In today’s show Ken Raiss from Chan and Naylor answers Chris’s question about equity shifting.
Kevin: I’m going to answer a question in the show that came in from Chris. Chris, I want to thank you for this. Chris writes: “On one of your recent podcasts, you mentioned the protecting assets through equity shifting. How does equity shifting work, and what are the benefits? Ken Raiss is going to answer that question for you, Chris. Ken, of course, is from Chan and Naylor.
Good day, Ken.
Ken: Good day, Kevin. How are you?
Kevin: Well, thank you, mate. Can you answer Chris’s question for him?
Ken: Certainly can. Excellent question, Chris. Equity shifting, as its name suggests, is we’re shifting equity that you have from an unsafe area to a safer area. Let me give you an example.
Imagine you have a home that you’re going to draw down the equity to use as a deposit to then go and buy another property, what we normally see is people just borrow the equity off their home and then they borrow the remaining 80% of the investment property.
What equity shift would say is borrow as much as you can against your home – that’s the one that you want to protect – not just the 20% – and then buy the investment property in a trust. The type of trust that you would use would be dependent on your particular circumstances.
You have effectively then bought that property with little debt in the trust, so you’ve moved your equity from your home into the trust, and now you borrow against that equity in the trust as a line of credit for use as a buffer or further purchases.
The advantage is really that it’s pretty low cost. It’s only the cost of the trust, so there’s no lawyers involved. It’s just making sure that you borrow the maximum you can against the property you’re trying to safeguard.
Kevin: You mentioned there, Ken, that the type of trust will depend on your circumstances. That’s where you could help structure that?
Ken: Correct. For wages, people who want to buy the investment property and call it negatively gear against their wages, we have our Property Investor Trust, which is the only APO-approved trust of its type. For people in business, we might use a Business Enterprise Trust. Maybe for people in New South Wales, depending on what they’re doing, we might use a fixed trust. There would be various trusts depending on the circumstances, and we can certainly help Chris or any other of your listeners.
Kevin: Ken, I also understand that you have an e-book that deals with this, as well, have you?
Ken: Yes, we do – on a number of asset protection strategies.
Kevin: Okay. Well, what we’ll do, Chris, we’ll send you a copy of that, as well. Ken and his team will organize that.
Ken, if anyone wants it, they just have got to go to the Chan and Naylor site, which you can do, of course, straight off RET. Just go to the Real Estate Talk website, click on the Chan and Naylor button, and you’ll find it in there.
Chris, I want to thank you for that question. It is a good question, as nearly all of them are, I have to say. Of course, we do get a lot, and you can send them in through the website, or directly to me, firstname.lastname@example.org. Chris, we’re going to reward you for that by giving you a 12-month subscription to Australian Property Investor magazine. Don’t worry, if you’re already a subscriber; your existing subscription will be extended by 12 months. That’s our way of saying thank you, Chris.
I want to say thank you to you, Ken. I know you already have a subscription to API; I can’t give you one, but I’ll just say thank you.
Ken: No, it’s a pleasure.
Kevin: Good on you, mate. Ken Raiss, of course, from Chan & Naylor. Ken, we’ll talk to you again real soon. Thanks, mate.
Ken: Thank you.