Forum Replies Created
Terry is right that there are downsides to cross collateralisation. There are benefits though – albiet most people here don’t agree with me.
Forgeting about cc and focusing on the split banking issue. If you go to see a bank direct and they already have all of your banking e.g. All loans , accounts, credit cards etc – you dont need to provide anyhing. Regular salary credits prove your income and they have all your statements on their system. CBA don’t event need a new privacy statement if you signed their post 2007 version.
I’ve worked as a broker and as a banker. My preference is to use one lender and be in a position to move quickly.
If you are an aggressive investor would you rather be able to buy cheap from people in a stressed sale position e.g. Knock 10k of the price for a 7 day settlement. Or would you rather split all your banking so in the event you do go broke you can move your properties delaying the banks collecion process – I’d rather have the first option.
The other issue is simplicity of financial structures – if you have three properties with three lenders, do you really want to have to negotiate with all of them and pay all the extra fees of three applications to get to your equity? Cross collateralizing means one application to get equity from all properties.
There are benefits to avoiding CC but it comes back to the yin and yang theory. For every positive there will be a negative and vice versa. If you can see one and not the other you are only seeing half of the picture…
Don’t worry too much about what your broker says. CBA, NAB and BOQ are three lenders that will conisder MYOB statements or an interim Profit and Loss – the deal will need to be presented well with a good background about your business.
It also depends on the type of business / industry : – I just had a loan approved for a client who has been self employed 7 months. Income verification was from management accounts and invoices. 80% lend with a major 4 bank.
Can you tell us what industy you’re both in and how long you’ve been in the industries?
If you get a recognized bank in the Philippines to issue a stand by LC (letter of credit) to nab, they can take it as security. A stand by LC is more or less a bank guarantee (let’s say HSBC take the secuity and then offer NAB a guarantee – NAB security is now a guarantee from HSBC). NAB have a list of banks they accept stanby LCs from. If they are issued in Australian dollars nab lends up to 100%. If the standby LC is in another currency they have a reduced lending margin to cover exchange fluctuations.
Problem is you need to get the standby LC approved in the Philippines. The fees you pay for both parties may make it a bit of a nightmare. Finding a business banker with experience in this field is even harder.
Other issue is that unless you are dealing in millions – you will struggle getting anyone at NAB to to help – They won’t do it for a couple hundred grand…
You need a pretty large scale of lending for this to become cheap.
The all monies clause does not only relate to money with that bank – it covers all assets regardless where they are. The concept that splitting lending protects you in the event of foreclosure is a bit of a myth. A few years ago nab tried to sell a directors home when his company was liquidated and had gone broke. Although the property was mortgaged as security for the loan, the court orderred in favor of the customer. The bank had to sell the borrowers assets before the guarantors (he provided directors guarantee and was 100% shareholder). The company had sufficent assets to clear the debt therefore the bank could not simply choose to liquidate the guarantor asset first because it was easier. In the event the bank did not recover funds from the borrower, they could then sell his house.
In the event you have a loan and the bank is foreclosing, the bank will need to sell the security specific to that contract. In the event the property is not adequate or the bank sells and there is still a loss, the all monies clause allows the bank to seize other assets. If you still owe the bank money the courts will freeze other assets e.g. property even with other banks etc. Even a clients partners and families assets can be frozen if they have made a financial contribution to them eg. House in wifes name but you paid the depoist or make all the repayments.
A lot of people sell the avoid cross collateralisation spin as asset protection however it’s a load of bollocks. If you owe a bank money – and you try to split and move assets thinking the courts and banks won’t be able to trace then. Your living in fairy land.
Of couse, because most people are never foreclosed on. They beleive the are very smart splitting lending…
Split banking has benefits – but most are flawed.
Re commission being reduced. Average loan amounts are now higher than 10 years ago. I had a look recently at some old files. In 2001 I made an average of approx 1600 per deal in upfront. I now make approx 2500 even with lower comm…
Higher rates will make servicing a bit harder. Someone at ANZ is not that smart, rates and petrol have been cheap for 2 years. Unless you lost your job or were self employed the financial crisis has made life easier via lower repayments, less interest paid and a tank of petrol costing less.
As rates increase, consumption grows and petrol prices increase – mortgage stress will kick in.
V8ghia- There are different time frames for different people e.g. If you go to credit and they come back within 24 hours asking for more info that should of been provided up front, you have to add getting the new info to the time frame, plus more time to be revisted by credit. The same with each part of the process.
In the past 6 months the longest I’ve waited for an underwriter is less than 3 days. As I said somewhere above it’s all in the presentation. Stats I saw recently showed more than 65% of deals were lodged with errors. A lot of the time frame comes down to the quality of the people in the industry – hence the tightening of legislation. All the banks can turn around a deal in a couple of weeks – it is lack of training and quality of lenders that generally cause the problems.
If you look at the top 20% of bankers / brokers they get deals turned around fast.
Why not also work on establishment fees, interest and exit fees if refinanced at 3 and 5 years. Add discharge of mortgage and a new mortgage fee, new bank establishment fees etc.
This will show how much it will cost if you take this option and move in 3 or 5 years. This would be a far more common outcome than keeping for 30 years –
In addition to their exit fees mentioned above, they will also use an agent to attend settlement (release of title) when you exit. This will be additional to the exit fees in most cases – approx $350 is standard. I’ve seen up to $700.
Dave,
The banks finance is not unconditional until settled. Advise the bank in writing the property has termite damage and you believe their security is compromised (noting if you are aware of anything impacting their security you should let them know). Also state you are not comfortable with the transaction as you have not factored in costs to repair the property.
Strictly speaking a bank should not proceed with a deal out of the clients comfort zone. They are therefore forced to decline the application.
Hi Gary,
Although these deals look good you need to look at any exist costs – even though you have no intention to refinance.
When Westpac purchased RAMs they did not take over all of the existing book – RAMs lost around 80% of their share price within a few days when they started defaulting on their fundig arrangements – some clients are still on rates close to 8.0% and are stuck due to high exit fees – even though the loans were originally cheap.
Another example was GE who were funding mortgage manangers – they increased rates by approx 0.75% when the banks were getting bad press for increasing by 0.3% – the reserve lifted by 0.25%.
Most of these mini lenders have no control over their cost of funds. Make sure there are no high defferred establishment fees or exit fees.
If you can get out quick – Without penalties – it might be OK. I stay clear of small no frills lenders however that is a personal decision.
I have a client that had their house on the market for 6 months. They had approx 8 offers but rejected them all.
After a couple of agents and no sale they printed their own brochures and handed them out at local auctions. Within 2 weeks they had three offers, all within their price range, obviously they took the highest.
If people miss out at local auctions at similar prices – they are in the market. If you grow some balls and and approach these buyers – you will be doing more than 95% of agents.
Its normal – this is how almost all house and land packages are funded.
After the property is built yes. The bank can value the property and you can lend against the new value.
If you need to rely on the increased value to borrow for the contruction costs – The banks can do this via progress payments e.g. Most building contracts have 5 stages; the builder invoices when each state is complete, you give the invoice to the bank, the bank pays the the builder directly.
I think so. Google Them.
ryan mclean wrote:Just because it has been repossessed by the banks doesn’t mean it is going for cheap. Banks like to make as much money as possible and they won’t sell cheap just to get their money back…they will try to make a profit.Banks don’t get to keep the money – only clear their debt and costs – surplus goes to the owner. Most banks actually stop charging interest on bad debts therefore when they are in foreclosure mode the debt is actually interest free.
By making bad debt interest free the banks lose money due to their cost of funds – However cost of funds is absorbed by the banks entire balance sheet.
If the banks capitalized interest on bad debt there is less chance of recovery of the full loan amount and therefore higher provisions for capital losses (banks dont like capital loses) e.g. Better for the bank to lose it via lost interest revenue than capital losses ( even if it costs more).
The banks almost always go to auction to avoid the cusomter claiming the bank sold at a favourable price – by law the bank still has to try to recover the full value – at auction they can always claim it sold at market price on the day.
P.s. Non banks dont have the same issues with losing interest rather than capital – they will charge interest until the end. You are better off being sold up by a bank than non bank lender….
I’ve got a recent transaction. There were 3 investment properties all with original debts of 80% LVR. All seperate loans.
The market had increased to a point where 2 of the investment loans were increased to pay out the third – leaving one title unencumberred. The unencumberred property has now been sold, as no debt was secured against it the plan was to take the cash from the sale and spend it on a new PPOR.
Problem is that some of the other two investment loans are no longer tax deductable – as these loans in part relate to an investment that no longer exists.
As time goes on – and these transactions fall further in to the past, they clean their faces from a tax perspective – many investors with multiple properties only pay out the debt secured by a property when it is sold – without consideration as to which account the original deposit funds were drawn from… E.g. If 20% came from an investment line of credit – that 20% is no longer deductable.
From a forensic tax accounting perspective a lot of investors would be claiming interest that is not deductable because of this – however it is so unrealistic to manage I doubt in many accountants would pay any attention to it.
I’m interested to see if anyone knowingly accounts for this?
Mortgage Innovators are self employed CBA bank managers. Paid like brokers but run their own branch or office – Good to know one when you want a deal turned round in 3 days.
Will you have presales?
Are you able to expand on the type of property ?
I put an answer in your other post –
You mentioned 69% Lvr on Gross realisation Val – for readers this refers to the end value when the project is complete. Banks lend 65% and your looking for an investor to fund an additional 80k.
Can you also provide estimated hard costs and total development costs?
E.g. If you buy land for 300k and build for 700k with estimated value of 1.5M on completion (500k profit) – to borrow the 1M you have several LVRs
Borrow 1M against 1.5M GRV or end Val = 66.6% LVR
Borrow 1M against 1M land and build cost = 100% LVRDo you have any money to contribute or are you looking for a bank and investor to foot 100% of the bill ?
It all comes down to hard costs – not GRV
P.S. 20% of 80K is 16k – would be a joke if the investor had more initial cash / equity in the project than you?
If you already have the land therefore are an integral part of the project – finding an investor will be easy however try offerring some equity in the project – 16k is nowhere near enough.
If you don’t have the land yet and have just found a block of land with permits – but have no cash. I won’t comment…
I don’t think I’m making many friends on this site….
Don’t take my post the wrong way – if the land is in your name or you have funds of your own to tip in please expand and give more info?
