trust/corporate trustee/multiple lenders

[SamW]

Hey guys
I need some help borrowing with a trust.

I have a discretionary trust with a corporate trustee and myself as the director/guarantor.

From what I've been told, say Bank #1 will let me borrow $400k before my borrowing capacity runs out with them. Can I then create a new/second trust structure (same as before) and approach a different bank, Bank #2, who would then let me borrow another $400k? Is this correct? Has anyone had experience borrowing this way?

Thanks so much! Really appreciate any advice.

 

[Redom]

Hey guys
I need some help borrowing with a trust.

I have a discretionary trust with a corporate trustee and myself as the director/guarantor.

From what I've been told, say Bank #1 will let me borrow $400k before my borrowing capacity runs out with them. Can I then create a new/second trust structure (same as before) and approach a different bank, Bank #2, who would then let me borrow another $400k? Is this correct? Has anyone had experience borrowing this way?

Thanks so much! Really appreciate any advice.

Do you mean can you recirculate your income by using a trust vehicle? No.

If you do go to another lender that takes debts at actual repayments, you'll be able to borrow more than sticking to the same lender though. This has nothing to do with the trust structure though.

Cheers,
Redom

 

[Marty McDonald]

No sorry doesn't work this way.

Guarantor for loan = same as being the borrower in terms of servicing for subsequent loans.

 

[Jamie M]

Hi Sam

Are you trying to enhance borrowing capacity by purchasing via multiple trusts?

If so - it doesn't really work that way as you're still going to have to provide a personal guarantee which needs to be declared on subsequent loan apps.

In any case - if you need to go to these measures to improve your borrowing capacity than you prob shouldn't be borrowing more.

Cheers

Jamie

 

[Peter_Tersteeg]

I generally agree with the statements my colleagues have made. However...

... I am aware of one lender that ignores debts in other trusts on a case by case basis. It's not an advertised policy and it's not reliable as it can come down to the individual assessor to determine if it's applied.

Frankly I don't advocate using this type of loop hole. It's an extreme risk strategy and if the lender doesn't apply it, the whole thing can come crashing down. It's not a way to perpetually borrow money either, there are significant limits in how it can be applied. There's one or two property sprukers working with this but it's not a good path to building a sustainable portfolio.

 

[Terry_w]

As a trust lawyer and a mortgage broker I can say that the Op's story is just a fairtale.

But trusts can add to borrowing capacity indirectly by the ability to easily change the guarantor(s).

 

[Peter_Tersteeg]

I can assure you it's not a fairytale and it's not about changing guarantors.

It's just a weird loophole in one lenders policy, but it doesn't make sense. As a result it's rarely applied unless you get the right person assessing the loan application.

It's a loophole that isn't really meant to apply to most property investment scenarios, I suspect it's a carry-over from commercial lending. Trying to aggressively take advantage of this in the residential space is more likely to get people into trouble.

 

[Corey Batt]

I can assure you it's not a fairytale and it's not about changing guarantors.

It's just a weird loophole in one lenders policy, but it doesn't make sense. As a result it's rarely applied unless you get the right person assessing the loan application.

It's a loophole that isn't really meant to apply to most property investment scenarios, I suspect it's a carry-over from commercial lending. Trying to aggressively take advantage of this in the residential space is more likely to get people into trouble.

I know what you're talking about. Not something I'd write personally, but it certainly does exist.

But as far as OP can be concerned, it doesn't work like that with normal lending policy. The calculations are considered based just the same as if you were a personal borrower. In reality however if you have x amount borrowing capacity with one lender, with the right structuring it's possible to extend than by 2-2.5x easily.

 

[Rolf Latham]

Lenders trip away any structures and tragedy the servicing based on the total aggregate exposure and income.

The one lender that does play in that space is a low to medium serviceability lender and isn't necc a viable middle term solution for building a portfolio.

Structured lending is probably more likely to give you a decent outcome without smoke and mirrors

Ta
Rolf

 

[SamW]

Thanks so much guys! I love this forum. It's great to see so many thoughts on this. I really appreciate it.

@Rolf / @Corey - you both mentioned structuring as a way of potentially extending. What do you mean by 'structured lending'? or what would an example of a structure look like? Would love to look into this approach further.

 

[Rolf Latham]

@Rolf / @Corey - you both mentioned structuring as a way of potentially extending. What do you mean by 'structured lending'? or what would an example of a structure look like? Would love to look into this approach further.

Simple but not obvious to most brokers

Its not Rocket Science but isnt quite as a simple as ................

use the right lenders at the right time for a growth portfolio.

one of the main considerations around that is the serviceability of diff lenders, and how they treat each others debt.

Lots of other fluff around it such as LMI exposures, cash out etc

I like to call it fuzzy logic

ta
rolf

 

[Peter_Tersteeg]

@Rolf / @Corey - you both mentioned structuring as a way of potentially extending. What do you mean by 'structured lending'? or what would an example of a structure look like? Would love to look into this approach further.

It's about selecting the right lenders at the right time, taking into account your existing financial circumstances and your longer term goals. It also involves making sure the loan products and they way they are set up meet these objectives.

There's no simple example, its a highly customised approach. The plan also needs to be reviewed with each purchase. It's essentially playing a game of chess where you've got to try think 2-3 moves ahead.

 

[Colin Rice]

It's essentially playing a game of chess where you've got to try think 2-3 moves ahead.

I like that ^^^^^ and to add the chess board is a moving target at times.

 

[Peter_Tersteeg]

We don't know how many squares the chess board actually has (people always want more squares). We also don't know what pieces we'll be playing with in the future, there's multiple opponents and we don't know what pieces they have.

Fortunately the goal usually isn't to win against the other players - unless your goal is to own 51% of the shares in the bank.