6 member unit trust

Sorry if this question has been asked before but i am getting some conflicting advice :

6 part 8 unrelated SMSFs want to invest in a new unit trust to buy business real property. Can the Unit trust borrow by mortgaging the property or does it need to finance using an installment warrant ?

gene

sorry to be pedantic but in this particular case with 6 SMSFs involved, can the interposed unit trust then borrow with an investment warrant style loan and does this need yet another trust or not ..?

so we would have security trust holding the property for the unit trust, the unitholders of which are the 6 SMSFs ?

gene

This is a very complicated loan. Please note that my company would not assist with this loan as the paperwork involved would make it unprofitable for us to do so.

With that being said I'm happy to give you some advice. As long as the directors of the trustee company for the unit trust are willing to guarantee the loan and their income is sufficient to service the debt then you can get a normal mortgage on this property.

You would need to apply with a lender that does not require unit holders to be guarantors. In this case the lender has recourse against the unit trust & the directors of the trustee of the unit trust. They do not have any recourse against the unit holders and as such there is no risk to the assets held in the Self Managed Super Fund(s).

From a legal point of view this is not too different from when a SMSF buys units in a property trust that has gearing.

Note that there are only a few lenders that accept this structure, and even fewer mortgage brokers / bank staff that understand what you are doing. So you may have trouble getting finance.

As a general rule if you lodge a complicated application with the banks then you'll have a really fun time trying to get an approval. If you can simplify it with fewer SMSFs involved then you may get a better response.