Trust Magic

[dewalt]

Hi Knowledgeable People of SS,

I have just bought Trust Magic by Dale Gatherum - Goss, after seeing it mentioned a few times in these forums.

It has certainly helped me greatly with my understanding of the structure and positive attributes of having a trust set up.

I do have one question though. Even after reading the same piece many times, I still don't understand what is meant by. The banks thinking you are to rent reliant and how having a family trust may on occasions avoid this.

If anyone can expand on this, i would be extremely grateful.

 

[Peter_Tersteeg]

That particular piece of information was written over 10 years ago, needless to say this is well out of date. Under very limited circumstances using a trust may help extend your affordability with banks, but it is very limited. I wouldn't rely on this information at all.

 

[D.T.]

Lets say your work income is 40k and you have 6 IPs renting for 10k each makes 100k total income. Some banks will call this rent reliant and judge you harshly.

Inside a trust, since it only has assets and not a job, serviceability is judged accordingly. Then, since some banks have a volume limit, they say you've reached your limit and you cant use them again. So, create a new identity (trust) and buy IPs til ya reach that same limit again.

 

[dewalt]

That particular piece of information was written over 10 years ago, needless to say this is well out of date. Under very limited circumstances using a trust may help extend your affordability with banks, but it is very limited. I wouldn't rely on this information at all.

Thank you for that, i was sort of hoping seems it was updated in 2011, it would still be pertinent to present date.

Not to worry i still got plenty out of it.

 

[dewalt]

Lets say your work income is 40k and you have 6 IPs renting for 10k each makes 100k total income. Some banks will call this rent reliant and judge you harshly.

Inside a trust, since it only has assets and not a job, serviceability is judged accordingly. Then, since some banks have a volume limit, they say you've reached your limit and you cant use them again. So, create a new identity (trust) and buy IPs til ya reach that same limit again.

Amateur house collector I like that .

Thanks D.T, i thought that was what he was getting at.

 

[dewalt]

Thanks for the replies.

Does anyone know of anymore books on trusts that are worth a read?

Thanks in advance.

 

[Terry_w]

Lets say your work income is 40k and you have 6 IPs renting for 10k each makes 100k total income. Some banks will call this rent reliant and judge you harshly.

Inside a trust, since it only has assets and not a job, serviceability is judged accordingly. Then, since some banks have a volume limit, they say you've reached your limit and you cant use them again. So, create a new identity (trust) and buy IPs til ya reach that same limit again.

Doesn't work like that I am afraid. Since each trust loan requires a person was guarantor if that person has guaranteed other loans setting up a new entity will not change anything - they are still restricted by serviceability.

 

[Terry_w]

Thanks for the replies.

Does anyone know of anymore books on trusts that are worth a read?

Thanks in advance.

I've got one book with coastymike almost ready. I am waiting to tidy it up a bit and expect it out later in the year.

 

[Terry_w]

Hi Knowledgeable People of SS,

I have just bought Trust Magic by Dale Gatherum - Goss, after seeing it mentioned a few times in these forums.

It has certainly helped me greatly with my understanding of the structure and positive attributes of having a trust set up.

I do have one question though. Even after reading the same piece many times, I still don't understand what is meant by. The banks thinking you are to rent reliant and how having a family trust may on occasions avoid this.

If anyone can expand on this, i would be extremely grateful.

Receiving rent from properties you own is just seen as rent.

Receiving rent from a trust is a trust distribution...

 

[Peter_Tersteeg]

"Rent reliance" is more a problem with the mortgage insurers than lenders. If loans are 80% or less this really isn't an issue.

With some strategic borrowing, it's possible to borrow between $3M - $5M at 90% LVR without your loan ever been seen by a mortgage insurer.

This doesn't solve the serviceability problem, and realistically unless you're on an exceptionally high income you will have a serviceability problem with this level of loans. "Rent reliance" can easily be avoided but this doesn't solve all your problems.

By using trusts you don't get the advantages of negative gearing. Whilst there's all sorts of good reasons to use trusts, they generally do have an adverse affect on your serviceability.

 

[Terry_w]

Strictly speaking if the trust is a discretionary trust then there is no guarantee that the rental income would be distributed to anyone person, even you if you are the trustee or controller of the trustee. This is because of the discretionary nature. So they trusts should in fact hinder serviceability.

 

[D.T.]

Strictly speaking if the trust is a discretionary trust then there is no guarantee that the rental income would be distributed to anyone person, even you if you are the trustee or controller of the trustee. This is because of the discretionary nature. So they trusts should in fact hinder serviceability.

I think at the time of writing the original book, people were getting lo doc loans for trusts based on the trust's own assets/incomes?

I remember my accountant at the time doing something similar, he had 29 houses in perth and would start a new trust to reset his borrowing limits.

 

[Terry_w]

I think at the time of writing the original book, people were getting lo doc loans for trusts based on the trust's own assets/incomes?

I remember my accountant at the time doing something similar, he had 29 houses in perth and would start a new trust to reset his borrowing limits.

No, it never worked like this. It was a myth perpetrated by a well known property author.

Back then I had clients with 30+ properties and guarantees were taken into account. I think some lenders didn't clearly ask on the forms and because of the number of credit enquiries involved things got confusing for them...

 

[Terry_w]

It will be interesting to find out how guarantees will be treated under the new credit reporting that has just come in. Will lenders be able to know the balance of each loan an individual has guaranteed for example?

 

[Rolf Latham]

there are lenders that will ignore such guarantees where a letter from the accountant shows that the trusts meet their liabilities

Agree with the general sentiment here though, unless the structure has been set up right from day one .................

ta
rolf