help you to increase you borrowing.
     
    Richard Taylor, 20th May, 2017
    #2
  3. Terry_w

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

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    Terry_w, 20th May, 2017
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  4. Rolf Latham

    Rolf Latham Inciteful (sic) Staff Member Business Plus Member

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    Both are correct

    As Henry Ford said, if you think you can, or you think you cant - you are right.

    Typically ( but not always) borrowing in DTs reduces borrow cap for PAYG borrowers because of the quarantine of neg gearing.

    If the borrower is the trust with corp trustee and the loan is ONLY guaranteed by the Trustee directors............ there are limited opportunities to exclude that borrowing from further borrowings for future applications.

    If thats something of interest, have chat with another broker and get a second opinion, In many scenarios it can be done.

    ta
    rolf
     
    Rolf Latham, 21st May, 2017
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  5. euro73

    euro73 Well-Known Member Business Member

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    Good luck with that. As @Rolf Latham has suggested, very limited opportunities for this to be achieved, AND that was pre APRA 1, let alone pre APRA 2 , when the lenders and their credit guys wanted the business. I would suggest the chances of this being successful now as being in the vicinity of buckleys and none (or close to it) these days.

    And even if you could do it, the cash flow implications need to be considered because of the neg gearing becoming impotent . This would force you to use modest LVR's and therefore put quite a deal of cash in. It would force you to be purchasing strong yielding properties, and as I said above - even if you did all of that you still need to find a lender with an appetite for rental reliant I/O volume business to even begin to have a chance with this.

    And even if you found such a lender with such an appetite, you would still be limited by how far you could take this because of their appetite for dollar value exposure ...somewhere around 2 - 2.5 million usually.

    So for this to work to any degree of note, you need to find more than one lender with the right appetite. There are a a lot of IF's ....
     
    Last edited: 21st May, 2017
    euro73, 21st May, 2017
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  6. Peter_Tersteeg

    Peter_Tersteeg Mortgage Broker Business Member

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    The problem is the term, "limited opportunities". Those opportunities only exist with a couple of lenders and they fall very much in a grey area. It's not something I'd want to have to rely on at all.

    If you were wanting to use this, be prepared that a loan application might be declined at the last minute, with no alternatives.
     
    Peter_Tersteeg, 22nd May, 2017
    #6
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