Hybrid Trust Finance

[msmimi]

Hi All,

I've been doing some research as I planning to purchase my 3rd IP and I am re-evaluating whether a hybrid trust is right for me. The benefits sound great but how practical is this set-up for obtaining finance? From what I've read it seems lenders are steering clear of these structures?

If I do manage to get a loan, are the banks generally restrictive with what you can do in terms of equity release etc?

Also what would be the annual cost of maintaining this structure?

Appreciate any info I can get

 

[Shahin_Afarin]

Only a handful lenders will accept HT's, i.e. Suncorp, St George, NAB and CBA.

Check the running costs with an accountant but I don't think they are cheap.

Who has recommended the HT to you?

 

[msmimi]

No one in particular has made the recommendation, it was just something I was considering as a tool for future planning.

Im primarily interested in how these loans are structured, if the lenders are more restrictive with equity releases etc

 

[Peter_Tersteeg]

Best recommendation I can make regarding Hybrid Trusts...

... Don't.

You'll cripple your lending strategy for the sake of trying to be tax flexible. I'd be very cautious about just how tax flexible they really are. They've been heavily investigated by the ATO in the past and there's good reason to believe that this will be reviewed in the future.

Very few lenders will fund HDTs and they constantly review their position. The CBA allowing them recently was a big surprise. I'm not optimistic about the future. You could find yourself with effectively no lenders willing to fund new purchases, or even allow you to access equity in existing properties.

I'd suggest the same reasoning for the Chan & Naylor, "Property Investor Trust".

 

[Rolf Latham]

No one in particular has made the recommendation, it was just something I was considering as a tool for future planning.

Im primarily interested in how these loans are structured, if the lenders are more restrictive with equity releases etc

I have lots of these in portfolio when they were fashionable, sensible and only moderately difficult to finance

Typically, as per a unit trust, the name of the borrower ideally needs to be the income unit holder, and then a security guarantee to be provided by the trustee.

In general, but not always I suggest a neutering of the H part of the DT for peops that want to still use their legacy puppy, many more lenders will look at DT than HDT

ta
rolf

 

[Terry_w]

As a trust lawyer can I ask what benefits you anticipate from a hybrid trust? Have you sought proper advice on this?

The hybrid nature is not the problem wtih getting finance. The problem is largely due, in most cases, to wanting to get the loan in a name other than the owner of the property. This is what lenders don't like.

 

[msmimi]

Thanks so much for the responses all.

@Terry it was the flexibility of the income streaming that appeals to me. I haven't sought professional advice on this yet because at this point I'm not even going to entertain the idea if the loan structures are restrictive.

I am at a point now where I have some equity available to play with and I want to be able to grow my portfolio considerably. I see this as my primary goal and if having a complex structure will hinder this then I probably won't worry about it right now.

 

[Rolf Latham]

. I see this as my primary goal and if having a complex structure will hinder this then I probably won't worry about it right now.

Complexity per se isnt the issue, the use of a "tainted" asset holding vessel that is specifically excluded by many lenders as policy is.


ta
rolf

 

[beachgurl]

I have lots of these in portfolio when they were fashionable, sensible and only moderately difficult to finance

Typically, as per a unit trust, the name of the borrower ideally needs to be the income unit holder, and then a security guarantee to be provided by the trustee.

In general, but not always I suggest a neutering of the H part of the DT for peops that want to still use their legacy puppy, many more lenders will look at DT than HDT

ta
rolf

To remove the hybrid element, wouldn't this be deemed a CGT event? Would the expense be worth it?

Does AMP still do hybrids? I need to do top-ups/roll over IO period and hoping to stay with the same lenders. Currently with ANZ and AMP.

 

[Terry_w]

@Terry it was the flexibility of the income streaming that appeals to me. I haven't sought professional advice on this yet because at this point I'm not even going to entertain the idea if the loan structures are restrictive.

.

There could be no flexibility if the unit holder wants to claim the interest.

Considered land tax yet?

 

[Rolf Latham]

Both ANZ and AMP exclude as policy

I know in both cases, brokers have been able to slide them past credit.

further advances on existing legacy book may be possible, BUT the last time we got busted with ANZ they wanted an ATO PBR on the HDT....................

ta
rolf

 

[Paul@PFI]

Hi All,

I've been doing some research as I planning to purchase my 3rd IP and I am re-evaluating whether a hybrid trust is right for me. The benefits sound great but how practical is this set-up for obtaining finance? From what I've read it seems lenders are steering clear of these structures?

If I do manage to get a loan, are the banks generally restrictive with what you can do in terms of equity release etc?

Also what would be the annual cost of maintaining this structure?

Appreciate any info I can get

A hybrid trust is still a permitted vehicle provided it meets with the requirements set by the ATO. That's not that hard on the face of it but requires a robust compliant deed AND the understanding of the Trustees so their behaviours comply now and in the future. That said many hybrids have been amending to land tax unit trusts or a state specific property trust to avoid the land tax issue AND address the main tax issues etc. Its probably not worth the hassle. If you want discretionary objects and accept the $6k pa in land tax then fine. its worthy of considering.

Many banks wont do hybrid lends any more. This depends on the loan security etc. You can bypass the issue if the bank has a LOC against PPOR so that they aren't approving new security for the loan.

Personal advice my someone knowledgeable (me as one ?) may be a strategy.

 

[msmimi]

Thanks again everyone! Appreciate your input.