Help with setting up the empire

[BS77]

Hi All,
I am just starting out in the investing game and am keen to clarify some planning issues....
Currently I have about 40k cash and a good salary(about 100k per year). I have just bought my first property(settled today) in my own name for 390k, renting 400 per week in a good capital growth area(as per residex anyway).
I am happy to work in my current job for 5 years, then my salary should go up significantly(about 3 times initial). I plan to work for another 5 years in that second job - so the long term plan is the 10 year plan. I want to aggressively invest(but am a little time poor), happy with risk(single, no debt, good earning potential), and have good job security(income protection insurance, secure job). The 10 year plan then is for maximal property portfolio growth, with little need for cash from investments for the next 10 years. In 10 years I will reconsider....and may want to start to live off investments to some degree.
I am considering my next moves:
1) do I start a trust for further properties? I know about asset protection and tax issues, but my main concern is borrowing power. Would I have better borrowing capacity if I started a corporate trust and went guarantee?
2) what is the fastest way to grow my portfolio? I see that I could buy another property now with my cash and income, and am looking at cash flow positive ones in mining towns. This would then bring my overall position somewhat closer to neutral so serviceability issues shouldn't arise for further borrowing. I then plan to revalue my properties in about 6 months time and hopefully use the equity to fund another purchase - however how much cash will I need for each property thereafter? If I continue to buy around the 400k range, and get interest only, how much cash will I need to save up? I see that as my limiting factor - my salary is good but to save up 30-40k is no mean feat!
3)After 10 years of maximal portfolio growth I can see my wealth on paper being good but I also see that I would have heaps of debt with no cash flow to me. How would I start to live off my investments down the track?

Well I have many more questions but I don't want to overload everyone....so please give me some help to build the property empire!
Cheers
Brent

 

[TheCamel]

I may be wrong, and one of the more advanced guys here will point out if i am, but I think a trust may in fact affect your borrowing power... ?

Because the trust can't borrow money.. you need to borrow the money, to buy units in the trust, so the trust can then buy the property..
Problem then being the financial institution can't necessarily secure the mortgage over anything.

I'm very vague on trusts though..

The fastest way to grow your wealth is to keep buying.. keep running figures.. pushing it as far as your risk profile allows you to.

The best next step, is to read thoroughly all over SS, there's fantastic amounts of information here. In particular, look up LOE or living off equity, that'll give you more info on how to go about living off your wealth, or making it generate income instead of paper weath..

 

[alexlee]

Because the trust can't borrow money.. you need to borrow the money, to buy units in the trust, so the trust can then buy the property..
Problem then being the financial institution can't necessarily secure the mortgage over anything...

No, a trust CAN borrow money. But since the trust won't have any assets / income to start with, the person will have to guarantee the loan for serviceability purposes. The bank will secure the mortgage over the property, as always.
Alex

 

[Mofra]

No, a trust CAN borrow money. But since the trust won't have any assets / income to start with, the person will have to guarantee the loan for serviceability purposes.

Actually, the trust does now borrow funds or hold property - the trustee does. If you are the personal trustee of the trust (unit or discretionary) you will be a borrower, not a guarantor. If you have set-up a corporate trustee arrangement, you are offering a guarantee to the loan in your capacity as a director of the company, not as an interested party (trustee or beneficiary) of the trust.

You will need to find a good accountant to crunch some numbers for you, because if you are starting out there may be no significant tax advantage for you to set up a trustee arrangement, especially if you have no other associated beneficiaries to distribute profits to for tax splitting purposes.

Cheers

 

[alexlee]

Actually, the trust does now borrow funds or hold property - the trustee does. If you are the personal trustee of the trust (unit or discretionary) you will be a borrower, not a guarantor. If you have set-up a corporate trustee arrangement, you are offering a guarantee to the loan in your capacity as a director of the company, not as an interested party (trustee or beneficiary) of the trust.

I stand corrected. Have to remember that a trust is not a separate legal entity.
Alex

 

[Leandro]

Hi All,

Currently I have about 40k cash and a good salary(about 100k per year).
I am happy to work in my current job for 5 years, then my salary should go up significantly(about 3 times initial).

Cheers
Brent

From 100k to 300k in 5 years not bad. Are you a doctor, or barrister?