QuoteReplyTopic: 6 member unit trust Posted: 16/February/2011 at 20:19
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 ?
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.
Whilst there are some lenders that lend to a unit trust structure on a 1st mortgage basis most residential lenders will want the unit holders to guarantee the debt as well and when they see that the unitholders are self managed super funds they will run a mile. Doing one now and CBA have said no because of who the unitholder is even with LVR of 16%.
Commercial lenders are different and will assess the transaction on a more commercial case by case basis.
As to the unit trust doing it via an instalment warrent/bare trust structure I don't think its necessary your just adding another layer of complexity.
The suggestion that all 6 SMSF's borrowing jointly using a non recourse instalment warrant type structure will also most likely not work as the major lenders will not currently allow SMSF's to borrow as tenants in common.
I'd go with your original structure and try and get a waiver on unit holders providing their guarantee.
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