Cross Collateralizing

How much time do you have.

No seriously I can count the Advantedge’s on half a hand yet the disadvantedge’s run to several pages.

I wrote an article on the subject some years back in API so be happy to email it to you.

Cheers

Yours in Finance

Hey Richard,

I know very little about cross collateralizing (Just spent 20 minutes reading) and can quite easily see the negatives associated with this structure. Actually i do not think i saw one article promoting it!

Just on my situation though, I have a split loan with my brother for our PPOR through Bankwest. We have been approved to construct a dwelling at the rear and estimate we will require a further 350k from a lender for the subdivide/build.

I am not sure if this is a silly question because it does not have to do with an IP but should i be looking to structure it so the build loan is separate from our current loans?

As in should we just create a new single separate build loan that we both pay off together. Or should we look into having the loans split again into different new loans that we both pay off separately as we currently do for our home loan. OR would we just get the additional 350k loan split and then added to our existing loans? for example my current loan is 280k which would then go to 455k?

Thanks in advance!

Hi Rajs

Sure happy to email it thru.

Would you like to give me your email address or probably safer to email me and I can reply. ( my address is as per below).

Cheers

Yours in Finance

Rajs- Are they ALL cross collaterized or do you mean they are all with the same lender? They are not the same thing.

Are all properties listed on all loans as collateral?

Mhhh Rajs not a good way to start moving forward.

Cheers

Yours in Finance

Rajs wrote:

Totally agree. I wish I knew this when I was advised by my brokers and property advsiors that x coll is the best thing.

Cheers

The only meant it was the best thing for them as it only needed one application to submit, and not multiple. Basically they were lazy which is never a good thing for the client.

Cheers

Tom

Rajs wrote:

I am in search of a broker with good knowledge on how to set up IP finance structures in Brisbane

You might struggle finding one on this forum – lol, just joking.

Get in touch with Richard Taylor.

Cheers

Jamie

Hi,

I would like to point out a benefit of cross collateralising. If a set of properties are cross collateralised there are certainly cons if property values go down in value. But what if they go up?

No SALE scenario:
If a cross collateralised set of properties go up in value and especially if one of those properties are owner occupied or PPOR then this could possibly be released unencumbered having the other investment properties take on the PPOR debt.

SALE scenario:
SIMILAR values or values gone UP:A new property to be purchased be replaced in the cross collateralise to make up for the one sold, through portability of the loan.

These options are certainly not viable if you intend to sell a PPOR or IP in the short term. Its more for a long term hold on the properties or if you were certain you could increase its value in the short term. You could upgrade, renovate or subdivide to increase value thus benefiting the cross collateralisation even more.

I’ll give you an example of where I have advised to cross.
A client has 2 properties, 1IP and 1PPOR and would like to buy another IP (construction with hopes to subdivide). They also plan to sell the PPOR in the short term and upgrade. Current structure is this:
PPOR
Loan 1 owner occupied debt
Loan 2 Investment shares debt

IP 1
Loan 1 Interest only debt

If the properties are not crossed their new setup in order to purchase the next IP will look like this:
PPOR
Loan 1
Loan 2
Loan 3 – equity release

IP 1
Loan 1
Loan 2 – equity release

IP 2
Loan 1

When it comes time to sell the PPOR they will most certainly have to pay out Loan 1, 2 & 3.

If they cross collateralise they’re new structure will be this: (i’ve typed this out across but it doesn’t display that way)
PPOR
Loan 1
Loan 2
IP1
Loan 1
IP2
Loan 1 (100%+stamp duty)

When it comes time to sell the old PPOR and upgrade they will replace the old PPOR with the new one and may or may not have to payout any loans.

Cross collateralising is certainly not for everyone. It really depends on what your plans are. If you are unsure of this it will always be best to remain uncrossed so your life is less complicated. The question certainly requires more in dept research as to what you plan to do in the future and bad advise can certainly cause you a lot of hassle. Its definitely not a cross or not yes or no straight forward answer. I should note these clients have plenty of equity in their PPOR already and the area they are in are active in terms of sales data. The PPOR has also been upgraded and valued at a good price. This is a very optimal scenario. I’m just trying to point out, dont lose out on the benefits if the structure can help you and not everyone who suggests cross collateralise is the enemy.

• This reply was modified 10 years, 6 months ago by  Finance Broker.
• This reply was modified 10 years, 6 months ago by  Finance Broker.
• This reply was modified 10 years, 6 months ago by  Finance Broker.